Decarbonization is increasingly impacting the oil and gas (O&G) sector, but few O&G producers are preparing for this impact head-on. As a recent McKinsey & Co. report on decarbonization notes, oil and gas companies have the same incentives to reduce emissions from operations and bought fuel as other industries, but this sector also faces strong pressure to address emissions from their products. Oil and gas companies that meet this energy transition head-on can control the conversation around O&G production decarbonization, while reaping cost benefits.
With companies such as Exxon Mobil being pushed by investors to commit to net-zero carbon emissions, O&G producers of all sizes may want to take their own steps toward decarbonization before regulations or shareholders set deadlines for this action.
The good news is that there are ample opportunities for O&G industry stakeholders to reduce their operations’ carbon emissions. By creating a strategic plan that benchmarks emissions, identifies opportunities for improvement, and prioritizes projects, O&G producers can be ready to take action when the time for improvement is right.
What decarbonization looks like for the oil and gas industry
Decarbonization is a key strategy for reducing the risks of climate change, but there’s also often a strong business case for making the operational improvements needed to reduce carbon emissions. O&G production requires a significant amount of energy for extraction, pumping, storage, distribution, injection, and water treatment. Reducing energy costs through energy efficiency measures, changing power resource, improved operating practices and electrification can result in in a 30% to 50% decrease in operating costs—while moving the needle on decarbonization.
While there are many opportunities and technologies available today to help O&G producers of all sizes reap these benefits, the path forward won’t look the same for every organization. After all, there are many types of O&G assets, all of which face differing geographies and local, state and federal policies. Deciding on the right path forward for your operation must begin with development of a decarbonization plan.
Having a decarbonization plan will help O&G producers prioritize action. This also allows organizations to pursue opportunities when the cost is right.
The first step in developing a decarbonization plan is to benchmark energy usage today. Gathering information on the kilowatt hours used to produce a barrel of oil or transport water, among other data points, will help determine what measures might be most impactful in achieving specific goals.
The next step is to consider opportunities to drive reductions in those energy-intensive areas. Fortunately, there are many options today that support O&G sector decarbonization.
Key investments to decarbonize and lower production costs
Efforts to decarbonize are most effective when they balance energy efficiency measures and processes. Often this is supported by making a switch to electric equipment that can be powered at least in part by renewable energy sources.
There are essentially five major infrastructure upgrades that O&G producers can apply to onshore O&G extraction fields to help achieve decarbonization goals while reducing production costs:
- Production field upgrades: As O&G production decreases, the water cut from underground reservoirs may increase, in some cases as high as 98%. The energy used by artificial lift pumping, only to have to separate and dispose of increasingly higher levels of water, comes at a big cost. Strategies to limit the amount of water extracted from the reservoirs in the first place can help O&G operations optimize the energy use of their artificial lift systems, driving significant reduction in energy costs. There are a number of technologies available today to make these reductions in water cut and, consequently, energy usage. These might range from advanced pumping systems to chemical water shutoff methods to system optimization between multiple well pumps for extraction and injection. Many of these improvements can pay for themselves within one to three years.
- Injection pumping system upgrades: Upgrading injection pumps used to increase pump water back into the production zone can provide significant operational cost reductions. Older pumps may have injection pressures ranging from 800 to 1,500 psig, depending on the injection pipeline and injector wellhead locations. However, today’s technologically advanced artificial lift pumping systems require much lower injection pressures, on the order of around 300 to 500 psig. Other infrastructure upgrades—such as upsizing of the injection pipeline, strategic relocation of the injector wellheads or selective perforated smart casing to help direct water to oil-bearing sections of the water reservoir—can also help improve energy efficiency.
- Electrification of equipment: Converting from gas to electric boilers to drive separation processes—or at a minimum integrating these two options—sets the stage for O&G producers to take the next step and power this energy intensive equipment through solar generation.
- Power source selection: Renewable energy is also a highly cost-effective alternative to diesel when it comes to running on-site generation equipment.
- Solar-assisted artificial lift systems: Instead of using conventional artificial lift pumping systems, some O&G producers have started using solar assisted artificial lifts. These lifts have a significantly lower cost per ton of carbon-dioxide equivalent (tCO2e).
These improvements to reduce energy use can lead to significant operational cost savings, creating a strong business case for investment—but this isn’t the only funding mechanism available. Few producers within the O&G industry are taking advantage of utility incentives available to help fund strategies to reduce energy consumption and drive decarbonization. Some utilities pay as much as 75% of the installed cost of energy-efficiency and related improvements.
Position your organization to act
Planning for capital investments can be difficult for O&G producers, given the variable nature of their commodity product. This is yet another reason an energy plan is critical. It’s easier to move forward on a major investment when commodity prices are high for the foreseeable future. Having a plan that outlines priority investments for your capital budgeting gives you power to act quickly when the financial case is in your favor.
If you’re ready to create a plan for moving forward, contact Lincus today.