OTC Opens With the Opportunities of Decarbonization
This years’ Offshore Technology Conference is full of people working on ways to diversify away from just oil and gas.
A panel discussion on how carbon-emissions reduction will redefine the offshore business led to several people asking if all that is really necessary. One pointed out that plants thrive on carbon dioxide.
The response from the panel was an emphatic yes to change.
“Whether or not we subscribe to a connection between carbon and climate change, it does not matter. We put that debate in the rear view and focused on what we are doing,” said Bill Langin, a senior vice president at Shell in charge of deepwater exploration primarily in the Gulf of Mexico and Brazil.
Shell is responding to calls from investors, governments, and consumers—who see rising levels of carbon dioxide in the atmosphere driving climate change—to reduce emissions.
Langin’s response was echoed by all those on the opening panel of the 2021 Offshore Technology Conference (OTC). They pointed to an upside in this: Offshore oil companies have the technical and business skills to profit from new opportunities.
“Offshore is the future of traditional and new energies,” said Jonathan Landes, president of subsea for TechnipFMC, adding that oil companies have the human and financial resources to be the “architect and enabler of the future of energy transition.”
Finding signs of change was easy at OTC, where reports of the energy transition sound more like diversification.
Industrial gas separation company Generon was seeing a steady stream of calls looking for equipment to separate hydrogen for fuel and clean up biogas pumped out of garbage dumps. SparkCognition, known for its oil industry artificial intelligence tools, recently acquired Ensemble Energy, whose clients are in renewables. Geosyntec Consultants’ client list mixes oil industry clients with offshore wind companies evaluating sites for turbines.
Last year’s oil price crash was the latest argument for not betting the business solely on oil. That was also the period when panelists said that companies went from curious about change to serious.
The head of carbon research at Wood Mackenzie, Amy Bowe, said the new unit she leads goes back to a report made in 2017 in response to clients asking the firm to benchmark oil company carbon-dioxide emissions.
“We found it was a little early to market,” Bowe said. The initial interest has been expanding rapidly since emissions were added as a key performance metric by investors, and that “only continues to accelerate,” she said.
Companies that want their securities to be seen as investable are changing direction, said Eric Mulito, the moderator of the OTC panel and president of National Ocean Industries Association.
Offshore oil and gas will remain a big business—Wood Mackenzie said it will remain a large slice of the energy supply in 2050—and that will include exploration.
While a report last year from the International Energy Agency said no discoveries will be needed to meet the diminished demand for oil in the future, Shell’s plan is to continue to spending $1.5 billion a year on “true exploration” seeking to add undiscovered offshore resources, Langin said.
That could be a plus for emissions reduction. Emissions per barrel are significantly lower offshore, according to Wood Mackenzie. For example, the company estimated that methane leaks equal 0.3% of the natural gas produced offshore compared with 1% or more for that produced onshore.
The numbers also showed that results offshore vary widely, with much of the difference coming from natural factors rather than from company efforts to reduce emissions.
At the high end of carbon-emission-intensive assets were those in Indonesia and Malaysia. The Gulf of Mexico was near the middle of the list, and Russia and Norway were at the low end.
A key difference is reservoir quality. The deepwater Gulf of Mexico benefits from strong flow from deepwater fields coming on line with high-quality reservoirs with high downhole pressures, limiting the number of wells required and the energy—and emissions—required to lift it.
Russia’s low emissions are likely a product of fields that are producing gas, which is associated with lower emissions than oil, Bowe said.
Then there is Norway, which is the outlier. The country shows how much can be accomplished by concerted efforts to reduce emissions in an aging offshore play where most of the wells are past the time when reservoir pressure alone drives production by using methods such as running power lines from shore to platforms.
Over the next 5 years, the industrywide carbon emissions per barrel are expected to drop by 13% per barrel, with total emissions up because of rising offshore production, Bowe said.
For Shell, discoveries in the Perdido area of the Gulf of Mexico are delivering barrels that are among the lowest cost in the industry, Langin said. In part, that is because it is using standard designs in this proven ultradeep play. It recently decided to develop its Leopard discovery and is drilling more wells at its nearby Silvertip discovery before deciding if that will be developed as well.
When making development decisions, the carbon emissions over the life of the project are considered. While the return on investment remains the critical metric, if the emissions are wildly out of the range for standard products, they will not go forward.
A lot of ideas are floating around about what else oil companies will be doing offshore. Shell is part of a building boom ahead for offshore wind. Plenty of other ideas have been talked about, but companies are looking for ways to turn carbon-reduction strategies, such as carbon capture and storage, into a sound business decision.
“We need business models to develop around carbon capture and storage to make it a viable option,” Bowe said.
Several technological options are on the OTC agenda.
Subsea installations for everything from separation to compression can reduce emissions, Bowe said. But the uptake on this technology has been slow, with one technical session looking back at a subsea processing project from a decade ago.
TechnipFMC has a hydrogen technology called Deep Purple that will use renewable energy to convert water into hydrogen that is stored in the ground until it is needed to provide energy during periods when renewable energy is not available.
The name is apparently a reference to the systems position outside the strict definitions of green and blue hydrogen—rather than a reference to a heavy metal band known for its thudding hit “Smoke on the Water.”
The engineering argument for this idea is that it can store far more power than the largest battery bank today. But the pilot project in Norway is being done onshore, reflecting a limit to use offshore, where renewable power is scarce near oil fields.
So, when will this become real? “No matter what we believe, it will be wrong from a timing perspective,” Landes said. He noted that wind energy took decades to become a big business and that hydrogen likely will take as long.
But the timeline for carbon reductions is likely to be shorter.
“Three to 5 years ago, we were talking about offshore costs and how does it compete with shale,” he said. “The industry has done an unbelievable job so that offshore competes with shale every day and in some ways surpasses it.”