Offshore Europe debate - energy security and climate change
Feature Articles, Oct  02  2009 (Digital Energy Journal)

- Energy security and climate change are two of the biggest issues of our time, and it doesn't help that they are normally discussed separately. A brave attempt was made at Offshore Europe to bring the two subjects together in the opening debate

A discussion was held at the opening debate to Offshore Europe in Aberdeen on September 9th, "Energy at a Crossroads," about how we can simultaneously manage climate change and energy supply, on the basis of being dependent on fossil fuels for many more years to come.

On the panel was UK Energy Minister, Lord Hunt, and Connie Hedegaard, who is not only Minister of Climate and Energy for Denmark but also a main orchestrator of the Copenhagen climate discussions in December 2009, pushing for an ambitious world agreement to cut carbon emissions.

Oil company speakers were Thomas Thune Anderson, who was CEO of Maersk Oil until August 2009, and chairman of the Offshore Europe; John Manzoni, president and CEO of Talisman Energy; and Andrew Gould, chairman and CEO of Schlumberger.

The discussion covered whether older oil wells should have to account for carbon dioxide emitted by the energy needed to produce them, if it means making them unviable. Also, whether oil companies should be getting into the renewables and carbon capture business.

Mr Anderson opened the conference by saying that there had been, at the previous Offshore Europe event in 2007, a scarcity of oil supply, people, and maybe also a scarcity of ideas. "When we look back at this period we'll see it as a time of big change, from technology, to how we do business, to our partnerships," he said. "So we call it energy at a crossroads, making choices."

Finding a way forward will be challenging work and hopefully also rewarding work. "But if I have one success after this conference, it;s that people enjoy and love their job more than they did when they started," he said.

UK Energy and Climate Change minister Lord Hunt said that he does not think the oil and gas industry is in any way �at odds� with the UK government�s plan to transition to new forms of energy, because there will still be plenty of need for oil and gas.

�Oil and gas can and must coexist with low carbon sources,� he said. �We couldn't function without them. They give us space to develop new technology and markets.�

I believe it is in our interest to make the most of our reserves.�

�Three quarters of our energy comes from oil and gas, and by 2020 we don't expect that to change significantly. Your sector supports nearly half a million UK jobs and makes a healthy contribution to the taxpayer,� he said. However, ultimately, �the transition to a low carbon industry is inevitable.�

However Lord Hunt emphasised the importance of not delaying action on climate change. �I have not seen [UK economist] Lord Stern�s core premise undermined: that the longer we leave it, the more expensive it will be,� he said.

Copenhagen

Connie Hedegaard, Danish Minister of Climate and Energy, emphasized that while oil and gas are important, �it won�t be as important in this century as in the last one.�

This fact would be true even without environmental issues. �Even if we didn't have a climate crisis we would be forced to diversify our energy supply,� she said. �Nobody would dispute there is a serious supply issue just around the corner. By 2030 we would need another 6 Saudi Arabias if we continue business as usual.�

Ms Hedegaard tried to make the case that oil company�s best financial path laid with them accepting climate change. They have options of �rejecting and delaying,� or �recognising realities and dealing with them,� she said. But in the long run, companies which reject and delay �will see revenues reduced and revenues strained,� she predicted.

Oil and gas executives should pay attention to what is happening at Copenhagen, both as private citizens interested in the future of the world, and also because it should be good for business, she predicted. �I am convinced that those who embrace this agenda will prosper the most.�

There are many calls to postpone action on climate change which need to be rejected, she said. �The world has been waiting long enough � we have been discussing long enough. We have a window of opportunity right now. The longer we postpone action, the bigger insecurity for business.�

Ms Hedegaard said she was pleased that a number of countries have now appointed administrations which are more friendly to the idea of tackling emissions including US, Australia, Japan, Brazil, South Africa and South Korea.

But the formal negotiations still tricky with many people sticking to the same negotiation positions as they have for 10 years, he said. There are also big concerns about how much US president Obama will be able to do, and getting commitments from China.

�I believe the political price will be very high for the government that decides to go to Copenhagen and not deliver,� she said.

�If you ask me if I am 100 per cent sure that we will manage � I can't give you that guarantee.�

�I have absolutely no plan B. As soon as you go for plan B people have a way out.

We have to make tough decisions.�

Schlumberger�s Andrew Gould said that it wasn�t the Copenhagen discussions itself that concerned him, it is how whatever is decided up is implemented afterwards. �Any deal out of Copenhagen will be a compromise deal. It comes down to individual states� interpretation of how they apply Copenhagen. That�s much more difficult,� he said.

For example, the Lisbon treaty (EU � 2007) was �full of intentions but didn�t have the support of member states who subscribed to it,� he said.�

Oil companies in renewables

If an �ambitious� deal is agreed at the Copenhagen summit, there will be a big emerging market for offshore renewables, predicted Denmark�s Connie Hedegaard, which oil and gas companies should pay attention to. �Your skills could be utilized to develop offshore wind and wave.�

Andrew Gould, CEO of Schlumberger, said, �I�m not sure appeals from politicians for oil and gas companies to join the renewable industry are the right ones. John D Rockefeller did not come from the whaling industry. I�m not sure our skill sets are the ones that will be required. But of course we have a contribution to make.�

Thomas Thune Anderson acknowledged that whilst skills in the oil and gas industry are not an exact fit with the renewables industry, �there are many areas where E&P companies have a sensible role to play. We can�t just say, we are in renewables,� he said.

Lord Hunt noted that despite stating that the oil and gas companies shouldn�t necessarily get into renewables, Schlumberger�s Andrew Gould had then gone on to make a persuasive case for the industry�s role in carbon capture and storage.

�That was a wonderful example of how our skills are transferable,� he said. �And the subsea skills are exactly the kind of skills we want to access.�

Smaller companies

There was a discussion about whether the North Sea is becoming dependent on smaller oil and gas companies and if this is encouraged by the UK Government.

Lord Hunt said that the UK government did not want to dictate which companies should be active on the UK continental shelf, but would just want to ensure that whoever was active gets appropriate support.

Mr Anderson said that smaller companies often have a specific focus � eg they get very good with a certain technology, or good looking for specific geological features. But the danger is that they don�t have the breadth of experience to cope with whatever happens along the way.

�I�m always amazed by the capability of smaller players to apply ideas � as the original players get older and imaginations have shrunk,� said Schlumberger�s Andrew Gould. �Mega fields have been found by people on acreage that was picked over by majors for years and years.�

�But the North Sea is an extremely complex place to operate. It�s not easy for a small player to adapt to that quickly.�

Emissions from old wells

Talisman�s John Manzoni said that older fields in the North Sea need more energy to extract oil; if they have to pay carbon dioxide emission charges, it could become unviable to continue production. This could lead to as much as 900 million barrels of oil left in the ground which would otherwise be produced, he claimed.

�You have to bring together objectives of maximising energy supply and reconciling that with climate. We have to create a good balance between those objectives,� he said.

We could end up �farming out our emissions to the developing world,� he warned, for example if the West ends up with tougher emission controls than the developing world does, so industrial activity simply moves there.

Schlumberger�s Andrew Gould said that for older fields, it might be the right thing to allow them to produce their last barrels of oil (even it takes a lot of energy to produce them) and give them some kind of exemption from carbon emission rules. �It has to be adapted to the circumstance,� he said.

Lord Hunt said that if the agreement in Copenhagen is �the one we want,� then carbon dioxide emissions can be expected to get more costly in 2013. The cap is due to tighten.�

�I�m not going to forecast carbon prices,� Lord Hunt said. �We haven�t seen it as a role of government to establish a price. We had a rather loose-ish first phase. But if there is a good deal in Copenhagen � so Europe can go for harder target � that ought to have an impact on the carbon price.�

�I don�t know the answer to the question of older fields � its one we have to debate.

We need a stable regulatory regime but with some flexibility.�

Lord Hunt emphasised that there is no point in trying to restrict carbon emissions and then creating get out clauses. �The mechanics we�re using is that carbon should come at a price � and the incentives are working in the right direction. Sometimes there are tensions and if we raise the targets by 30 per cent that has a number of consequences. There are trade offs,� he said.

However �we know we will rely on oil and gas for many years � and we have to make sure we have the regulations and incentives right.�

Thomas Thune Anderson said that the most important thing is minimise overall carbon dioxide emissions from the industry � and where there are emissions look at how much �value� the company is getting in return for them. Maersk Oil has held discussions about this. �My wish is that these dialogues will continue. Look at where can you make a difference,� he said.

Mr Gould was asked how carbon dioxide emission controls could make an impact to Schlumberger�s activities in the oil and gas industry. �The biggest emissions we have are from hydraulic fracturing,� he said. �We could make them electric but it would not be profitable.�

Malcolm Webb, chief executive of Oil and Gas UK, noted that the oil and gas industry has calculated that there might be 900 million barrels of oil not produced due to carbon controls, which would otherwise have been produced � however the UK government had calculated a different figure.

India and China

There were questions about how to get India and China involved in reducing emissions, when all they get out of it is a slower path to industrialisation.

�We�ve been very active in discussions with India and China. They see developing economies as responsible for greenhouse gas emissions,� said Lord Hunt. And �these governments also face serious environmental issues already.�

�I think it is possible to reach a deal � but part of the deal is about money. A deal is possible but will it be a hard deal or a lowest common denominator deal.�

Carbon capture

One of the areas Schlumberger anticipates making a big contribution to reducing emissions is in helping with carbon dioxide storage.

Issues which still need to be resolved with carbon capture include figuring out a regulatory framework, working out who will take responsibility for storage sites and accept the long term liability, as well as creating the financial incentive to do it.

But �we remain optimistic carbon capture and storage will succeed,� Andrew Gould said.

The carbon capture and storage technology is �understood,� he said. �But there�s a huge issue of transportation. One project in Europe wants to move it 200km � it�s OK because the pipelines exist. But in the US � the electricity users are in the East and storage is in the Rockies. You�d have to move it by train.�

Mr Gould says that Schlumberger is involved in more conversations with utilities (power generation companies), particularly in the US and Australia, than oil companies about carbon capture and storage.

Carbon dioxide is not the only emission the oil and gas industry has to deal with � there will also be increasing amounts of hydrogen sulphide, since 60 per cent of Middle Eastern reserves contain it, said Mr Gould.

Lord Hunt said that the UK wants to develop four industrial scale carbon capture and storage projects in the �next few years�, enabling it to have an independent evaluation of the technology in 2020. This can lead to retrofitting all existing power stations with carbon capture and storage, as well as requiring all new power stations to install it.

The program is not necessarily going to be limited to just coal, he said; it can also be used on gas power stations. �We think it�s vitally important. Many people in this room will be thinking about CCS,� he said.

Talisman�s John Manzoni said that in Canada, where he lives, �they definitely need CCS to bury carbon from the upgrading process � but it needs technology development. The result will be that prices go up. But I think it�s absolutely imperative.

Thomas Thune Andersen said that he did think carbon capture and storage would happen. He said his biggest fear is that the pressure which certain environmental groups are putting on government not to encourage carbon capture, saying it is an excuse not to do other things, is successful.

The contribution of the oil and gas industry should be its ability to handle the carbon dioxide, he said.

Offshore Europe

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