As Oil Transitions to “Energy,” OFS Firms Revisit Priorities and Positions
For the entities formerly—and, sometimes, still—known as oilfield service companies, the energy transition presents new business challenges and opportunities. How are they managing?
As the oilfield service sector emerges from a downturn and into a post-COVID-19 world, the companies that comprise it are repositioning themselves along with their product and service portfolios to demonstrate their ability to sustainably support both new energy solutions and legacy oil and gas customers. This will mean charting new paths through a rapidly changing energy sector and protecting core competencies while entering new markets full of both opportunity and uncertainty.
That is already happening among the sector’s heavyweights. While they still have large legacy businesses focused on hydrocarbons, some are adopting broader energy services business models to reflect the move toward cleaner fuels and renewables. And some are diversifying into new industries altogether, where they can leverage their assets’ competencies to expand their revenue base and potentially broaden their appeal to investors.
Capital Discipline and Patience
Sriram Srinivasan, Halliburton’s company’s senior vice president, global technology, said his company is pursuing a long-term journey of looking for solutions to control emissions across the entire upstream operations spread.
“It’s no longer just about deciding where or when to turn pumps on and off or change a gear in the engine powering the pumps in a hydraulic fracturing spread to get improved downhole outcomes. It’s also about embedding energy considerations for emissions reduction across the board,” he said. “We have always designed for performance, cost, serviceability, and operability. Now we’ve added emissions sustainability.”
He used artificial lift as an example. “Electrical submersible pumps (ESPs) are big consumers of electricity. Anything you can do to improve the energy efficiency of ESPs goes a long way toward reducing carbon footprint.”
Most ESPs today are powered by electric induction motors. Halliburton is now looking at permanent magnet motors and associated electronic drives to maximize the efficiency of the motors, and thus, the pumps.
The pump design can also be made more efficient by optimizing the design of the impeller blades.
“Another challenge,” he continued, “is that when sand gets into the pumps, it degrades efficiency, so the pump becomes less efficient the longer it stays in the well. We need changes in coatings to prevent sand from agglomerating on the blades. How do you get a cheap coating that will protect from sand?”
Srinivasan also pointed out that energy efficiency can be improved and carbon footprint reduced by spending less time drilling the same kinds of wells, noting that standardization, digitalization, and automation are key enablers. “The industry is still heavily manual, many people are involved, and there is still way too much paper,” he said, adding that there is huge potential for efficiency improvements and also real urgency around achieving efficiency in every aspect of the drilling operation.
In January 2021, Halliburton announced that it had successfully deployed the industry’s first electric-grid-powered fracturing operation on several pads for Cimarex Energy in the Permian Basin. According to the announcement, the operation lowered the emissions profile compared to both turbines and Tier 4 dual-fuel engines at lower capital outlay than turbines. The operation completed almost 340 stages across multiple wells using utility-powered electric fracture pumps that achieved 30–40% higher pumping performance than with conventional equipment.
Srinivasan addressed the legacy oil and gas/new energy portfolio balance question this way: “We are already playing in near-adjacent areas such as geothermal and carbon sequestration. We don’t yet play in the carbon-capture space, but we have a tremendous amount of applied capability from our traditional businesses that carries over to this space. For example, all our geology and geoscience expertise can be brought to bear in subsurface evaluation, site selection, modeling, risk assessment, and containment assurance.”
Srinivasan pointed out that, for carbon dioxide (CO2) transport, the company has capabilities in pipeline repurposing, maintenance, subsea inspection, recommissioning, maintaining and monitoring flow, and diagnostics. “As for the execution phase, we offer construction of new wells for injection, well repurposing, drilling integrity assessments—particularly for CO2 emissions—completions, and long-term containment monitoring,” he said. “These capabilities already exist and are transferrable. We are already working with many customers, especially in Europe, in these areas.”
Halliburton is also providing drilling and cementing services for geothermal wells in Indonesia.
To accelerate the transition journey, the company is collaborating with technology climate tech accelerators, including Greentown Labs, which recently expanded from Boston to Houston, and launched its own incubator/accelerator, Halliburton Labs.
Profiting from a Life Transition
Ashok Belani, executive vice president for Schlumberger New Energy, sees the energy transition as a life transition that will create challenges and open opportunities for new partnerships and new business models to grow new markets in the future.
“We are talking about a change of the portfolio of energies to go to 50% renewables or more for the carbon footprint to change in the right manner,” Belani said in a video on Schlumberger’s website.
“Many changes will occur,” he said, the primary ones being electrification, hydrogen and lithium as energy carriers, and carbon capture and sequestration. Electrification will force applications that are performed today with other forms of energy to switch to electricity. Using energy at a different point from the point of generation will require carrying it using hydrogen or lithium.
“Each of these will have an economy or industry ecosystem of its own,” said Belani. “Even with this, if we are going to achieve net zero by 2050 or 2060 in all the countries that have announced those intentions, we still need carbon capture and sequestration. These are all changes that will happen and at the same time are business opportunities for Schlumberger New Energy,” he said.
“New partnerships will be important between actors coming from different industries who are stakeholders in a certain carbon-management process and can both benefit by aligning their interests and working together in growing this market in the future,” he concluded.
Schlumberger believes it has significant advantages in carbon capture, utilization, and storage (CCUS) based on its legacy knowledge of underground reservoirs, and it plans to leverage that expertise for injecting captured carbon. It says it is also well positioned to compete in blue hydrogen, in which hydrogen is produced from natural gas and the waste carbon is captured and stored.
Earlier this year, the company announced a partnership with multinational building-materials manufacturer Lafarge Holcim to capture and sequester emissions at two of its cement plants; it sees an addressable CCUS market for itself that could bring in $15 billion of revenue by the end of the decade.
Covering All the Bases
At his company’s 2020 annual meeting of customers and partners, Baker Hughes Chief Executive Officer Lorenzo Simonelli shared that the company had rebranded itself as an energy technology company and repositioned its strategy around a dual approach—to remain competitive in oil and gas by focusing on efficiency to reduce emissions, and to invest in new energy to transform and drive itself—and the industry—forward.
“Without major technology acceleration, the industry will not meet net-zero targets. The technologies in use today can deliver significant emissions reductions, but they are insufficient on their own to meet the Paris Agreement goals,” said Allyson Anderson Book, vice president of energy transition for Baker Hughes. “Approximately 35% of cumulative CO2 emissions reductions to meet net-zero targets will come from technologies that are currently in prototype or demonstration stages.
“We’re investing for both organic growth and in more inorganic plays so we’ll be able to help our conventional customer base and expand beyond it,” she continued. “We are starting to look at and think about how what we are working on together can be applied, for example, to a steel company or to agriculture or other industrial sectors. We don’t think of steel and agriculture as energy industries, but they consume energy, so they are.” Book’s title—the only such one among service companies, and her stated role in working across Baker Hughes’ four vertical product companies—concretize the dual-approach strategy.
“I often question the term, ‘energy transition,’ because maybe part of it is a transition to a lower-carbon energy state, but it’s really about society getting there,” Book said. “And it will not happen on the backs of energy companies alone. But the oil and gas industry is uniquely qualified for this immense project because maybe no other industry has such a holistic, micro- and-macroproject management point of view.”
“So, how do we achieve a sustainable balance between meeting the continued need for hydrocarbons and thriving in new energy?” Book asked rhetorically, then answered, “I always start with efficiency because that is the one that gets you there fastest.”
She said Baker Hughes’ dual approach involves, first, solving for the largest sources of Scope 1 and 2 emissions in today’s energy operations by deploying the most efficient and least emissive technologies. These include efficient power and compression, and efficient oilfield- and emissions-management solutions including digital technologies and intelligent asset management and optimization.
To this end, the company acquired Compact Carbon Capture (C3) in late 2020. C3’s rotating-bed-based solutions capture CO2 for oil and gas and for broader industrial operations through integration into existing industrial facilities. Baker Hughes sees the acquisition as complementary to its legacy rotating-equipment expertise for process solutions and believes that incubating the technology will enable it to develop one of the industry’s lowest cost-per-ton carbon-capture solutions.
While simultaneously solving for emissions in its legacy operations, the company is accelerating adoption and deployment of new fuel sources and emissions solutions, including hydrogen, CCUS, geothermal energy, energy storage, and net-zero LNG.
“We’ve been involved in hydrogen, CCUS, geothermal, and energy storage for years, so this is a natural progression for us to leverage what we’re doing in our core company. But, we’re also looking at new frontier spaces,” Book said. She cited as an example the company’s recent announcement that it will collaborate with Bloom Energy on the potential commercialization and deployment of integrated, low-carbon power generation and hydrogen solutions over the next few years. The new business will focus initially on power solutions that leverage Bloom’s solid oxide fuel cell technology and Baker Hughes’ NovaLT lightweight gas turbines that can run on up to 100% hydrogen, along with heat-recovery turbines, to create microgrids for large-scale operations.
For integrated hydrogen solutions, the companies will explore opportunities to pair Bloom Energy’s solid oxide electrolyzer cells that can produce 100% clean hydrogen with Baker Hughes’ compression technology for efficient production, compression, transport, and delivery of hydrogen. They will also assess the use of waste heat for steam generation to further increase the efficiency and cost-effectiveness of hydrogen production. The companies will target applications such as blending hydrogen into natural gas pipelines and producing hydrogen on-site for industrial use.
“We haven’t necessarily been in the fuel cell area. But, this is an exciting, different extension of the hydrogen economy that we have already taken a strong position on supporting,” said Book. “Through this partnership, we are working on changing the fuel mix on more traditional gas-fired turbines by increasing the hydrogen in the blend to lower the emissiveness of the turbine.”
Book believes that the commercialization and deployment project for integrated, low-carbon power-generation and hydrogen solutions is unique. “It’s not like everyone is investing in one technology and going in one direction. It’s looking at an ecosystem and thinking about where we have a right to land. And where can we best align that to the needs of our customers and more broadly, the local stakeholder community,” she said.
“The world is changing and so is the energy mix,” she continued. “Much of that is coming from younger people who are making it clear that they want a better, healthier world. But that doesn’t mean that you give up an important part of the mix. If you forego a certain part of the energy mix, you build in economic disparity, because everyone can’t afford the same thing in the same way everywhere around the world. So we do our best to look at the pathways in a way that informs how we actually provide the best products and services to our customers so we can take this journey together.
“The last year created much more inequality in the world. That galvanized people around how energy has to be accessible. Had we not had the pandemic, the transition might have accelerated at the same pace, but probably not. Just look at India. People there couldn’t access energy even before the pandemic; now the situation is worse. We must keep a robust fuel mix because the last thing we want to do is create less equality by making energy less accessible.”