Energy Transition Is Not About Giving Up on Oil and Gas, It’s About Becoming a More Diverse Business

For the upstream oil and gas sector, the unfolding energy transition is as much about the diversification of energy products and revamping of business models as it is about the need to remove carbon emissions from the value chain.

This was one of the chief takeaways from five industry executives who headlined the plenary session at the SPE Annual Technical Conference and Exhibition (ATCE) this week in Dubai.

“It’s not enough to decarbonize the energy,” said Arnaud Breuillac, the president of exploration and production at TotalEnergies. “It’s also necessary to meet the growing energy demand. It’s a dual challenge and what we call a balancing act.”

Breuillac then used the word “reinvent” to describe what the oil and gas business must do to sustain itself in the coming decades. That means taking an active role in the expansion of solar power generation, wind turbines, biofuels, and hydrogen. These are all areas in which TotalEnergies—which changed its name in June to reflect its new vision—plans to invest $3 billion annually as it tries to become a top five producer of renewable energy in the next decade.

“But, at the same time, we’ll continue to invest in low-cost oil and gas developments,” Breuillac said. For TotalEnergies, this will be defined by assets with a recovery cost under $20 per BOE.

But these lower-cost projects still will have to lower the French supermajor’s greenhouse-gas footprint to earn sanction. This will mean that fewer oil projects will be on the agenda, but they will not be completely off the table.

TotalEnergies has a goal of changing its oil and gas production mix from around 50:50 today to around 50% gas, 35% oil and biofuels, and 15% mostly renewable electricity by 2030.

Breuillac quelled any idea that this means the company is shrinking in the face of the energy transition. TotalEnergies’ current output stands at around 3 million BOE/D. If things go according to plan, he said, that figure will swell to 4 million BOE/D by 2030, half of which will come from new liquified natural gas (LNG) production.

Speaking to the energy strategy of this year’s host city and emirate was Ahmad Al Muhairbi, secretary general of the Dubai Supreme Council of Energy. A petroleum engineer by background, Al Muhairbi told conference delegates that, while the industry was once the ultimate “driving force for energy in the world,” the turning point has come as society and government have signaled their broad support for more renewable energy.

“What does this mean for the hydrocarbon industry? It means the competition is here and [that] this industry needs to sharpen up its mind and technology throughout the supply chain” to meet the clean energy goals being established the world over, he said.

All of the executive speakers were overwhelmingly positive on the ability of the oil and gas business to retool its business for this new paradigm.

Omar Obaid Al Nasri, CEO of ADNOC Onshore, reminded that, when his company was formed in 1971, it had a sustainability mandate to process associated gas from its oil developments. “That created ADNOC LNG,” he said. “So, when it comes to sustainability, it is part of our DNA.”

Building on this legacy, Al Nasri pointed to ADNOC’s announcement in May that it is moving forward on plans to build a large-scale “blue” ammonia- and hydrogen-production facility. The project will involve generating low-carbon ammonia from nitrogen and blue hydrogen that is created by combining natural gas steam reformation with carbon capture and storage (CCS).

As upstream companies work to be part of the great energy transformation, one question asked of the executive panel is who will be there in the future to work for them. Olivier Le Peuch, the CEO of Schlumberger, said that this represents “the one part of our future that is most at risk.”

“The future will be at risk if we don’t get the capital, if we don’t get the talent, and if we don’t get the innovation,” he continued. “And the people are the source of innovation in our industry.”

Le Peuch said the solution lies in the industry’s ability to make clear that, within the expanding energy spectrum, it is the true technology leader. “If you are committed to decarbonization, as we have this morning, if we’re committed to digital transformation, I believe that we can retain and attract talent in our industry and help our people transform with this industry and become energy leaders in the future.”

ATCE is being held at a time when many oil and gas producers are enjoying high prices for their products. However, this aspect has not muted the will to change.

Vadim Yakovlev, deputy CEO of Gazprom Neft’s upstream business, noted during his remarks that the Russian operator cut production by 20% in the spring of last year to accommodate an OPEC+ agreement. Now, the company is back “in full swing” and producing 2 million BOE/D, he said, calling the figure a long-term goal. “I feel that we have passed the ultimate test that was brought on us by huge market volatility,” Yakovlev said.

But, as Gazprom Neft moves out of the downturn with a better balance sheet, it too is looking for ways to align with climate goals over the next decade. Yakovlev said that should translate to around 80% of all new production growth coming from gas and gas condensates, which may ultimately add up to 4 BCF/D at a recovery cost of $5 per BOE.

On the decarbonization effort, Gazprom Neft’s chief contribution will likely center around CCS. The company operates an extensive network of pipelines that could be used to transport emissions from Russia’s industrial base and into storage reservoirs. Yakovlev said talks are underway with Russian industrial and chemical firms to create a CCS business model.

“Effectively, we’re talking about creating a new industry on a huge scale,” he said, adding that, without both CCS and oil and gas talent, the world’s net-zero goals will not be met. “The only people who can get this carbon back underground is oilmen. So that’s our role, our responsibility, and we know how to do this.”

Source: https://jpt.spe.org/atce-energy-transition-is-not-about-giving-up-on-oil-and-gas-its-about-becoming-a-more-diverse-business