Three Decarbonization Priorities for Oil and Gas

Pat Jelinek is a principal at Ernst & Young in Houston and serves as the EY Americas Oil and Gas Leader. Swapnil Bhadauria is a senior manager at Ernst & Young and serves as the EY Americas Oil and Gas Digital Operations Leader. Sayantan Chatterjee of Ernst & Young contributed to this article.

While progress around energy transition continues to accelerate, demand for reliable, affordable energy services and products persists around the world. It’s apparent that the hydrocarbons with the strongest economics and lowest carbon emissions, along with access to distribution, will have the clearest path to market.

This dynamic is the right time for the oil and gas (O&G) sector to use record profits to reinvest. In doing so, there are three critical priorities on which O&G companies need to focus: develop strategies to reliably measure, reduce and report carbon emissions; decarbonize field operations; and embed circularity and low-carbon fuels in energy products.

Carbon emissions management: reliably measure, reduce and report  

Cleaner energy is necessary to reach society’s decarbonization ambitions and that means managing emissions and reducing the carbon intensity throughout the product lifecycle. However, companies first need to have access to reliable data and understand baseline metrics. In a recent EY survey, energy executives pointed to multiple challenges when it comes to carbon emissions management:

• Limited access to high-quality data, including sensors to measure fugitive emissions;
• Trade-offs between profitability, operational procedures and regulatory requirements to reduce emissions;
• Disconnected enterprise-wide functions or processes to collect and harmonize emissions data; and  
• Lack of standardization for global reporting requirements

Recognizing these challenges, leading companies are putting new systems in place that can measure, monitor and report key data points to inform strategic decision-making and ultimately meet greater market demands for cleaner energy. The first step is to identify data requirements at a more granular level to improve data capture and accuracy. For example, this may include collecting data from legacy systems to estimate carbon emissions and intensity, as well as investigating if investments already made in sensor technology and data analytics are being harnessed to their full potential. In some instances, additional investments in sensors or analytics aren’t required. It’s a matter of putting the people and processes in place to reap the benefits of those technologies.

Moreover, once accurate data is captured, leadership teams need to empower their workforce to leverage it in their everyday duties, no matter where they sit in the organization—out in the field, commercial or back-office operations—as this will be pivotal in reducing emissions year over year.

Decarbonization of field operations: lowering the net-carbon footprint

Decarbonization is front and center for asset-operations teams as companies work toward net-zero emissions goals. This is driving operators to match field emission goals to corporate emission goals, making it necessary to implement and execute a roadmap to lower the carbon footprint of field operations. While these efforts have been ongoing for many years, the execution is not simple and often requires multidisciplinary stakeholder engagement across the organization to find the right balance of economics and emissions. There has been an uptick in momentum for field operators to redesign, optimize and innovate in three specific areas:

• Equipment-level and production optimization across the network of assets to reduce emissions: led by field operations and maintenance, with engineering support, as part of routine field management;
• Electrification and use of renewables to power production: led by capital projects and facilities engineering to help meet asset goals; and
• Using emission byproducts to produce energy or energy products, e.g., using CO₂ for EOR in carbon capture utilization and storage (CCUS) or using CO₂ to produce synthetic fuels and plastics): led by asset development teams and field engineering teams

Low carbon in design: embedding circularity and renewables, as well as lower carbon molecules at scale, in energy products

Embracing circularity and fuel alternatives in product design can improve margins as commercial customers are increasingly favoring, and are ready to pay a premium, for more sustainable products. Technology can help companies create transparency, expedite the process of determining circularity and automate sustainability certification. O&G companies can look for guidance from the chemical industry, which is already playing a pivotal role in the circular transition by investing in new product technology, value chain partnerships, circular business models and waste management infrastructure.

Led by portfolio development teams, adding low-carbon fuels to a company’s product mix or portfolio can create new revenue streams with products such as H₂, sustainable aviation fuels and biofuels. O&G companies that can work collaboratively to develop a circular strategy around these efforts can find new ways to reduce their carbon footprint. This may include implementing measures to achieve goals, and continuously monitoring progress to identify operational efficiencies or roadblocks in that journey.

Putting people at the center within the organization and across ecosystems

Major industry events over the past decades have informed and matured work safety practices, elevating its priority to No.1 today. Putting people at the center of change has made this industry successful in the past. Organizations that keep people at the center of their decarbonization journey will be able to drive adoption, accelerate innovation and differentiate in the market with a competitive advantage.

Every organization will have unique challenges. There isn’t a one-size-fits-all playbook to address every concern. Two common roadblocks that we often see are building a company culture and upskilling employees around decarbonization. O&G management teams need to shepherd in a fundamental culture change and help their workforces understand and embrace these priorities. Organizations need multifunctional teams set up with an innovation mindset and wide-ranging skills—domain expertise, data, business intelligence and artificial intelligence—to tackle complex problems as the industry navigates the energy transition via decarbonization and digitalization.

In addition to tackling these roadblocks, organizations have the opportunity to leverage the broader partner ecosystem and innovation that is happening faster than before. Vendors are no longer just service providers; they want to operate like partners to jointly accelerate decarbonization from the onset of the journey. Industry leaders are coming together across traditional organizational barriers and disciplines with a commitment to solving decarbonization for the energy industry.