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Decarbonization in the Oil and Gas Sector: What Investors Should Know

By Ellen WaldCommoditiesJul 27, 2023 09:01
uk.investing.com/analysis/decarbonization-in-the-oil-and-gas-sector-what-investors-should-know-200585295
Decarbonization in the Oil and Gas Sector: What Investors Should Know
By Ellen Wald   |  Jul 27, 2023 09:01
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  • Oil and gas companies are actively decarbonizing operations across all segments.
  • Strategies include renewable energy adoption, carbon capture and storage, methane leak detection, and hydrogen utilization in refining.
  • Investors considering the oil and gas sector should not overlook these new technologies.

Demand for oil and natural gas is not going away anytime soon. Goldman Sachs sees global oil demand, led by India and China, hitting a new all-time high in the third quarter of 2023, while the IEA recently predicted that global oil demand will increase by 2.4 million barrels per day this year.

Even with major increases in renewable energy generation, our system will still require oil and gas for transportation, electricity generation, petrochemicals, and heat for years to come.

Oil and gas companies are keenly aware of this reality, and many are choosing to take action to decarbonize the upstream, midstream, and downstream segments of the industry.

While such developments may be seen as old news, traders should remain aware of how oil companies are moving to improve energy efficiency and decrease their own demand for fossil fuels, as this can directly impact the amount of oil they can bring to the market.

Moreover, investors should similarly keep track of how oil and gas companies are investing in decarbonization projects and technology, as it has become clear that these decisions can influence a company’s share price.

For example, carbon capture and storage (CCS) has rapidly emerged as one of the most popular methods of decarbonization for the energy industry.

As such, CCS projects and innovations have attracted unprecedented investment and support from leading oil and gas companies. Just recently, Occidental Petroleum (NYSE:OXY) announced plans to invest $800 million to $1 billion in a carbon capture plant to remove carbon dioxide from the air.

Despite CCS’s current popularity, it is far from the only way that oil and gas companies are hoping to prevent their emissions from entering the atmosphere.

In fact, there are many more innovative technologies and practices being deployed at various stages of oil and gas production, which can increase efficiency, reduce emissions, and facilitate decarbonization within the industry.

Here is a look at some of the most promising methods, many of which will be on display at ADIPEC 2023, the world’s leading energy conference and convener of top energy executives and policymakers.

Methane Leak Detection

According to the IEA, the oil and gas industry emits around 70Mt of methane (a little over 5% of global energy-related greenhouse gas emissions). Reducing unintentional methane emissions—leaks as opposed to venting or flaring, which is intentional—is key to decarbonizing the industry.

It is crucial to detect and repair small methane leaks at upstream facilities before they become larger leaks. Older methods of detecting methane, such as Optical Gas Imaging (OGI), are only reliable at detecting large leaks.

But new technologies such as the Gas Mapping LiDAR™ system from Bridger Photonics or Longpath Technology’s long-path laser systems probe can provide oil and gas companies with detailed information about exactly where small amounts of methane are leaking—so they can be remediated. Developing and deploying more sensitive methane detection systems will help reduce emissions from oil and gas production.

Renewable Energy in Oil and Gas Field Operations

Oil and gas operators primarily use diesel and gas turbines to provide power in the field. However, in many cases, it may be possible—and even more efficient—to use renewable energy to provide power for oil and gas production.

For example, in the 1970s, Exxon Mobil (NYSE:XOM) pioneered the use of solar panels to provide power to remote oil wells in Saudi Arabia. Today, steam created by harnessing solar power is being used in enhanced heavy oil recovery in Oman. Norway’s oil company, Equinor (NYSE:EQNR), is pioneering a cross-sector partnership with the offshore wind energy industry. They are developing a floating offshore wind farm to provide power to two offshore oil fields.

New cross-sector partnerships and collaborations between the oil and gas industry and the wind, solar, hydro, and nuclear energy industries could help reduce the carbon intensity of the oil and gas industry and present new opportunities for investment.

Use Hydrogen in Refining

Downstream oil and gas activities like refining and petrochemical accounted for 20% of the total methane emissions from fossil fuels in 2020. There is significant room for decarbonization, and an innovative cross-sector partnership with the nascent hydrogen industry could prove beneficial here.

Stationary combustion, which requires very high temperatures and accounts for 63% of refinery emissions, can be accomplished by burning hydrogen rather than fossil fuels.

Burning hydrogen can achieve the same high temperatures as burning fossil fuels, but it emits water vapor rather than carbon dioxide. Refineries are particularly well positioned to burn hydrogen because many refining complexes already produce hydrogen for use in other chemical applications. They can bypass many of the issues that make it difficult for other industries to switch to hydrogen fuel.

As investors consider the oil and gas sector, they should not overlook new technologies and avenues for decarbonization in the oil and gas sector.

Carbon capture and storage may be in vogue, but it is far from the only method of decarbonization out there. Other methods and technologies, such as the ones detailed above or others, may prove more cost-effective and efficient to deploy.

***

Disclosure: The author has no connection to any of the companies or securities mentioned in the piece.

 
 
 
 
Decarbonization in the Oil and Gas Sector: What Investors Should Know
 

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Decarbonization in the Oil and Gas Sector: What Investors Should Know

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Comments (6)
Brian Hayes
Brian Hayes Aug 18, 2023 8:47
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A really interesting article, thank you.
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Dan Selimi Aug 15, 2023 12:09
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