[Editor's note: This story originally appeared in the December 2019 edition of E&P. Subscribe to the magazine here.]
The issue of environmental sustainability has increasingly become a major cause of concern for the oil and gas industry. With increased awareness of climate change, environmental impacts and societal expectations, the industry has been pushed to take stronger measures to embrace environmental sustainability, which has become an important component of strategy, investment decisions and operations for oil and gas companies.
While the soaring production of natural gas in the U.S. has made cleaner-burning fuel a big part of the global energy mix, there is growing public concern over methane emissions. According to the Environmental Defense Fund (EDF), methane emissions are responsible for about 25% of current global warming. There is plentiful evidence to support the fact that accumulation of atmospheric greenhouse gases (GHG) from burning fossil fuels is changing the climate. The oil and gas sector is believed to be one of the largest culprits of methane release, producing about a quarter of global anthropogenic emissions, according to U.N. statistics.
Environmentalists and a few government authorities predict that the problem will persist if the industry does not take strong action against climate change. Consequently, there has been a call for urgent action, asking oil and gas companies to strengthen decarbonizing measures. In fact, Mark Radka, head of U.N. Environment’s Energy and Climate Branch, pointed out in a recent press release that “the oil and gas sector, which is increasingly recognizing the importance to act on climate change, can make a big difference by virtually eliminating methane emissions.”
Several of the industry’s largest companies have unveiled fresh carbon ambitions, low-carbon investment schemes and updated energy projections in recent months. For instance, Total recently announced that it would focus its global venture fund of $400 million on fostering carbon neutrality. In the U.S., most major oil companies have
adopted environmental programs and assumed corporate social responsibility to offset the damages caused by CO2 and other harmful emissions. Companies also are investing in new technologies to reduce the environmental impacts associated with oil and gas.
While several global oil majors are shifting focus toward renewable energy, many U.S.-based upstream companies remain focused on their traditional areas of expertise within the oil and gas space, while prioritizing investment in decarbonization strategies such as improving the carbon efficiency of operations to reduce GHG emissions.
Earlier this year, a Rystad Energy study revealed that methane emissions in the Permian Basin hit an all-time record high, averaging 663 MMcf/d in the second quarter of 2019. The report attributed the increase in flaring and venting to “higher activity levels, more production from areas with less developed gas gathering infrastructure and basinwide takeaway capacity bottlenecks.”
Accurate measurement of emissions is critical to make progress in the scientific understanding of the problem, evaluate the effectiveness of policy actions and to assure the public that the issue is being addressed, according to U.S. Energy Information Administration.
In October the EDF, in partnership with Google Earth Outreach, announced a yearlong study in which methane sensors will be put on planes, trucks and atop towers in the West Texas and southeastern New Mexico desert to monitor methane emissions from surging oil production in the Permian. The goal is to produce useful measurements for the oil and gas industry as it strives to reduce waste as well as for regulators and observers who are concerned about climate pollutants.
Integrated oil companies are developing new products and technologies to reduce their carbon emissions. Strategies include expanding natural gas operations, upgrading refineries, and developing and selling lower emissions products, according to a recent report by Moody’s Investors Service.
Oil majors Chevron and Exxon Mobil, both of which are in the race to pump 1 MMbbl/d of shale oil in the Permian, have vowed to cut emissions. In October Chevron established new goals to reduce net GHG emission intensity. The company expects to lower upstream oil net GHG emission intensity by 5% to 10% and upstream natural gas net GHG emission intensity by up to 5% over the next four years. The timing is aligned with milestones set in the Paris Agreement on climate change, as stated in a company press release.
Earlier this year, Chevron announced that by 2023, it would reduce its methane and flaring intensity by 25% to 30% from 2016 levels, and it said the goal would be added to the scorecard that determines incentive pay for about 45,000 employees. Chevron’s $1.1 billion carbon capture, use and storage (CCUS) projects are expected to reduce GHG emissions by some 5 MMmt/year, once operational. In addition, Chevron has executed agreements for solar and renewable power for its Permian Basin operations.
Meanwhile, Exxon Mobil is also deploying low-emission technologies in the Permian Basin, including an improved tank emission control design and the installation of instrument air packages, which use compressed air instead of natural gas to actuate pneumatic controllers at new tank batteries and compressor stations.
The company also announced the investment of up to $100 million over 10 years in R&D of advanced lower emissions technologies in collaboration with the U.S. Department of Energy’s National Renewable Energy Laboratory and National Energy Technology Laboratory.
In a similar effort to cut emissions, BP announced plans to deploy methane detecting and measurement technologies such as gas cloud imaging in its future oil and gas processing projects as part of its program to detect, measure and reduce methane emissions. The technology has been tested and installed in existing facilities such as BP’s giant natural gas Khazzan Field in Oman, according to a press release. Earlier this year, BP’s Statistical Review of World Energy revealed that carbon emissions grew by 2% last year, which is the fastest growth in seven years.
In October BP Ventures announced the investment of $5 million in Finite Carbon, a U.S.-based forest carbon management company, to grow a new line of business to incentivize sustainable forest management, financed by businesses seeking to voluntarily offset carbon emissions, according to a BP press release. The investment also aims at promoting carbon storage, cleaner water and air, reduced wildfire risk, abundant wildlife habitat and increased recreational opportunities in rural communities.
Advancing in the race for sustainability efforts, Occidental CEO Vicki Hollub recently announced plans to shift toward a carbon-neutral production model at an Oil and Gas Climate Initiative investments conference in Chicago. “There’s no way to cap global warming without significant sequestration and use of CO2. That is part of our strategy. It’s got to happen in a big way,” she said. However, Hollub pointed out that even though Congress has adopted tax credits for sequestration products, new laws are needed to support development of carbon sequestration infrastructure and support technologies designed to fight global warming.
Occidental injects 2.6 Bcf/d of CO2 in the Permian Basin to aid in the extraction of crude oil, as stated on the company’s website. In an effort toward CCUS, Occidental recently partnered with Canadian clear energy company Carbon Engineering to create what it says could amount to a carbon-neutral oil field. The plan includes engineering and design of the world’s largest direct air capture (DAC) and sequestration facility in the Permian Basin. The initial plan, which included capturing 500 kilotons of CO2 directly from the atmosphere each year, was recently expanded to capture 1 MMtons of CO2.
“Climate experts tell us that alongside other mitigation solutions, carbon removal technologies like DAC are going to be essential if we hope to decarbonize in time to avoid the worst impacts of climate change,” said Carbon Engineering CEO Steve Oldham in a press release. “These carbon removal technologies need to be deployed widely and at large enough scales to be climate-relevant. This project is, therefore, a huge step forward in demonstrating the readiness of large-scale atmospheric carbon removal and in accelerating efforts to bring global emissions down to net-zero, and eventually to net negative.”
In October Occidental also announced the startup of the company’s first solar facility to power an EOR field operation in the Permian Basin. In addition, the company signed a long-term power purchase agreement for 109 MW of solar energy for use in its Permian operations, which is expected to be operational in 2021.
In addition to individual efforts, top oil firms are also carrying out multiple initiatives and programs to battle climate change. Last year 26 major oil companies, including Anadarko, Occidental, Chevron and Exxon Mobil, collaborated for the Environmental Partnership, a coalition that focuses on reducing the industry’s air emissions, including methane and volatile organic compounds. The participation rate quickly grew, and the organization now includes 65 natural gas and oil companies, representing more than 80% of the top U.S. natural gas producers.
Participating companies are using advanced monitoring technologies to find and repair leaking equipment, replace or modify higher-emitting process control equipment, and implement best practices to minimize emissions associated with the removal of liquids from aging wells.
Earlier this year, the 65-member organization released its first annual report, highlighting key milestones. The partnership reported surveying more than 78,000 sites and fixed or replaced over 30,000 high-bleed pneumatic controllers, which release relatively large amounts of methane. In addition, 38 companies stopped using them entirely. Replacing high-bleed controllers can trim emissions by 60%, according to the U.S. EPA. The report also noted the industry’s commendable progress in reducing emissions. Between 2011 and 2017, production in the Eagle Ford grew by 130%, while methane emissions fell by nearly 70%, the
“The Environmental Partnership places technological innovation, collaboration with academia, engineers and manufacturers, and industry action at the heart of its mission, and we’re proud of its tremendous progress and activity in its first year,” said Mike Sommers, president and CEO of the API, in a press release.
The API also applauded the entire U.S. energy industry’s commitment to adopt new technologies and innovative practices that reduce emissions and establish clear pathways for continuous environmental improvement.
“The oil and natural gas industry is laser-focused on cutting methane emissions through industry initiatives, smart regulations, new technologies and best practices,” said Erik Milito, vice president of upstream and industry operations at API, in a recent statement following the Trump administration’s recently proposed move on withdrawing limits on the industry’s emissions of methane. “We welcome smart regulations that protect public health and the environment and provide the flexibility to develop and deliver affordable and reliable American energy,” he said.
With the surge in production, water management has become a major concern for U.S. tight oil and gas operations. Companies are facing challenges and a sense of urgency in finding commercially viable solutions for the management of produced water, especially since surging production is straining the limits of water-injection wells for disposal. According to a new report by Research and Markets, oil production in the Permian Basin is expected to increase by 35%, totaling 5.4 MMbbl/d by 2023, requiring even more water supply and disposal, analysts said.
The average fracturing job consumes 13 MMgal of water, which has risen by 40% in the last two years, according to a Reuters analysis of Permian producers’ data reported to FracFocus.org in March. In addition, about 10 bbl of produced water on average is pumped out for every barrel of oil.
In 2017 the estimated total statewide volume of produced water in Texas was more than 8.5 Bbbl, which is forecast to rise to more than 15 Bbbl/year by 2023, according to a recent Texas Alliance of Energy Producers white paper. The report added that, despite the change in produced water management strategies, water treatment levels are low. Not only does produced water management offset the need for freshwater for fracturing operations, but treated produced water also works better than freshwater. With lower treatment costs and an increase in freshwater prices, operators have been able to reduce operating costs.
There are continuous concerns regarding the longevity of disposal well capacity, changing state requirements for seepage/evaporation ponds and reduced ability to reuse the treated water in basins where drilling and completion activities decline. The report also revealed that some operators are currently using more than 80% produced water to fracture new wells, while others have made it a priority to reuse 100% produced water.
The 2019 Groundwater Protection Council report estimated reuse exceeds 10% in the Permian Basin, is negligible in the Haynesville and slightly over 1% in the Eagle Ford. The report predicts produced water recycle and reuse will likely increase as the midstream industry matures and injection capacity is unable to keep pace with production.
In March New Mexico passed the Produced Water Act, which authorized a state commission to set standards for reusing produced water outside the oil fields, potentially for irrigation, construction, industrial or environmental purposes. It established requirements for when to use produced water over freshwater in oilfield operations, and it reinstated the power of state oil and gas regulators to levy penalties for spills and leaks.
Once managed individually by energy producers, integrated water management is emerging as a major growth area as midstream operators take up the job of supplying, collecting and disposing of water. For instance, Concho Resources recently entered into a deal with Solaris Water Midstream to manage its produced water and increase the recycled and reused water Concho uses during fracturing operations. Solaris will manage Concho’s produced water gathering, transportation, disposal and recycling in New Mexico, according to a news release.
H2O Midstream, a midstream water management company that mainly serves operators in the Midland Basin and Delaware Basin, utilizes its fully integrated networks of high-capacity pipelines for fresh, brackish and produced water, multiple disposal wells, storage and treatment to facilitate reuse.
“If you’re drilling oil wells and you have problems with natural gas takeaway, as long as you’re within environmental permits, you can flare gas, but not flare water—which can be a bigger problem for an oil producer than the gas takeaway for operators,” said Stephen McNair, chief development officer at H2O Midstream.
Disposal is an obvious solution, but that has limits too, as many historical zones for water disposal such as the Andreas reservoir have started pressuring up. “On average, fracking requires about 6,000 barrels of water per well. In addition, a lot of water is coming out of the ground. So there is a lot of demand for fracking wells, and there is a lot of produced water as well. This is where companies like ours come in,” McNair said.
He added that, historically, operators had handled water management themselves, but the shale revolution and the associated horizontal drilling has exponentially increased the amount of water that needs to be handled. “I’m really pleased with the progress our industry has made in the last five or six years. We’ve gone from not using produced water for fracking at all to some companies using 100% produced water for fracking operations,” he said.
Orphaned wells can create physical and environmental hazards if not reclaimed properly. The Bureau of Land Management (BLM) described the ultimate objective of reclamation as “ecosystem restoration, including restoration of any natural vegetation, hydrology and wildlife habitats affected by surface disturbances from construction and operating activities at an oil and gas site.”
Inactive wells that are not properly plugged can leak methane into the air or contaminate surface water and groundwater. Well sites that are not properly reclaimed can contribute to habitat fragmentation and soil erosion, and equipment left on site can interfere with agricultural land use and diminish the wildlife habitat, according to a recent report by the U.S. Government Accountability Office.
The report also revealed that the BLM is faced with a backlog of orphaned wells to reclaim, with 51 wells dating back at least 10 years, pointing out that bonds held by BLM have not provided sufficient financial assurance to prevent orphaned oil and gas wells.
In active drilling locations like North Dakota, where the number of abandoned oil and gas wells has grown 10% over the past two years to more than 700, industry reports confirm that state regulators are considering new rules to try to keep the problem from getting worse.
In an effort toward site reclamation, Concho Resources partnered with Texas Native Seeds, a program overseen by the Caesar Kleberg Wildlife Research Institute at Texas A&M University, to promote the value of regionally adapted native seeds in the site reclamation process.
“In addition to using a native mix for our reclamation projects, we host educational events to share the benefits of native seeds and best practices with our peers in order to restore and preserve native grasslands across the Permian Basin,” Jesse Wood, wildlife ecology manager at Concho, told E&P.
To further promote use of native seeds in the reclamation process, a demonstration planting was recently installed on the Concho campus in downtown Midland, Texas, to showcase current and future commercially available native plants suited for the Permian Basin region. “Concho prioritizes responsible use of our natural resources through a variety of sustainable development initiatives, and the Texas Native Seeds project is one of many important initiatives underway,” Wood said.
Meanwhile, a study conducted by the U.S. Geological Survey earlier this year in the Colorado Plateau showed that “recovery of vegetation on plugged and abandoned oil and gas well sites on the Colorado Plateau is influenced by time, moisture, non-native plants and the type of plant community that was originally in place before well sites were constructed when inactive wells are plugged and abandoned.” There are more than 26,000 abandoned and 63,000 active gas and oil wells on the Colorado Plateau, the report stated. When these wells are plugged and abandoned, re-vegetation is necessary to limit soil erosion, recover forage for livestock and provide wildlife with habitat.
With the increasing focus on environmental stewardship and societal concerns on sustainable development, securing a social license to operate (SLO) can prove increasingly crucial for oil and gas companies’ operations. Ian Thomson and Robert Boutilier, authors of socialicense.com, defined social license as “the level of acceptance or approval continually granted to an organization’s operations or project by the local community and other stakeholders.”
Social licensing can face several obstacles, including government regulations and resistance from local communities on environmental issues such as carbon emissions and water scarcity.
Social license has not been achieved globally because oil and gas companies are failing to respond directly and appropriately to the concerns of all stakeholders, according to a recent report by KMPG. “While international oil and gas companies have largely been successful in achieving and communicating the benefits they bring at a local level, in terms of royalties, local community investment, jobs and even in environmental credentials, they have not achieved social license because it is no longer granted by only local communities. It extends to a potentially more powerful group of largely urban dwelling broader society, enabled by technology, especially social media,” the report stated.
Because energy sits at the epicenter of significant public policy, issues including climate change, renewables, operational cost and workforce transition affect all citizens and are drivers of public opinion, explained Sarah Ramsay, co-author of the report and associate director of corporate affairs advisory at KPMG Australia. She explained that, in the context of this industry, SLO needs to consider the approval of citizens well beyond just those communities directly impacted by operational facilities.
Ramsay added that many organizations seem to be stuck in the view that the acceptance of neighbors is what matters most. Meanwhile, citizens are expressing their views, and they have the power to influence regulation and policy in a democracy. Therefore, the industry needs to take a broader view of SLO and seek to influence public opinion geographically and demographically appropriately, she noted.
Ramsay also suggested a few steps that oil and gas companies can adopt to enhance the SLO process and gain acceptance:
● Understanding stakeholders: It is important to obtain a 360-degree view of key stakeholders— employees, customers, investors, communities, non-governmental organizations, suppliers, regulators and policymakers. The environment also should be treated as a stakeholder.
● Engage proactively: Companies must communicate the benefits and purpose of their operations with stakeholders, apart from just announcing the profits of shareholders. For instance, companies can stress on the role of gas in renewable energy development and penetration. Also, companies should initiate communication by scheduling regular catch-ups and establishing advisory councils.
● Manage: The process of social licensing should not be underestimated. Given the risks, it is important to incorporate SLO as a major function of the company.
Read each of E&P's "2020 Unconventional Yearbook" articles:
KEY PLAYERS: Shale Growth Slows For Top US Operators
ENVIRONMENT: Stepping Up for an Environmentally Sustainable Energy Future (see story above)
LNG SPECIAL REPORT:
2022-07-05 - Demand for crude oil in Asia has been strong, with refining margins for gasoline, diesel and jet oil hitting record highs.
2022-07-05 - The flow is draining the U.S. Strategic Petroleum Reserve, which last month fell to the lowest since 1986.
2022-07-01 - “Continued operation of Freeport’s LNG export facility without corrective measures may pose an integrity risk to public safety, property or the environment,” the U.S. PHMSA said in its preliminary report.
2022-07-01 - Russian LNG production from projects such as Sakhalin-2 was likely to suffer as a results, said Saul Kavonic, head of Integrated Energy and Resources Research at Credit Suisse. “This will tighten the LNG market materially this decade,” he added.
2022-06-30 - “OPEC+ is mulling firing its last crude production bullets as it runs out of capacity to pump more, whilst refining capacity for oil products ... which drives the real economy, has declined markedly,” said Ehsan Khoman from MUFG bank.