The debate around emissions is complicated and can bring out strong emotions on all sides, but it is something that the oil and gas needs to strategically adapt to. The problem is that part of the complication is the result of the wide variety of opinions and regulations that the sector is trying to adapt to. Techology could make the scale of the problem clearer, which in turn will make it easier to respond, suggests Kay Rieck, an experienced market observer and investor.
People have been talking about emissions since the first wave of green debate in the early 1990s. It’s suggested that as the number of people on the planet has risen from 1 billion to 8 billion over the last 80 years, we need to be careful about how we manage the Earth’s resources and try and ensure that we pay attention to the health of the environment and understand our impact on it.
The trouble has always been that it is difficult to achieve a consensus about the best way to address the issue. Some people believe that we should take one approach and then some others will point out that this might stymie their economic development and then a third says that the approach would fix one issue but then ruin the something else. The arguments goes round and around and nothing gets done.
The European Union tried to take a stance in 2005, launching the European Union Emissions Trading Scheme (EU ETS) which now covers around 11,000 factories, power stations and other installations. According to its own definitions, it has broadly been successful in its attempts to reduce EU emissions, cutting greenhouse gas emissions by 20% compared with 1990, reducing energy consumption by 20% compared to the 2007 baseline scenario, and helping the block achieve a 20% share of gross final energy consumption from renewable energy sources.
The problem is that Europe is only one part of the world and while it is keen to try and lead the way in reducing emissions, it is probably not unfair to say that it has not particularly inspired the rest of the world to follow its example. While there are plenty of schemes and policies around the world that are aiming to reduce emissions, we are undoubtedly a long way from a unified system that could start to make a difference from an environmental perspective, and from the perspective of the oil and gas industry the hodge-podge patchwork regulations is not massively helpful at an operational level.
Nevertheless, industry is under increasing pressure to develop ways to respond to the emissions debate.
The problem is the reality of cost, and the price of potentially disruptive change. While oil and gas prices in 2021 were better than many hoped, they arrived on the back of many years of uncertainty and hardship for the industry. Asking small scale exploration and production firms to invest in new systems and adapt to new reporting mechanisms to fit into a framework that that varies from country to country is complicated and likely to be met with little more than lip service even in the best-case scenario.
Tech to the rescue?
At the same time, technology around the world is starting to catch up with the ambitions that have been described in places like Europe. Some countries are starting to invest in drones armed with advanced sensors that will be able to detect emissions in even remote locations. This could mean that enforcement regimes will be enhanced over the next few years as governments and regulators take action against oil and gas firms found to be in breach of regulations.
It’s worth pointing out that ultimately emissions represent lost profit for the oil and gas sector and as a result, many parts of the sector are already augmenting their activities with similar sensors to ensure that they are using the world’s resources responsibly and, almost as importantly, reducing waste to maximise profit.
It is not just sensors and drones that could make a difference. The blockchain has the potential to make it easier to collect comprehensive data from a project and collate it into an industry-wide view that would deliver a single version of the truth. This in turn could be used by regulators globally to massively enhance reporting and deliver clarity about how the oil and gas sector operates.
In a few instances this may not be a welcome development, but for many across the industry, having the data available to offer critics coherent answers would be a welcome improvement on the current situation.
As I have said several times in these articles, oil and gas may well be on its way to becoming less central to the global economy than it has been for the last century, but it is likely to continue to play an important role for at least the next couple of decades and potentially well beyond.
Ultimately, in the absence of a consistent global regulatory system, the oil and gas sector is having to respond to changing consumer expectations on an ad hoc basis. Whether technology can come to its aid will be an important debate over the next few years.