The surge of interest in renewable sources of energy and alternative energy technologies came unexpected on the back of a wave of change caused by combination of disruptors to the O&G industry. Traditionally resilient to change, energy majors have today completely re-evaluated their priorities realising that current strategies were not flexible enough in the face of global market price shifts.
Unfortunately, many projects have been canceled or put on hold e.g. development of offshore reserves (incl. international JVs), some new Refinery projects, some methanol projects, large-scale refining-petchem integration projects – the list goes on.
The gas industry had its fair share of interest with a several LNG ventures (especially in Russia, Europe, etc.) and gas-chemical projects coming to the fore, and fertiliser production becoming one of the few remaining sectors that still generates reasonable margins under current circumstances.
Not that long ago – in February 2020 – we highlighted at our ME-TECH 2020 conference a shortlist of factors that could have the most impact on the petrochemical industry, and these are now applicable to the whole energy complex:
- Globalisation & integration: while before this year it was clearly a positive factor for development, now with the world changing it could reverse – demand for electricity increasing, and demand for certain transportation fuels on the decrease, etc.
- Economies of scale – again, in the near future smaller-scale specialised plants may well become more profitable than before (product and feed-flexibility and high-marginal products being the key) and even more than those with large capacities producing basic products and experiencing shortage of feed supply.
- Price of crude – it may become an opportunity to expand into new business areas – these can be researched and developed.
- Environment - as well as the quest for sustainability, dealing with plastic waste is also high up on the GCC countries priority list. We have seen a strong focus now on recycling technologies for plastic bottles to produce similar quality materials. A number of renewable energy projects are expected, with many countries in the region embracing ambitious clean energy targets to free up more hydrocarbons for export and stay ahead of market shifts in response to climate change concerns.
McKinsey predicted last year a moderate uptake of renewable feedstock use: renewable feedstocks, such as bio-ethanol, were projected to increase to 4% by 2050. Is it possible to double or even triple the number after the crisis is over? An interesting document on this topic is the China Renewable Energy Outlook – a 14-year plan to decarbonise one of the world’s largest economics - wind and solar PV have already entered the post-subsidy era in China. The IEA’s scenario assumes strong growth in renewables, but still projects that O&G will continue to provide at least 48% of the world’s energy in 2040. According to the World Bank and IRENA, renewable energy prices are now competing with coal industry and by 2050 use of coal for electricity production shall be reduced by at least by 30%, led by EU.
The most forward-thinking companies have decided to focus on activities listed in their sustainable development policies, investing in the future today. We would like to reflect on some of the most interesting cases.
Important players in the Green Energy movement – Equinor, Shell & Total – have decided to invest in ‘Northern Lights’ project to capture & store CO2 (CCS) at the shelf of Norway, if EFTA gives project approval, it will become one of the first important steps towards creating value in CO2 management and complying with Paris agreement targets.
A technology with declared high potential is CO2-enhanced oil recovery (EOR), which uses injected CO2 to extract more oil from the field while providing CO2 storage. Doubling the kg-amount per barrel of CO2 allows carbon produced to technically become negative in some fields. It is well-established in North America, but the most attractive locations for development are said to be Russia and China (due to stationary sources near reservoirs) and the Arabian Gulf, including Saudi Arabia and Kuwait, as their crude can be produced on a large scale with minimal energy investment.
Possibly the most promising technology route for decarbonisation is hydrogen. According to ICCT study, ‘liquid hydrogen could power essentially all container vessels crossing the Pacific Ocean’, which would go a long way to meeting IMO 2020 requirements and helping transportation companies keep logistics prices under control while still creating value. The world’s first liquefied H2 carrier vessel was launched in Japan in December, and in 2023 the first retrofitted liquid hydrogen fuel cell cruise ship will sail in Norway.
Today almost 80% of total hydrogen supply is from O&G and is coupled with low technology and commercial risks. Other uses are: recycle CO2 in cement, steel industries, and heat and power; Fuel Cell Electric Vehicles; synthetic fuels production with low environmental risk unlike biofuels - hydrogen produced by water electrolysis with renewable electricity is synthesised with carbon from CO2 to produce complex hydrocarbons, which is viable for aviation (when the industry recovers from the lockdown demand drop).
It can also be used for heating – a pilot project was run in the UK where zero-carbon hydrogen has been injected into a gas network for the first time to heat several buildings, and the technology can then be scaled up for commercial use.
We especially support the idea of driving towards circular economy concept (CEE). The CCE cycle has four main pillars: Reduce (energy efficiency, low-carbon fuels); Reuse (incl. CO2-EOR); Recycle (we mentioned use of secondary plastics, use of carbon in synthetic fuels, fertilisers/urea, methanol, polymers and other chemicals); Remove (carbon capture utilisation and storage).
A good example is the Ras Tanura Saudi Aramco Refinery Margin Enhancement, the plant is being gradually developed: 2021 – Clean Fuel project (+50% margin improvement), going forward – full conversion refinery (60-90% margin increase). Advanced companies aim to create a portfolio of hydrocarbon sources combining traditional fuels with recycling – utilizing available options along the value chain i.e. mechanical, chemical and thermal recycling, renewables.
If companies hope to achieve these goals, they need to focus more and prioritise this transition - according to IEA, between 2015 and 2019 less than 1% of the total capital spending in leading oil majors was made on projects outside of oil and gas – just over $2bn since 2015.
Structural changes like these do not happen overnight, and not all companies that have influence on the markets will be eager to fully support the transition before they are ready, but if anything, these ‘black swans’ boosted the long-awaited activity in this area.
Even though a number of international organisations insist that the path to full ‘green’ energy is one-way and shall be full-on, it is important to keep in mind that the existing energy industry is very large and very important – social-wise – providing hundreds of thousands of jobs, providing taxes to help support economies, investments in R&D, etc.
Therefore ‘shutting down’ the O&G industry as a matter of principle – even with noble intent – will risk doing more harm than good. Shifting existing balances in industry & society even more than now, whilst not necessarily bringing all the environment safety benefits hoped for. We believe that the future IS green, but the mix of energy sources shall always be balanced, make sense and the transition shall allow participants to utilise existing facilities or reengineer them for new purposes and provide high-quality products.
For certain the transition to cleaner energy and cleaner environment will dominate future investments in all regions.
Euro Petroleum Consultants are hosting the Energy and Sustainability Forum 2021 (ESF) in March in Europe next year, focusing on these important topics and challenges.
Euro Petroleum Consultants is a technical oil and gas consultancy with offices in Dubai, London, Moscow, Sofia and Kuala Lumpur. Euro Petroleum Consultants also organises leading conferences worldwide.
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