Digital Disruption & Sustainability in the Oil and Gas Industry
Net zero – or decarbonization – is front-page news, and the oil and gas industry needs to aggressively curb carbon dioxide and methane emissions across the entire value chain, upstream, midstream, and downstream.
Oil and gas companies can lower emissions and achieve their goals by leveraging many of today’s digital technologies, including the Internet of Things (IoT), digital twins, artificial intelligence, predictive and prescriptive analytics, and others.
This white paper describes and analyzes the net zero challenges in the oil and gas industry, the factors responsible for emissions, and how digital disruptions can catalyze a revolution to repair climatic conditions while also optimizing production.
The Drive to Net Zero
Net zero describes a desired future state when there is a balance between emissions and the offsetting of climate-heating gases in the atmosphere. Achieving net zero represents a big leap toward the goal of being “carbon neutral” and stabilizing the global temperature.
Global energy-related CO2 emissions in 2019 were approximately 33 gigatons (Gt), and global methane emissions were estimated to be 570 million tons (Mt). This includes emissions from natural sources (40%), while emissions originating from human activity (known as anthropogenic emissions) represent the remaining 60%. In the aggregate, the oil and gas sector emitted 82 Mt (around 2.5 GtCO2-eq) of methane.
The 2015 Paris Agreement is the most wide-reaching effort to address climate change and global warming. As of November 2020, 194 countries around the globe had signed the Paris Agreement, which aims to restrict the global temperature rise for this century well below 2°C above pre-industrial levels and limit the temperature increase even further to 1.5°C.
Limiting global warming to 1.5°C requires CO2 emissions generated by humans to fall by 45% by 2030 and to reach net zero by 2050. Even limiting the temperature rise to 2°C will require CO2 emissions to fall by 25% by 2030, requiring a turnaround of the present trend (source: IPCC, WEF report 2020).
Main Objectives to reduce Emissions
The energy industry is focused in three avenues for achieving net zero
A well-established categorization of emissions connected to the oil and gas industry include the following:
Regulators are increasingly focusing on Scope 3. For the oil and gas industry, Scope 3 emissions are more than five times the level of their Scope 1 and 2 emissions. As per studies, the total Scope 3 average carbon intensity is almost three times greater than the combined Scope 1 and 2 intensity including upstream and downstream emissions.
CO2 equivalent emissions from North American and European oil and gas companies:
Key drivers of emissions
Fossil fuel combustion represents the largest source of carbon dioxide emissions. CO2 emissions per unit of energy produced from gas are around 40% lower than coal and around 20% lower than oil. Total indirect greenhouse gas (GHG) emissions from oil and gas operations are currently around 5,200 million tons (Mt) of carbon-dioxide equivalent (CO2 eq), and 15% of total energy sector GHG emissions.
Methane emissions are the second-largest cause of global warming today and are the largest component of the indirect emissions contributed by the oil and gas industry. In order to quantify methane emissions intensities, evaluation is carried out on how much of the natural gas that has been produced is lost to the atmosphere rather than marketed or used. Methane intensity is also referred to as the methane leakage rate. Around 23% of current global warming is a result of methane in the atmosphere (source: Global Methane Budget 2020).
Different sources in the ecosystem are responsible for the methane emission, and the major contributors are fossil fuel, animal digestion, rice cultivation and wetlands. It was analyzed that the amount of methane emitted is more than the absorbed in the atmosphere and soil, which is the cause of global temperature rise.
The world’s major oil and gas companies have set a target of reducing the collective average methane intensity from upstream natural gas and oil operations 0.25 in 2025 (from a baseline of 0.32% in 2017) and a more aggressive ambition to achieve 0.20% (source: OGCI progress report 2020).
The broad categories responsible for the emission within the upstream oil and gas majors are closely related to reservoir complexity and fluid type, platform equipment, and routing flaring and venting.
Reservoir complexity and fluid type: The data show that reservoir oil with API gravity of 25° or less can be, on average, more emission-intensive than those with an API gravity of 45° or more. Complex reservoirs with high viscosity fluid, deep-water setting, faulted reservoirs with high pressure and temperature are considered as emission intensity assets. Companies may consider developing less complex fields in future, which are less emission intensive.
Platform equipment and manning: Drilling and processing platforms with more equipment and personnel require more energy for running daily operations. Faulty seals or leaking valves are also responsible for the unplanned accidental emission, which is categorized as fugitive emissions. Aging production facilities with less efficient equipment contribute higher fugitive emissions as parts degrade over time. One of the most cost-effective mitigation options is to use a leak detection and repair system, which is critical to detect and reduce fugitive (or accidental) methane leaks. Well reliability, through predictive equipment failure analytics, should be given priority to achieve the goal.
Routine flaring and venting: Flaring occurring during the production operations is normally known as routine flaring. Flaring with incomplete combustion occurs when the gas is burnt off in the absence of the required infrastructure to store and use it, and in cases of unplanned emergency safety purposes (e.g., gas pressure built up due to variations in operating conditions). Flaring from conventional oil operations is the main source of flaring worldwide, although flaring from unconventional oil production, such as shale oil, has also increased recently.
Venting is the planned release of gases, in cases where re-injection or utilization are not feasible. This activity can also be performed in case of unplanned emergency safety purposes.
The introduction of technologies such as remote operations, sensors, drone inspection and predictive analytics can help to reduce planned and unplanned emissions in a greater way.
Goals and strategies of oil and gas majors to reduce emission levels to zero by 2050
Major international oil companies (IOCs) are increasingly highlighting the significance of climate change in their corporate strategy. Long-term corporate commitments linked to reducing greenhouse gas emissions and lower carbon footprints, including net zero emissions targets, have contributed to the growing value of environmental sustainability.
Major IOCs are seeking to balance shareholder value, maintaining global energy requirements, shifting regulatory regimes, and a changing market landscape based on a lower-carbon climate as the issue of sustainability gains traction. Exploration and production companies have started setting long-term goals that would facilitate a lower carbon acceleration and are targeting to reduce their Scope 1, 2 and 3 emissions to net zero by 2050.
BP, for example, will increase its annual low-carbon spending to $5 billion of capex a year by 2030 to achieve their net zero target (source: AA energy 2020). In 2019, Shell spent $2 billion of its capex on clean energies, and continue to spend as much as $2 billion on new energies (source: S&P Global, market intelligence, 2020).
How might the upstream oil and gas industry manage decarbonization?
Upstream oil and gas companies can focus on three key areas to impact their Scope 1 emissions: production optimization, workable and sustainable platform equipment and process design, and managing their resource selection and prioritization.
The oil and gas industry can take immediate action to significantly reduce emissions by introducing available technology into day-to-day operations.
Equipment Reliability: Having reliable equipment at the platform not only reduces frequent shutdowns and optimizes the production by increasing the well uptime but also contributes to eliminating unnecessary emission. Unplanned flaring or venting of methane occurs when equipment is depressurized for safety reasons, which leads to high emissions. Internet of Things (IoT) and predictive analytics would help in identifying faulty equipment in advance, reducing well downtime.
Efficiency Tolerance: Ensuring operating parameters have not significantly deviated outside the design tolerance range due to changes in well production behavior and equipment design. For example, pumps not running efficiently as per the design are less reliable and result in higher emissions. Good data connectivity from the point of installation, operation data and predictive analytics may increase reliability and efficiency.
Asset Integrity: It is important to replace and fix integrity problems that increase fugitive emissions, such as wear and tear of flange joints, valve glands, or seals as soon as possible. Sometimes there is a need to redesign the assets according to the operating conditions and parameters depending upon the fluid behavior. Introduction of asset digitization, monitoring, applying AI and predictive analytics will tremendously reduce unplanned fugitive emissions.
Reliable and Sustainable Equipment Design
Poor reliability is a considerable contributor to emissions. The capacity constraints of storage infrastructure are also a major challenge. Additional gas processing facilities, along with collection and transport infrastructure, are required to address this challenge. Predictive maintenance technologies can assist in estimating the necessary maintenance before any damage occurs, thereby reducing the shutdown time and, in turn, increasing efficiency and reducing carbon emissions. The following steps can help businesses not only reduce emissions, but also monetize waste.
Reducing Fugitive Emissions: By improving leak detection and repair (LDAR), installing vapor recovery units (VRU), applying mechanical seals on pumps, dry gas seals on compressors, and carbon packing ring sets on valve stems, companies can cut emissions of methane and the saved gas can be monetized.
Reducing Routine Flaring: Reducing regular flaring implies that the associated gas must be located or reinjected into the reservoir for beneficial use. While some flaring may be inevitable, additional gas processing, collection and transport facilities require attention. The AI-enabled models will help in assessment of processing and storage capabilities of a plant or operation site.
Reducing Non-Routine Flaring: Non-routine flaring contributes a large amount of emissions, mainly as a result of poor reliability. These are generally intermittent and of short duration. Carrying out predictive and prescriptive analytics for maintenance, instrument outages and replacing equipment can not only reduce emissions but also enhance production.
Monetizing Gas: A huge amount of natural gas is wasted globally through flares, vents, and leaks. This could generate nearly $39 billion of revenue globally if monetized. Solutions include reinjecting to enhance recovery, power generation, or other productive uses like portable CNG or mini LNG to treat gas onsite, LPG, gas to liquid (GTL) conversion plant and onsite direct electric power generation.
Resource Selection and Prioritization
Upstream leaders and operators are starting to take a closer look at their upstream resource choices for exploration and development. They need to make choices and prioritize around their field development plans including strategies for Improved/Enhanced Oil Recovery (IOR/EOR) implementation to minimize the emission level during project execution. Different intensity.
Reservoir Complexity and Fluid Types: Reservoirs that are highly viscous, deep water, faulted, or high pressure and high temperature may be at a geological emissions disadvantage. They may therefore become unfavorable for development in the future in terms of emission intensity. Resources with higher API gravity crude oil, shallow to medium water depth or involving conventional production technologies would be favorable. The demand for shale oil has led the industry to focus more on hydraulic fracking, which is affecting the environment in many ways, such as seismic activity and water supply impacts. AI/ML based reservoir modelling can help in identifying the reservoir complexity.
Field Development Plans: The amount of emission levels and their impact need to be considered, evaluated, and compared with the recovery factor during field development plans. The appropriate resource selection play an important role for maximum recovery and least emission. AI digital solutions, which help in identifying the appropriate IOR/EOR methods based on reservoir complexity, may help in asset prioritization.
CCUS (carbon capture, usage and store) techniques are integrated with reinjection of the carbon dioxide for extraction of the extra oil, and these processes need to be fully considered and measured in the planning stages, and then evaluated once on production.
What technology can the oil and gas value chain adopt to reduce emissions?
Emissions start from upstream extraction of oil and gas to downstream refining and sales including transportation of crude in the midstream. Different technology and methods need to be applied for handling large amount of emissions from different sources and locations. Massive amounts of fugitive emissions were observed which accounts for more than 50% of all the emissions.
Upstream oil and gas majors should start looking into the options available for immediate reduction of CO2 and methane emissions throughout the supply chain processes including extraction of crude to transport and refining in upstream, midstream and downstream sectors.
Effective implementation of these options would reduce the huge amount of emissions and help in achieving goals of a greener planet.
Why should the industry focus on CCUS?
Carbon Capture, Use and Store (CCUS) is an increasingly accepted, cost-effective, readily accessible and applicable approach to decarbonization. The ability to capture and store carbon emissions from fuel combustion and industrial processes is widely regarded as an essential element in achieving net zero emissions. According to estimates, around 25 times more carbon dioxide is required to be captured and stored annually by 2030 as compared to current practices. CCUS is estimated to account for 14% of the reduction in carbon dioxide emissions by 2060. Around a billion tons of carbon dioxide per year will have to be extracted by 2030 and almost 7 billion tons by 2060 to achieve so.
Existing CCUS ventures, by comparison, capture just 30 million tons a year.
CCUS is also the primary solution to addressing CO2 emissions from natural gas processing. Large amounts of CO2 present in the natural gas must be removed before the gas is sold or processed for LNG production as this can help to avoid CO2 freezing and damaging the production facilities. Usually, this extracted CO2 is vented into the atmosphere, but it can be reinjected into reservoirs or geological formations having certain porosity and permeability including depleted oil or gas fields, coal beds that can be used later for IOR/EOR instead.
What digital technologies can help upstream businesses reduce emissions?
Most oil and gas companies have initiated reductions in their carbon intensity and are evaluating which technologies are best suited for their operations. The main goal to remove as much Scope 1 and 2 emissions as possible. One of the practical ways to achieve near net zero emissions is to adopt technologies that remove carbon by sequestering carbon into noncombustible products like plastics or by capturing and injecting carbon into the reservoirs with CCUS or using carbon dioxide for EOR methods.
The digital initiative is focused on the deployment of various technology, such as robots and drones, predictive analytics, and automated remote operations. The blend of these technologies will greatly facilitate real-time, data-driven decision making. Leveraging capabilities of IoT could connect end-to-end operations to ensure that all systems, equipment, sensors, and data are in communication for immediate remedial actions.
Oil and gas companies already have incorporated many of the tools important to address their operational challenges, such as equipment maintenance and reliability, remote operations and asset integrity. Industries can leverage the strength of disruptive digital technologies such as machine learning, digital twins, augmented reality, AI, integrated data platforms, and other solutions to optimize their production and reduce emissions including identifying and recording fugitive emissions in both upstream and downstream sectors.
AI-based diagnostics and predictive and prescriptive analytics are going to play a major role in identifying emission sources, tracking equipment health, and alerting operations in advance in order to reduce downtime and limit emissions.
Businesses in every industry can do much more to reduce the emission intensity of their supply chains. All should actively monitor and manage their climate-related risks, increase their efforts to restrict the global temperature rise between 1.5°C and 2°C. Most enterprises will need to develop new business models that contribute to achieving a low-carbon economy.
Oil and gas companies can take advantage of the available digital technologies – such as AI/ML-based algorithms, drones, sensors and implementing diagnostics, predictive and prescriptive analytics – to reduce emissions from extraction to sales across the entire business supply chain. We expect ongoing advances in the digital space and increased application by enterprises to contribute to more positive outlook with respect to global warming.
Managing Consultant, Energy Consulting
Naveen Gupta is Managing Consultant in Wipro with over 20 years of broad functional and domain experience working with various national and international roles in oil and gas majors like ONGC and PETRONAS Carigali. He has wide experience in design and implementation of Hydrocarbon Allocation and Accounting solutions. His areas of interest are digital disruption technologies in upstream oil and gas. His education includes Masters in Geology from MLSU, India and Masters in Petroleum Engineering from Heriot Watt University, Edinburgh.