Power with purpose: How energy companies are powering the next evolution

The world has an uncomfortable relationship with energy. On one side, energy consumption and economic progress have been intimately linked since the industrial revolution. Global primary energy use roughly doubled over the past 50 years, and humans now consume the equivalent of almost 14 trillion metric tons of oil every year. On the other, the environmental and social costs of the energy sector are now under increasing scrutiny. Carbon emissions from the burning of fossil fuels are driving climate change, while at a more local level energy extraction can leave lasting scars on landscapes, communities and ecosystems.

Maintaining the benefits of energy while minimizing its harms is a complex challenge in which everyone has a role to play. The individuals, households and businesses that consume energy need to do their part by reducing waste and making considered choices about the products and services they buy and use. Producers meanwhile, especially the giant energy companies that provide most of the world’s oil and gas, are under pressure to show that they are taking their environmental and social responsibilities seriously.

The leaders of those companies are listening. In recent years, a trickle of projects and policy changes has become a rush, as many of the world’s largest oil and gas players seek to transform themselves into providers of clean, sustainable energy for the future.

In the first half of 2020, for example, a number of the largest oil companies announced ambitions to reach net-zero carbon emissions in the coming years. Such declarations make good headlines and mark a real shift in approach for businesses built on the extraction of hydrocarbons from the ground. The industry is still debating, however, just what it means to be a net-zero energy company. bp, one of the first companies to announce a target, includes three kinds of emissions in its calculations. According to the internationally recognized Greenhouse Gas Protocol, scope 1 emissions are those generated directly by the company in its operations. Emissions generated by others to produce energy and materials consumed by the company are classified as scope 2. And scope 3 emissions encompass those generated by the use of a company’s products. bp has included its scope 1 and 2 emissions in its target, which it says add up to around 55 million tons a year. It has also included a further 415 million tons of scope 3 emissions generated by the use of the oil and gas it produces in its own upstream operations.

The bp announcement specifically excludes a much larger quantity of emissions generated by the oil and gas products that it processes or sells on behalf of other organizations. That includes oil from other companies that passes through bp refineries, for example. Explaining the policy to journalists, Bernard Looney, CEO, bp, said that it had come to this decision to avoid double-counting: Oil produced by other companies would inevitably form part of their own emissions reduction targets by 2050. The company has, however, set a target to halve the overall carbon intensity of everything it sells by 2050 or earlier.

Royal Dutch Shell made its own net-zero announcement in April, saying that it had decided to intensify its ambitions and significantly reduce emissions in line with the universal recognition that global warming now needs to be kept within an increase of 1.5° C. Unlike bp, Shell includes only its scope 1 and 2 emissions within its target, although it is aiming for a deeper 65% cut in the carbon intensity of the products it sells by 2050.

Most recently, Total made its own net-zero commitment, adopting a hybrid of the bp and Shell approaches. Total says it wants to reach net-zero for scope 1 and 2 emissions worldwide by 2050, and has also included the scope 3 emissions of its customers in Europe. It is also aiming for a 60% reduction in the carbon intensity of its worldwide product portfolio.

If the details differ, one thing unites the net-zero commitments made by these major energy players: Nobody yet knows how the targets will be achieved. The companies involved are pursuing a wide range of strategies, including investments in renewable energy technologies and electricity distribution, as well as efficiency improvement initiatives within their own operations. bp is even altering the whole structure of its business, dedicating one of four new divisions to gas and low-carbon energy. For all these players, however, the ultimate success of their zero-carbon initiatives will depend on factors only partially within their control, including technological advances and substantial shifts in regulations and consumer behaviors.

Global energy transition is a long-term project, but there is also plenty of opportunity for energy companies to take action at a local level to optimize their operations, improve the environment and support communities. Many are doing just that. In Oman, for example, the country’s organization Petroleum Development Oman (PDO) is working with DHL to implement a waste management program built around circular economy principles. The program aims, wherever possible, to find safe and economically productive uses for waste generated during oil extraction. Drill cuttings are being reprocessed into cement for the construction industry, for example, and condensate generated by gas wells is collected and transported to refineries, where it can be turned into useful oil products. Bahwan DHL (BDHL), DHL’s supply chain arm in the sultanate, manages the collection and transportation of PDO’s non-hazardous and hazardous waste from the point of origin to the company’s waste management yard or other approved waste disposal or recycling sites.

In China, Shell has worked with local communities to restore and improve the environment around a network of decommissioned oil wells. Once the well sites have been dismantled and the equipment removed, around 8,000 tons of concrete remaining at each site is crushed and used as a building material to improve local roads and irrigation systems. The company remediated the land around the sites by adding new topsoil and planting beans to enhance the fertility of the soil.

On Thevenard Island off the coast of Western Australia, engineers working for Chevron faced a different sort of challenge during a program to decommission a number of oil wells. The island is a nature reserve and an important breeding ground for sea turtles, raising concerns that the lights from the 24-hour decommissioning work would disorientate the baby turtles, preventing them from finding their way to the sea. To allow the project to continue safely, the company worked with local experts to set up fences and lighting controls across the site. With these measures in place, and by shutting down work temporarily during peak hatching periods, the company was able to clear the island quickly without harming its fauna.

The scale and complexity of the energy sector means any attempt to tackle sustainability challenges must involve the entire supply chain, with equipment makers, subcontractors and service providers all involved in the effort. Michael Wiedemann, President, DHL Energy Sector, says that, in conversations with customers, environmental and social considerations are rising up the agenda. “Safety has always been the number-one concern for our energy customers,” he says. “They want to ensure their people are safe, as well as the communities touched by any part of their supply chain. An important part of our offer to the sector is that we understand their protocols and requirements, and we have people who are trained to do things the right way.

“In recent months, however, we have seen much greater focus on wider environmental issues,” he adds. “Our energy customers want us to track and report our carbon emissions, and there is growing interest in logistics strategies that reduce emissions, and even in zero-carbon logistics offerings.”

This year’s eye-catching environmental commitments from major energy players came before the full impact of the COVID-19 crisis, which has seen oil prices plunge to zero or even below in some regions. Will the shock be enough to derail companies’ carbon reduction ambitions? Wiedemann doesn’t think so. “When we work with energy industry customers to improve supply chain efficiency, we are looking at a wide range of measures: consolidating activities, bypassing supply chain steps or finding synergies between upstream and downstream operations, for example. Those measures reduce the demand for transportation, which leads directly to lower emissions. There is no conflict between cost and carbon.” — Jonathan Ward

Published: October 2020

Images: Faisal Al Nasser/Reuters; Marc Morrison/BP; BP; Stanislav Krasilnikov/TASS/Sipa USA/ddp; Daniel Acker/Bloomberg/Getty Images; Charles O. Cecil/Alamy/mauritius images; Cultura/mauritius images; Getty Images; DHL