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US oil and gas companies should consider redirecting investments from new drilling to renewable energies

By Ian Palmer, PhD

The world can address greenhouse gases (GHG) emissions in different ways. The direct way is by reducing fossil fuel production, the main source at 73% of global GHG.

Europe is following this approach, perhaps because its companies don’t have the enormous success of a shale revolution to maintain. 

In Europe, companies and countries are diversifying into renewables as illustrated by the following:

  • Denmark, leading the world in wind power, recently stopped exploration for oil and gas, and plans to close its oil production by 2050.
  • Norway has a vibrant oil and gas industry, most of it exported along with a high carbon footprint. But Equinor is developing offshore wind systems, even partnering with the UK’s bp to supply electricity to New York City. Norway also leads the world in uptake of electric vehicles (EVs), now at 60% of new sales, due to national policy incentives like reducing VAT and carbon tax reductions for EVs.
  • Bp has committed to be 40% invested in renewables by 2030, and are studying plans for a large blue hydrogen plant at Teesside in the UK.
  • In France, TotalEnergies has invested $8 billion in renewables since 2016, including $2.5 billion in Adani Green Energy, where they share a 50% partnership in the company’s solar power systems.
  • By 2021, Shell in Germany will provide 10 MW of green hydrogen. In Ireland, it will be a 51% stakeholder in a 300-MW wind farm.

It’s clear the European continent is teeming with examples of integrating renewables into their future. But in the US, companies have adopted different approaches. One indirect way for reducing GHG is by companies greening their own operations – using wind or solar electricity to pump frac jobs, for instance. But this is only a very minor contribution to reducing the 73%.

A less direct way to reduce GHG is by cleaning up methane leaks from wells, pipelines, and processing facilities. To repeal rules installed last September, the U.S. Senate passed in June a new bill to remove methane leaks as a cause of air pollution in oil and gas operations and allow EPA to enact stricter methane regulations.  However, methane emissions are only 10% of all GHG emissions in the US, and less than half are due to methane leaks. So if the cleanup gets it down to zero, this is a drop of only 5% of the total 73% fossil fuel contribution.

Another method is carbon capture and storage (CCS). ExxonMobil is storing 9 million metric tons of CO2 each year, equal to 11 million car exhausts each year. The company plans to invest $3 billion for 20 new CCS facilities and even envisages a $100 billion consortium of oil and gas entities and government to capture then bury GHG under the Gulf of Mexico. “Bury” in CCS parlance means to inject CO2 deep underground where it’s contained by non-leaking rock layers, and eventually merges chemically with the rock.

However, CCS is a non-direct approach because it doesn’t stop the emission of GHG from fossil fuels. It just captures and buries the resulting GHG. But CCS will be important for the net-zero concept because it’s an escape hatch to get rid of any leftover fossil GHG.

While the EU are clearly leading by diversifying into renewables, companies in the U.S. seem to be avoiding the direct approach of cutting oil and gas production.

The appetite of legacy U.S. energy companies has largely stayed focused on what has always been their main meal: oil and gas production — including the shale revolution.

But in the US, the demand for oil and gas will likely fall if the Biden administration achieves its goals of greening electricity and changing to electric vehicles. If supply follows demand, oil and gas could fall by 30% from now to 2035-2040. 

Any of dozens of oil and gas companies thriving in the Delaware basin of southeast New Mexico could stop drilling new wells and instead invest in wind/solar systems right there in the windy Chihuahuan desert. There is money to do it — the basin made roughly $24 billion/year at the wellhead in 2019, and makes even more now in 2021. The January 2021 federal moratorium on new oil and gas well leases on federal lands provides an opportunity and motivation to do this down there.

About the Author

A petroleum engineer and consultant, Ian Palmer, PhD has worked at Los Alamos, The Department of Energy, BP, and Higgs-Palmer Technologies. He is a contributor at Forbes.com and the author of The Shale Controversy.

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