Turning the corner: Emission cuts as a precondition to oil and gas activity
25/03/2022: OG21 presented its new strategy titled "A New Chapter" at the LowEmission Consortium Days in November. As the title makes clear, the strategy constitutes a change of discourse for the Norwegian oil and gas industry, where decarbonisation takes the centre stage. We had a chat with OG21's Managing Director, Gunnar Lille.
LE: The new strategy seems to increase the focus on low emission technology. What is this telling us about the oil and gas industry's view of the energy transition?
GL: The biggest change is probably the fact that reduction of greenhouse gases has become a prerequisite to oil and gas activity. It's a precondition to continuing oil and gas exploitation, to keep getting support from the public at large and not least to secure capital. Reducing emissions has evolved from something that was "the right thing to do" to being good business. The priority for OG21 is still to ensure that the industry is competitive. Earlier, that mostly meant having low operating costs, but now it means in addition to reduce emissions to keep the public's support and secure capital.
LE: How does reducing emissions help secure capital?
GL: We've seen a bit change among institutional investors over the last few years. They are now more and more concerned about Environmental, social, and corporate governance management in the enterprises they invest in, and especially goals and plans for reducing CO2 emissions. We see this also reflected through initiatives in the finance sector, like the UN Principles for Responsible investments, and in the EU Taxonomy system. All this will make access to capital easier and cheaper for the enterprises with the lower CO2 emissions.
LE: The new OG21 strategy includes decarbonisation of petroleum value chains. Can you tell us more about that?
GL: This is the new part. Reducing emissions has become essential to competitiveness. As we speak, Norwegian natural gas is being exported to the EU and the UK through pipelines and generating record revenues – because the price of gas is so high due to a combination of reasons. Meanwhile, the EU sent clear signals through its Green Deal that it intends, over time, to phase natural gas out of its energy mix. So, in this case, decarbonising means securing a future market for our natural gas; whether through natural-gas-fired power plants that have CCS, or through hydrogen/ammonia production from natural gas (also with CCS).
LE: What is the role of research, development, and innovation in this context?
GL: It's absolutely crucial. Already 7-8 years ago, OG21 saw that low emission technology would become increasingly important. So, in our previous strategy (launched in 2016), we recommended the establishment of a low emission technology centre. The Ministry of Petroleum and Energy ended up heeding that recommendation and the LowEmission started its activities a few years later. The target, which is to cut emissions in half by 2030, will require loads of new technology. Electrification is the most crucial, but it involves significant costs, so reducing these costs through research is very important for us. Costs can be reduced by improving designs on things like subsea cables, for example, but also through system integration – connecting the energy system through hubs and creating an offshore grid. But lots of research challenges need to be ironed out before we get there.
LE: What's the biggest challenge, with regards to research?
We need to attract bright, young people.
GL: It's to get the solutions quickly enough. If we are going to reach the emissions reduction targets, we need the solutions as soon as possible. Electrification is the most important measure for us to cut emissions, and we realise that it's a controversial topic given current energy prices. So we look simultaneously at other solutions like energy efficiency improvements, optimising reservoir drainage, optimising electricity production. Beyond 2030, we can imagine offshore energy hubs with efficient gas-fired power plants that are equipped with CCS and that deliver power to nearby platforms. And if there's a power surplus at any time, we can either send it to land or store it as hydrogen/ammonia. Once we get there, we've really come a long way in decarbonising the whole value chain.
LE: The new OG21 strategy has three main recommendations: 1) Pursue technology through the innovation system; 2) Technology leadership; and 3) Attract and develop talent. How does a centre like LowEmission contribute to those recommendations?
GL: The first recommendation is about the innovation system. The interaction between all the players who contribute to bring forth innovations – research institutions, oil and gas companies, investors, and the government. We believe the system works well, but it is quite segmented into sectors. We believe it could be improved by supplementing the sectorial approach with a more holistic view across sectors, or "missions" if you like. The second recommendation is very important. Technology leadership means that people working in the industry need to get the right signals from their leaders. Sometimes trying new solutions means failing a couple of times at first, and tolerance for failure is much higher when people get a clear message from their leaders that solving this particular problem is a priority. The third recommendation has to do with the industry's reputational challenge. The average age of our employees is high. We need to attract bright, young people. They want interesting tasks, and they want to work for companies that take the climate issue seriously. And on many levels, we do; companies like Equinor, Shell and Total are heavily involved in hydrogen and CCS. We need to show that we are working on solutions to provide cheap energy and reduce emissions along the whole value chain, including both production and end-use.
LE: The Norwegian government recently announced its plans for offshore wind. What does offshore wind development mean for OG21?
GL: It will provide more power, which will be much needed. And there are synergy effects that can be achieved. In our strategy, we provide an overview of the overlapping areas of expertise between the oil and gas industry and up and coming industries like offshore wind, CCS, hydrogen and seabed minerals. Much of the knowledge developed by oil and gas can be applied in those industries, and the opposite is also true. In the digital realm, a whole lot of progress can be made (and knowledge shared) in fields like cybersecurity, big data and machine learning. The more we integrate the energy system, the more importance this synergy will be getting.
The new OG21 strategy can be downloaded from the organisation's website.
NB: The interview was conducted before the invasion of Ukraine by Russia was launched.