If you are an Oilfield Services Company that does not yet have an Energy Transition Strategy you are already late, and in danger of being left behind the rest of the industry. The downturn and the economic climate have been especially tough for the OFS sector and many of us are still trying to recover from the collapse in revenues, and the pricing challenges from continuing overcapacity. As these pressures begin to ease, OFS companies need to start thinking ahead about what they want to look like a decade from now as they engage with the rest of the sector (and the world) in the transition towards cleaner energy and renewables.
One clear opportunity to do this for OFS companies today is in the emerging Carbon Capture and Sequestration (CCS) value chain. Using existing reservoirs that have the capacity to accept carbon molecules back into the rocks that they originated from is going to become the single most important contribution to reaching our climate change goals that the Oil and Gas industry can make. The CCS value chain includes all of the activities from the point of emissions capture to the point of injection and storage. It also includes activities around documenting and monitoring the chain of custody of those molecules for the purposes of delivering carbon credits to emitters and satisfying the coming fiscally driven opportunities that will arise, and technologies and measures to ensure that the carbon stays there and is permanently absorbed back into the rocks.
Today, there are potential CCS projects being assessed and initiated in multiple global regions by a host of consortia that includes governments, oil and gas companies, renewables companies, service companies, and the emitters themselves. The recent funding announcements in the UK for their track 1 CCS projects, and the recent storage license awards in the Gulf of Mexico are just two examples of what will be billions of dollars of investments through the remainder of the decade.
The biggest challenges that will be faced by these project teams will be threefold; the economics of CCS are nothing like oil and gas. There are no commodity prices going up and down that will deliver the kind of short-term cash flows that we are used to. There are new technology requirements for CCS that will be needed that are adjacent to what we already know how to do but will still need innovation and investment to solve. And there are no experts in the field, no matter what you might read to the contrary. Until we actually have projects up and running that are injecting millions of tons of carbon into underground reservoirs, there is much for everyone to learn.
What makes this different from what we have always done in the past is that the Oil and Gas operators will have to become service companies themselves as they become part of the value chain and not just a commodity seller, and the OFS companies will have to learn how to partner with operators, emitters, and midstream players, perhaps even to the point of becoming investors in some of these projects.
Many would argue that the OFS sector has always been a major source of innovation for our industry. The emerging CCS business presents us with the next opportunity to engage with the other players and form the new alliances that will drive the next wave of new technologies needed for success. One industry insider that I spoke with recently said something that really resonated in this respect.
“This time around instead of bidding out the parts like we used to do, operators and service providers will all need to work together as one team to optimize the entire CCS ecosystem if we are to succeed.”
What will success look like? Getting to carbon neutral, or even net zero (although it’s not really clear to me yet what that truly means) is a great aspiration. However, for the OFS companies that are still thinking about what Energy Transition might mean to them, I would say that surviving and thriving through the next decade of change in our industry is what you should be most concerned about.
“How Do OFS Companies Engage in Energy Transition with Carbon Capture and Sequestration?” was written by Chris Chia, Managing Director. In the next few weeks, Chris will further explore the unique challenges and opportunities facing energy services companies.