Summary As oil and gas industry regulations become more strict, success comes to those who can meet environmental challenges with innovative thinking. It’s not just about increasing efficiency, but also developing sustainable tech-nologies, fostering partnerships, turning strengths into renewable energy opportunities and transforming waste into profit.

R&D Solutions for Oil and Gas WHITE PAPER

Oil and gas going greenCan environmental challenges lead to cost savings and greater profitability?

IntroductionIncreasing profitability while reducing the environmental impacts of oil and gas pro-duction may seem counterintuitive. But in a volatile market with a continually evolving regulatory environment, the trick is to turn what could be a drag on the bottom line into a boost.

“How can you make a profit from waste products? How can you create value for things that were previously viewed as costs?” observes Corrina Bryson, a Calgary-based inde-pendent consultant who worked previously as Vice President for Resource Development at Nexen Energy.

As regulations grow ever more stringent for greenhouse gas emissions, wastewater, and other oil and gas wastes, the pressure to diversify portfolios and minimize project costs increases. Fortunately, the old adage that necessity is the mother of invention turns out to be true in this case. Environmental regulations are driving a flurry of innovations in oil and gas operations. Properly understood and implemented, many of those innovations can be good for both the environment and the bottom line.

Naturally, efficiency is one route to increasing profits. “Reducing energy use and reducing waste, reduces costs.” Bryson says. But other innovations in technology and practices are going beyond efficiency, altering perceptions about how to organize oper-ations to reduce environmental risk while increasing financial returns.

“Reducing energy use and reducing waste reduces costs.”

– Corrina Bryson, Independent Consultant, Nexen Energy

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Strategies and Trends

Environmental performance and innovationAn emerging body of literature suggests that environmental performance commit-ments drive wider change and result in increased shareholder value.1 Total CEO Patrick Pouyanné has established a goal of “mak[ing] low-carbon businesses a profitable growth driver accounting for 20 percent of our portfolio in 20 years’ time.” Total has relied on these goals to drive strategic investments to make it a world leader in solar energy, power storage and biomaterials.2, 3 Critics might note that we have been here before. Both Shell and BP developed and later abandoned significant solar businesses, and Chevron recently spun off its world-class geothermal and energy efficiency divisions. However, the new era of low oil and gas prices has prompted numer-ous integrated oil companies and national oil companies, such as Saudi Aramco, to start to look into and invest in diversifying their energy portfolios, including investing in renewables.

SciVal, Elsevier’s benchmarking and research intelligence and analytics solu-tion for assessing research trends and impact, shows that energy, sustainability and environmental research conducted by oil and gas companies is on the rise (Figure 1). Overall, research output by the industry in these fields has more than quadrupled since 2006, but still comprises only 4 percent of research initiatives and investments in energy research, which includes fuel technology, nuclear, engi-neering and power technologies.

Sumita Singh, Managing Director of Elsevier’s Reference Solutions, highlights the growing importance and influence that multi-disciplinary data and infor-mation has in supporting petroleum engineering innovation.2 “Access to such cross-domain knowledge can help drive innovation, provide answers and insights needed to solve critical problems, help identify and mitigate health and safety risks, and ultimately reduce costs and increase margins,” claims Singh. The good news is that the industry is already mov-ing in that direction. Analysis of Knovel’s ‘most viewed resources’ by engineers

Figure 1. Renewable energy, sustainability and environmental research output (number of publications) by major oil companies from1996 to present (Source: SciVal)

Figure 2. Percentage share of total renewable energy, sustainability and environmental research output (number of publications) by major oil companies from 1996 to present (Source: SciVal)

Figure 3. Percentage share of total energy (includes fuel technology, nuclear, engineering and power technology) research output (number of publications) by major oil companies from 1996 to present (Source: SciVal)

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working in the oil and gas industry shows that information and data is regularly sourced from numerous subject areas, ranging from chemical engineering to welding, to marine engineering, project management and navel architecture..

Collaboration

Innovation is often slow to emerge in large enterprises. To overcome this, oil and gas producers and service companies are looking at innovation models designed to engage wider groups. In 2015, for example, GE established an accelerator program for digital oilfield technologies working with promising startups and helping them lower risks in exchange for a stake in the technology.3 In collaboration with clean tech executives, a group of Canadian oil companies has established a venture capital fund with aims similar to those of GE, but also with an eye towards bringing technology companies and investors together with customers.4

Meanwhile the X PRIZE Foundation has partnered with several oil companies to launch the Carbon X PRIZE, which seeks to accelerate the commercialization of technologies that convert CO2 into marketable products.5

Another collaborative effort, meant in part to address longstanding opposition from the environmental community, has brought the thirteen largest oil sands operators in Canada together to accelerate deployment of new environmental technologies. The collaboration is called Canada’s Oil Sands Innovation Alliance (COSIA).6 Recognizing that their environmental footprint is a collective risk, these companies have established mechanisms to share intellectual property, to collectively leverage research

and development investments, and to accelerate deployment of environmental practices and technologies.

At a global level, ten leading companies established the Oil and Gas Climate Initiative in 2014 with mandates that include: 1) reducing the industry’s emissions by minimizing methane leaks and enabling carbon capture and storage deployment, 2) improving energy efficiency and 3) reducing the carbon and energy intensity of transportation. In 2016, the initiative launched a $1 billion fund for technology deployment and scale-up.7

Incentivizing innovationNew technologies often carry addi-tional costs, pose new and potentially unforeseen risks to the public, the envi-ronment, and a company’s bottom line. Overcoming the costs and risks—and providing the necessary reassurance to regulators—means governments need to review regulatory procedures and stan-dards. For countries or regions that have been hit by dramatic declines in explo-ration and development activities due to escalating project costs or declining prices (or both), the imperative for innovation is acute.

For hydrocarbon-producing regions that want to thrive, it may be time to rethink how to incentivize innovation and effi-ciency. In Alberta, for example, a recent review of the oil sands royalty regime led to royalty incentives for alternative uses of bitumen.8 The review also found that the resource-recovery obligation for companies, which was designed to maximize the financial return to the gov-ernment, was also forcing greater capital investment meant to go after “the last mile” of the resource. This was, in turn,

New technologies often carry additional costs and pose new and potentially unforeseen risks to the public and the environment.

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driving excessive emissions, water use and growth in mine tailing ponds while impairing the profitability of projects.9

Companies and regulators should also investigate the success of innovation waivers under the U.S. Clean Air and Clean Water Acts.10 These waivers are designed to reduce the additional regula-tory approval risk when project developers wish to deploy innovative and often more environmentally-sound technology that is not recognized to be in compliance with existing regulations.

Specific Tools and Applications

Market premium for environmental waste Inspired by the success of fair trade and sustainable certifications for forest prod-ucts and coffee, at least one oil and gas certification scheme—dubbed Equitable Origin—has appeared.11 This is a private, market-driven approach designed to link consumers with progressive producers who are seeking a financial return for their greater investment in environmental and social performance.

In a related approach, landfill gas pro-ducers are selling their gas as a “green” alternative to gas from conventional wells.12 Also, many utilities and utility energy service companies now offer carbon offsets to natural gas customers, sometimes styling their gas as “carbon neutral.”13, 14

Some companies have experimented with converting waste products into marketable resources. Shell, for example, has sought to create value from its sulfur waste stream (a byproduct of sour gas production) in the form of fertilizers, construction materials and road-surface materials.15

Regions rich in oil and gas can often be poor in water. Wastewater recycling of

produced water can be a cost-effective option for operators that in some cases have faced a tripling of water costs.16 Recycling facilities, however, can be expensive and are used primarily by big companies with large contiguous blocks, which allow operators to run pipelines from a central treatment facility to the various sources of wastewater. Onsite wastewater treatment and recycling can minimize a myriad of environmental and disposal, and make treated water available for hydraulic fracturing or for other purposes.

For those engaged in hydraulic fracturing, the promise of waterless fracking would be a dream come true. It would mean no more water trucks in a seemingly endless line bringing water to the well site. And it would mean less produced water to man-age overall. One possible approach would use supercritical CO2 instead of water to create fractures in reservoirs. This form of CO2—a special state that is neither solid nor liquid—has properties that make it an ideal candidate for fracking. This intrigu-ing idea, however, has yet to go beyond the computer simulation stage.17

Regular CO2 and propane have been used for fracking with some success. But with costs higher than hydraulic fracturing, operators have been reluctant to adopt these unfamiliar methods.18

However, companies such as Pioneer Natural Resources are attempting to tackle these issues with an agile approach, focus-ing on water conservation technologies. For example, Pioneer are using non-potable resources, sourced from brackish aquifers and effluent water purchased from munici-palities in the region, to support its drilling and production activities.

Onsite wastewater treatment and recycling can minimize a myriad of environmental and disposal headaches.

Production powered by renewable energy

The oil and gas sector has a mixed track record developing renewable energy businesses. Successes have come in situations where the opportunity and the company’s existing competencies were the drivers, rather than any environmen-tal outcome. Take, for example, Shell’s development of a fully renewable-pow-ered offshore gas platform equipped with wind turbines and solar panels. The system reduces CO2 emissions and removes the need to connect to shore-based power (typically done by running a power cable along the seafloor), thus reducing environmental impacts, opera-tional risk and infrastructure costs.19,20

California-based GlassPoint Solar, a leader in solar thermal installations to power steamfloods, has been active in Oman, Kuwait and California.21 Abundant sun in Oman and Kuwait make solar a good fit. While California is also known for its sunny skies, its strict greenhouse gas emissions standards are making it difficult for steamflood operations currently fueled by natural gas to function at full capacity, accord-ing to Vladimir Alvarado, head of the Department of Chemical Engineering at the University of Wyoming and a con-sultant to the oil industry. Solar solves this problem. And, GlassPoint claims to reduce fuel costs, as well as carbon emis-sions, by up to 80 percent.

The company houses its solar concentra-tors inside glass and is therefore able to take advantage of technologies that cannot be used in harsh outdoor environments, according to Chiaki Treynor, the compa-ny’s vice president of technology. Rapid advances in technology continue to raise efficiencies for solar thermal, making it ever more competitive with operations that burn natural gas.

Carbon capture and storage

Carbon capture and storage (CCS) is per-haps the environmental holy grail for the oil and gas industry. Low-cost CCS suit-able for a variety of environments around the globe would solve the problem of carbon emissions from fossil fuels. Though that dream remains a long way off, significant industry research output and investment have grown considerably over the past 40 years (Figure 4), peaking with peak in oil prices in 2013 and 2014.

And while investment in CCS research has decreased in the last couple of years, research output in this space is still active and largely dominated by universities and government agencies, with the exception of industry players such as Statoil, Shell, E.ON and Total. However, when looking at top corporates filing patents, the landscape broadens to include Alstrom, GE, Ibiden, Baker Hughes, Air Liquid Exxon and Saudi Aramco, which is a likely indicator that

Figure 4 Research output in carbon capture and storage (CCS) over past 40 years. (Source: Scopus)

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lucrative opportunities may become available for those who develop substan-tial capacity for and expertise in carbon sequestration.

Statoil is exploring whether to make its extensive expertise in CCS available to other companies through a sepa-rate CCS business.22 The company’s expertise stems from two of the most notable CCS operations in the industry. In the Sleipner gas field, located off the southern coast of Norway, high concen-trations of carbon dioxide (9 percent) made it necessary to separate the CO2 from the natural gas.23 A carbon tax levied by the Norwegian government provided the necessary incentive to find a way to sequester the CO2 in geological layers directly under the offshore platform. Now, each year about 1 million metric tons are buried in porous sandstone filled with water.

In the company’s Snøhvit gas field in the Barents Sea, carbon dioxide (5 to 6 per-cent) is separated at a liquefied natural gas plant and then reinjected into stable geological layers.24 The European Union is helping to fund monitoring activities to ensure the CO2 stays put.

Another CCS project, near Edmonton, Alberta, is demonstrating the feasibility of CCS in the oil sands.25 The project is a collaboration involving Shell, its joint venture partners Chevron Canada and Marathon Oil Canada, and the govern-ments of Alberta and Canada. Dubbed Quest, the operation has experienced significant savings through energy effi-ciency, joint transportation and storage facilities, savings that resulted in costs 30 percent lower costs than anticipated.

Data and intellectual property generated by the collaboration will be shared publicly in an attempt to further CCS efforts industrywide.

Natural gas: A solution to household air quality

Those of us living in developed countries know that natural gas has been replac-ing coal as a fuel to produce electricity. Because, when burned, natural gas contains half the carbon of coal and fewer impurities; it has been a boon to air quality.

But few of us in developed countries realize that poor air quality related to household cooking has been a major cause of disease and disability in devel-oping nations. Shell’s partnership with the Indian state of Gujarat is making natural gas available to homes where coal, dung and crop residue were previously used as fuel for cooking and created an unhealthy environment.26

The partnership demonstrates that there is a huge untapped market for natural gas that can be profitable when governments participate in building the necessary infrastructure for disad-vantaged populations. The results are a healthier environment for households and a public health win for governments.

The Future: Environmental Challenges Become Opportunities

Since the dawn of the environmental movement, the oil and gas industry has often seen environmental regulation as an unwelcome challenge and a cost center. Both necessity and technology are beginning to convert those challenges into opportunities for cost savings and new businesses. However, successfully ‘going green’ and making environmental regulation cost-effective, and even prof-itable requires internal knowledge and expertise, as well as collaboration with universities, government agencies and other industries such as automotive and aerospace & defense. Tools that enable access to multi-disciplinary research and data are also key.

Companies that move toward the cutting edge of research and technology will be better positioned to thrive in a world of increasingly stringent regulation, global competition and market constraints. The tighter regulation of waste and green-house gas emissions, along with the growing efficiency of renewable energy sources, and the need to control project costs, are forcing oil and gas companies to consider new and creative avenues that have the potential to offer both financial and environmental benefits.

1. Total Presents Proposed NewOrganization to Achieve Its Ambitionto Become the ResponsibleEnergy Major,” Total, April 19,2016, accessed December 6, 2016,Available: http://www.total.com/en/media/news/press-releases/total-presents-proposed-new-orga-nization-achieve-its-ambition-be-come-responsible-energy-major.

2. “Necessity is the mother of invention– digital innovation in the era of lowprices,” Oilfield Technology,” OilfieldTechnology, August 25, 2017, Available:Necessity is the mother of invention –digital innovation in the era oflow prices

3. General Electric, “Startups LeverageIndustrial Internet of Things withBoost from GE,” JWN, May 12,2016, accessed December 6, 2016,Available: http://www.jwnenergy.com/article/2016/5/startups-leverage-in-dustrial-internet-things-boost-ge/.

4. “Our Story,” Evok Innovations, 2016,accessed December 6, 2016, Available:http://www.evokinnovations.com/about/.

5. “Overview,” NRG COSIA CarbonXPRIZE, 2016, accessed December 6,2016, Available: http://carbon.xprize.org/about/overview.

6. “Delivering EnvironmentalPerformance,” Canada’s Oil SandsInnovation Alliance, 2016, accessedDecember 6, 2016, Available: https://www.cosia.ca/.

7. Oil and Gas Climate Initiative, “TakingAction: Accelerating a Low EmissionsFuture,” November, 2016. (Cited abovein Note 1.)

8. Dave Mowat et al., “Albert at aCrossroads: Royalty Review AdvisoryPanel Report,” Alberta Energy,January, 2016, p.16, accessedDecember 6, 2016, Available: http://www.energy.alberta.ca/Org/pdfs/RoyaltyReportJan2016.pdf.

9. Ibid., p. 74.10. Nicholas A. Ashford et al.,

“Using Regulation to Change theMarket for Innovation,” Harvard

Environmental Law Review, Vol. 9, No. 2 (1985), 419–66. Available: http://dspace.mit.edu/bitstream/handle/1721.1/1555/%252319.PDF?sequence.

11. “Equitable Origin,” Equitable Origin, 2016,accessed December 6, 2016, Available:https://www.equitableorigin.org/.

12. “Green Natural Gas,” Bullfrog Power,2016, accessed December 7, 2016,Available: https://www.bullfrogpower.com/green-energy/green-natural-gas/.

13. “Puget Sound Energy Launches‘green’ Natural Gas Program toComplement Utility’s Award-WinningGreen Power Program,” PugetSound Energy, June 9, 2011, accessedDecember 7, 2016, Available: https://pse.com/aboutpse/PseNewsroom/NewsReleases/Pages/PSE-launches-green-natural-gas-program.aspx.

14. “Why Carbon Neutral,” RenaissancePower & Gas, 2016, accessedDecember 7, 2016, Available: http://renaissancepowerandgas.com/why-carbon-neutral/.

15. Richard Taylor, “Shell SulphurSolutions Creating Value from Sulphuras a Construction Material,” SummitDownload Portal, May 22, 2013,accessed December 6, 2016, Available:http://www.summitdownloadportal.com/logos/1369739483-ENG.pdf.

16. James Osborne, “Fracking CompaniesBegin Slow Shift to RecyclingWastewater,” Dallas News, August,2014, accessed December 8, 2016,Available: http://www.dallasnews.com/business/energy/2014/08/09/frack-ing-companies-begin-slow-shift-to-re-cycling-wastewater.

17. Eric Roston, “One Way to SolveFracking’s Water Problem: Don’tUse Water,” Bloomberg, June 21,2016, accessed December 8, 2016,Available: https://www.bloomberg.com/news/articles/2016-06-21/one-way-to-solve-fracking-s-water-problem-don-t-use-water.

Notes

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18. Andrew Topf, “Water-Less Fracking Could Be Industry Game Changer,” OilPrice.com, November 6, 2014, accessed December 9, 2016, Available: http://oilprice.com/Energy/Energy-General/Water-less-Fracking-Could-Be-Industry-Game- Changer.html.

19. Jeremy Beckman, “Shell Duplicates Minimal Platforms to Cut Cost of UK/Dutch Projects,” Offshore, October 1, 2005, accessed December 6, 2016, Available: http://www.offshore-mag.com/articles/print/volume-65/issue-8/offshore-europe/shell-duplicates-minimal-platforms-to-cut-cost-of-uk-dutch-projects.html.

20. Jack Rosebro, “Fossil-Fuel Platform Runs On Renewable Energy,” Green Car Congress, April 20, 2006, accessed December 6, 2016, Available: http://www.greencarcongress.com/2006/04/fossilfuel_plat.html.

21. “Markets,” Glasspoint, 2016, accessed December 7, 2016, Available: https://www.glasspoint.com/markets/.

22. “CO2 Storage in the North Sea,” Statoil, December 17, 2013, accessed December 6, 2016, Available: http://www.statoil.com/en/TechnologyInnovation/NewEnergy/

Co2CaptureStorage/Pages/CO2storing.aspx.

23. “Sleipner West,” Statoil, December 17, 2013, accessed December 6, 2016, Available: http://www.statoil.com/en/TechnologyInnovation/NewEnergy/Co2CaptureStorage/Pages/SleipnerVest.aspx.

24. “Snøhvit,” Statoil, December 17, 2013, accessed December 6, 2016, Available: http://www.statoil.com/en/TechnologyInnovation/NewEnergy/Co2CaptureStorage/Pages/ Snohvit.aspx.

25. “Quest Carbon Capture and Storage Project Reaches Significant One-Year Milestone,” Shell Canada, September 14, 2016, accessed December 6, 2016, Available: http://www.shell.ca/en_ca/media/news-and-me-dia-releases/news-releases-2016/shell_s-quest-carbon-capture-and-storage-project-reaches-signifi.html.

26. “Breathing More Easily: How Natural Gas Can Change Lives,” Shell Global, 2016, accessed December 6, 2016, Available: http://www.shell.com/inside-energy/how-natural-gas-can-change-lives.html.

Copyright © 2019 Elsevier B.V. March 2019

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