The ESG perspective
“May you live in interesting times” is a term that has been interpreted to be a curse, but to others it is a blessing. It’s really a matter of perspective. The challenge of interesting times helps mold us into a better version of ourselves, while the lack of challenge is the path to boredom and mediocrity. Well, like it or not, we are living in interesting times. So, what does this have to do with ESG?
In previous columns I’ve mentioned the fork in the road—will our industry embrace ESG policies, or will it push back as part of an “anti-woke” campaign—in fact, we’ve managed to take both paths. Larger, publicly traded oil companies have embraced ESG, while smaller and mid-sized, privately owned companies have pushed back. We’ve become a bit of a divided industry, not quite as divided as our country, but nonetheless divided. And some of this division makes sense to me, because it ultimately comes down to “decarbonization.”
What is decarbonization? In simple terms, decarbonization is the removal or reduction of carbon emissions, specifically carbon dioxide. Since carbon dioxide is emitted from people, animals, decaying plants, and bodies of water as they warm up, we could be talking population control, reduction of livestock populations, as well as other drastic measures, all of which have been proposed.
The reality is decarbonization has become the removal or reduction of carbon dioxide, specifically from the use of fossil fuels. The reality is that solar and wind have a carbon footprint and rely on fossil fuels and mining, which generate significant carbon dioxide. Solar panels include the use of blast furnaces using coal as an energy source, as well as in the manufacturing process, so why not decarbonize these industries?
Well, my friends, that is why we have the division that exists. We have those companies that have embraced decarbonization, and we have those arguing against it. The reality is that decarbonization is becoming a large industry, and the greatest opportunity for it exists within the oil and gas industry. We are positioned to become the greatest potential innovator in the decarbonization space.
We already have become, through Enhanced Oil Recovery (EOR), a decarbonization practitioner—maybe the largest—and the economics have supported this practice. Whether you accept it or not, decarbonization will be part of our future, but too many people are looking at it as a burden and not an opportunity. Like I said, it’s a matter of perspective.
Why decarbonization? I’ve mentioned in previous columns that the European Commission added sustainable natural gas to the approved list of energy sources, which means a decarbonized or offset natural gas source. Total is already pursuing this. Baker Hughes and Woodside Energy announced a collaboration on decarbonizing natural gas. Chevron, through Chevron New Energies, announced a $318 million investment in Svante, a carbon capture business.
The race has started, and some of you are sitting at the starting gate, arguing against decarbonization, and the world is passing you by. The Biden administration just recently approved carbon capture projects for EOR, opening access to the tax credits that have recently been increased. These tax credits will likely be traded on an open market at even greater value than the credit itself. These markets are still developing.
So why decarbonization? Because it is our future, and if we want to participate in natural gas sales internationally, we must decarbonize our natural gas exports. More importantly, it will become a new source of revenue and very likely a condition for access to capital. It’s time to put away the push-back and talk about fairness; this is not a burden, it’s an opportunity. While many will continue to argue that the oil and gas industry is unfairly targeted, the truth is the world is waking up to the reality that they cannot divest from oil and gas and continue to meet the world’s energy demands.
Forget about the EC ruling natural gas as sustainable if decarbonized—look at COP27. The Council of Parties (COP) recently met for the 27th time in Egypt, and one of the key takeaways was that the discussion, for the first time, was not about abandoning fossil fuels. Instead, the focus was on “phasing down coal,” while accepting that natural gas would be part of the future energy mix. This is a significant departure from the elimination of fossil fuels focus that was part of previous COP meetings. Like I said, the world is waking up to the need for our industry, and regulation and subsides from tax credits are making decarbonization an attractive investment, whether you believe that it is a social responsibility or not. It’s time to make decarbonization part of your strategic planning.
What are the challenges ahead? Well, we talked about EOR and how there is significant investment in carbon capture. Unfortunately, the scale needed for direct capture and the access to conventional wells where we can implement EOR aren’t available to everybody. One area developing quickly is sequestration wells. These are wells where we inject captured carbon dioxide and inject it deep into reservoirs that will not allow the carbon dioxide to return.
This is not for the faint of heart—a minimum investment of $10 million is required and getting more expensive by the minute. And there are challenges. The few permitted sequestration wells have very short-term lives (3-5 years), thus increasing the cost per ton of carbon dioxide injected. There are some other limited sequestration options, but what is needed is scale to account for the large volumes of carbon dioxide requiring sequestration.
The future is now. The DOE has made “carbonization of produced water” a new area of interest. We have received patents for carbon sequestration in produced water at SWDs and are working with a select group of universities and stakeholders to optimize the saturation of carbon dioxide—through combinations of nanobubbles and microbubbles, and getting carbon dioxide to its critical point.
I can’t get into too many details without sending you all a Non-Disclosure Agreement (NDA), but this process optimizes the dissolution of carbon dioxide into produced water, which is already being disposed of, and buffers the acidity concerns, while being significantly lower-cost than a sequestration well. And access to SWDs is available to just about every operator, giving decarbonization access to everybody, not just the super-majors that can afford the investment.
There are others working, and many new opportunities in this space. We expect to see many new innovative ways to sequester and capture carbon in the coming years. Hold on—it’s about to get more interesting. WO
