A rising world population will need more than 50% more energy annually by 2050. Continuing on the current path of consuming fossil fuels will cause global warming to exceed 2°C.
Aware of the push and pull between growth in demand and climate change, DNV GL is developing its own vision of where oil and gas needs to go by 2050. Why? “The sustainability issue aligns closely with our company purpose to safeguard life, property and environment,” said Etienne Romsom.
“Our purpose, experience and technical expertise give us cause to express ourselves on the issues, and to suggest a roadmap for the oil and gas industry with some of the breakthroughs that are needed.
“We are working closely with a range of companies keen to develop and implement best practices and we contribute through our own Recommended Practices, Standards and research. We are not a voice for the oil and gas industry, non-governmental organisations (NGOs) or governments. We approach these issues from an independent perspective.”
DNV GL’s report ‘A safe and sustainable future – enabling the transition’ is a starting point to develop this vision. It includes targets that address the distrust that often exists between oil and gas companies, NGOs and the general public, and suggests areas that need improving.
Why 2050? “We wanted to think far enough ahead that our vision would not be constrained by current realities. We also identify the key challenges that need to be overcome to realise our vision,” Romsom said. “Most gas projects last up to 40 years for full lifecycle, so we need to consider a 2050 perspective in solving some of the bigger changes. It shouldn’t take until 2050 to implement though!”
Far from being “pie in the sky”, it is about describing a world that is “not just possible but desirable” and asking what needs to happen to bring it about, he stressed. “It’s not just about the destination, it’s about the journey. It is about creating a roadmap of what needs to change if we are to reach the destination we aspire to.”
Transparency and collaboration emerged as “probably the most fundamental and important change that is needed”, Romsom said. “The Macondo accident underlines how the reputational and financial consequences of a major incident can humble even the largest company, and it also had substantial implications for the entire industry,” he pointed out.
On companies’ historic preference to develop proprietary technology to gain competitive edge, he said: “Technology development is critical, but intellectual property (IP) is much less a commercial differentiator than it used to be. In the future, differentiation will come from abilities to attract the best human talent and to obtain the trust of the public for companies’ activities.”
Encouragingly, there are examples that demonstrate increased collaboration and openness. Romsom cited his recent experience at the IHS Energy CERAWeek in Houston, USA. The event saw an exchange of views between Marvin E Odum, president of Shell Oil Company and director of its Upstream Americas business, Colorado’s governor John Hickenlooper, and Fred Krupp, president of the Environmental Defense Fund, an NGO.
“Here was an NGO that based its arguments on rational thought, data and analysis to challenge international oil companies (IOCs) to do the right thing. They were working together, almost as a multi-sector partnership, and recognised that it was the only way to make change, rather than shouting from the rooftops,” Romsom said.
The lesson, he suggested, is that those wanting change would do better to challenge IOCs based on data and facts. “World Wildlife Fund works with IOCs in a similar challenging but constructive manner, for example.”
Instances of collaboration within the industry are increasing. Marine Well Containment Company (MWCC), was created by a number of companies post-Macondo to devise and implement emergency responses to subsea oil leaks. “It’s a good example of companies pooling expertise and resources in a dedicated vehicle acting on behalf of all the partners and able to respond to their needs with the best possible technology, equipment and people,” Romsom explained.
An example of where collaboration could have been beneficial is Queensland Australia, where three large LNG projects have been developed at the same time but independently. “If they had been able to overcome their hurdles for cooperation, they could have achieved a similar performance from the same infrastructure by paying for only two LNG plants instead of three. One reason for the cost pressure in oil and gas is that companies are not cooperating enough,” Romsom suggested.
If companies are finding it harder to compete through IP, what can they compete on? Performance,” Romsom replied, “but what do you measure and report when the public does not trust oil and gas companies to tell the truth about the level of spills or other information?”
The key to making performance a differentiator is openness, he argues. “Many companies have delivered on this for years already, both to enhance their own performance and to protect themselves by showing that even when things do go wrong, they act and respond through the best possible practice.” Still, not all industry players adhere to the same level of openness.
In DNV GL’s report, oil and gas companies incorporate the ‘true cost’ of their activities in their pricing and decision-making in a full lifecycle perspective. Environmental and social impacts appear in corporate reports and on corporate balance sheets. This plays an integral part in oil and gas companies’ investment decisions, stock market evaluations, corporate ratings and project financing. This ‘footprint economics’ approach ensures that the higher environmental cost and societal burden of extracting oil and gas from natural resources are fully accounted for.
“A number of companies is doing this already and some of our customers put a carbon charge in their assessments of their portfolios,” Romsom said. “Projects that have a high carbon footprint rank lower than a similar project with poorer financial forecasts but a lower carbon footprint. It’s partly a hedge against the possibility of a future carbon tax, but it is also about steering portfolios towards lower carbon impact.”
The report has telling observations on the nature, application and levels of carbon taxes. “They will likely make oil and gas more expensive for consumers and give breathing room for renewables to become more competitive,” Romsom said.
His experience is that oil and gas companies recognise the climate challenges but need to see a level playing field where carbon taxes are applied consistently and in a fair, workable and effective manner. “If its implementation is global, I would say that the reputable oil companies will participate and the others will have to join in,” Romsom explained. “If accounting for ‘true costs’ becomes required in financial statements, in annual reports and in submissions to stock exchanges then companies will be forced to put true cost on their balance sheets and this will then guide their performance.”
Could oil and gas companies ever agree on a global plan to tackle climate change? “We’re all in this together,” Romsom said. “Most oil and gas companies accept the outcome of the major studies on climate change. They are not in denial. I think we need a roadmap that gets us out of the spin, and that is exactly what this vision is about.”
So far, consumers have not challenged oil companies by voting with their feet consistently and widely. That could change quickly if increased transparency allows consumers to experience directly, for example through product labelling, the true costs of the goods they are buying. Romsom concludes that the roadmap towards a safe and sustainable future requires all global citizens to walk a tight-rope together by carefully balancing economic, environmental and societal needs. The bottom line of our actions affects the balance of us all to stay on track.
Marine Well Containment Company, Massey M, Offshore Technology Conference, Houston, US, 2011
 ‘MWCC and Wood Group PSN form US offshore reserve response team’, Scandinavian Oil & Gas Magazine, March 2013
 Australia Pacific LNG (partners Origin, ConocoPhillips, Sinopec); Queensland Curtis LNG (BG); and Gladstone LNG (partners Santos, Petronas, Total, Kogas)