The BP Clair ridge project in the North Sea, 47 miles west of Shetland.
There is good news and bad news in the oil and gas patch. The bad news is that oil and gas companies face multiple uncertainties due to Covid, the ecological crisis and the need to transition toa zero-carbon future. The good news is that new technology, especially digitalization and 3D printing, allows the industry to make efficiencies and keep prices down.
By James Chater
One of the greatest challenges of modern life is being able to make decisions based on the probable occurrence of future events. This task is being made more difficult by crises and “black swan” events, whether of the health or financial variety. This predicament is all too familiar in the upstream oil and gas sector. The difficulty lies in balancing society’s continuing reliance on oil and gas against the unfolding ecological disaster, which can be addressed only by transitioning to a carbon-free future as soon as possible. Forward planning is more difficult than ever, meaning that long-term, capital-intensive projects are being sidelined in favour of short cycles and quick paybacks. This uncertainty is compounded by the Covid pandemic, which has plunged the energy markets into chaos. Since the start of the pandemic, oil and gas have bounced back impressively, but this summer’s floods and forest fires continue to remind us of the urgent need to act soon to reduce carbon emissions.
The ecological crisis has assumed political and judicial dimensions. Shareholder activists have targeted Exxon and Chevron, with the aim of reducing these companies’ carbon imprint. In 2021 a Dutch court ordered Shell to reduce CO2 emissions by net 45% by 2030 compared to the group’s levels in 2019. Shell has appealed, stating that it would be better to adopt an “approach that is global, collaborative and encourages coordination between all parties.” Disinvestment is another challenge facing big oil and gas. In November 2019, the European Central Bank announced it would stop funding oil, gas and coal projects at the end of 2021. However, in June 2020 it injected over ¤7.6 billion into fossil fuel bonds as part of a stimulus package in response to Covid.
Shareholder activism and disinvestment, though of limited impact so far, are perhaps a sign of things to come. But whereas several small, specialized fossil-fuel companies are under threat from the current uncertainty, the larger companies have pockets deep enough to transition towards a low- or a zero-carbon future, with or without shareholder prodding. Recent name changes are revealing: Norway’s Statoil became Equinor some years ago, and recently France’s Total was renamed TotalEnergies, signalling the change of emphasis on fossil fuels extraction towards energy provision in a broader sense. Nor is the change limited to rebranding: the transition away from high carbon is real. Total, BP and Shell are investing more in gas (including LNG) and less in oil, and there is also a transition away from gas to hydrogen, using the same pipeline infrastructure. European oil and gas companies are investing heavily in wind and solar, and biofuels are also replacing fossil fuels in refinery and petrochemical projects. In North America, the pace of change is slower, but there is a surge of interest in carbon capture, utilization and storage (CCUS). In both the EU and North America, post-Covid stimulus packages call for investment in green energy, suggesting that the time is right for the coordination-based approach advocated by Shell.
Exploration and development
As I write, Nicola Sturgeon, the Scottish First Minister, has just written to the Prime Minister of the UK asking him to rethink the development of the Cambo field in the North Sea and to rethink projects in which development has not yet begun. At the height of the pandemic, companies were wondering out loud whether exploration is still profitable. Ecologists have claimed that, were all the discovered oil and gas to be exploited, we would pass the threshold within which the world can be saved from the worst effects of global warming. Yet exploration remained buoyant in 2020, the very year when the Covid crisis was at its height. Especially off the coast of Africa, in Suriname and in the Arctic regions, sizable reserves are still being discovered.
In the last year, a number of new projects and new phases of existing projects have been announced. Africa and Brazil are among the most active. An FPSO is to be deployed in the Sangomar field near Dakar, Senegal. Offshore Brazil, TotalEnergies launched phases 3 and 4 (two FPSOs) of the giant Mero field located off Brazil, to be started up in 2024 and 2025 respectively. In June, Equinor and ExxonMobil, Petrogal Brasil and Pré-salPetróleo SA (PPSA) announced they would develop phase 1 of the Bacalhau field in the Brazilian pre-salt Santos area, with the largest FPSO in Brazilian history.
The North Sea is also active, both for new projects and enhanced or late-recovery projects. Equinor and the partners Petoro, VårEnergi and Total E&P Norge have decided to develop the Lavrans discovery and the Kristin Q discovery, which is a part of the Kristin field.
Shell announced the final investment decision (FID) for Whale, a deep-water development in the U.S. Gulf of Mexico. It will use what Shell calls a “a simplified, cost-efficient host design”. In Australia, Santos announced the FID for the gas and condensate project offshore the Northern Territory.
A great deal of uncertainty surrounds the viability of these projects. Oil and gas companies are exercising greater caution, becoming more selective in the fields they choose to develop, laying off personnel, and using IT and technology to cut costs.
Many companies are turning to Artificial Intelligence to solve business and engineering challenges, such as lowering carbon footprint and curbing carbon emissions. For instance, BP has joined the IBM Quantum Network to explore how quantum computing can be used in the energy industry.
Another way to keep costs down is to apply manufacturing technology that reduces the carbon footprint, speeds up the manufacturing process, and saves on materials. Additive manufacturing
(AM, also known as 3D printing) has revolutionized components manufacture in aerospace and prosthetics; the same is about to happen in the oil and gas industry. So far, AM has been applied more to prototyping than to fabrication in the oil and gas industry, allowing multiple design cycles and faster testing of complex design concepts. AM is especially useful for low-volume or tailor-made products and remote installations where on-site manufacture can save delivery costs and reduce delays.
The oil and gas industry is beginning to show an active interest in AM for fabrication. TotalEnergies is one of the companies that has been able to limit rig downtime by 3D-printing repair parts on site. Vallourec, the French tube company, has turned to thermal spray and Wire Arc Additive Manufacturing (WAAM) to streamline their fabrication procedures, and has already supplied TotalEnergies with a WAAM-printed water bushing (a safety device to counter hydrocarbon kicks from wells in construction) for a well in the North Sea. 3D-printing of components in stainless steel took an important step with the launch of the first component 3D-printed in super duplex. Sandvik collaborated with their subsidiary, AM service provider Beamit, to develop the technology of printing components for the oil and gas industry using Sandvik’s own metal powder Osprey® 2507. The initial fruit of their collaboration is a lighter, faster and more efficiently manufactured offshore impeller, developed in collaboration with Equinor and Eureka Pumps. The use of a powder metal has permitted the production of an impeller with superior corrosion and strength properties: its critical pitting temperature, at 90°C, is higher than that of conventionally manufactured super duplex components. Given the high-pressure, high-temperature and corrosive conditions of offshore installations, it is a safe bet that other applications for 3D printing of specialty alloys in this field will soon follow.
The transition to sustainable energy is like a dance in which the partners have to stay in step one with another without lagging behind or advancing too quickly. If one company transitions too quickly, it may find itself at a competitive disadvantage. Customers and their suppliers need to be in sync, so that for example, enough recharging stations are built to cater for an increase in electric cars. As Shell has suggested, “coordination” may be the best way to allow competitors, consumers and suppliers to advance at the same pace. It is up to governments and international organizations to provide the framework and the level playing fields within which companies can advance quickly, but in good order.
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