Isn’t asking Big Oil companies to decarbonize similar to asking cigarette companies to promote healthy living?
Aren’t Big Oil & decarbonization opposites?
Yes and No.
If seen in a rather simplistic manner, the core products of Big Oil companies - oil and natural gas - are responsible for a good part of India’s CO2 emissions. How can these companies decarbonize without giving up their core products, in which case they cease to exist?
But the reality is more nuanced.
Let’s look at two primary ways by which Big Oil companies can decarbonize.
One: They can make their operations low carbon by investing in energy efficiency and resource efficiency, and by using renewable energy for some of their operations
Two: They can shift their fossil product mix more towards natural gas, which has lower emissions of the two
Three:They can change the feedstock using which they produce their oil & gas from fossil sources to renewable/low carbon sources
Four: CO2 capture & storage
Five: They can invest in carbon offsets
I will not swell much on the fourth aspect - carbon offsets - as it is a rather debatable thing whether carbon offsets can be considered effective decarbonization.
The first three aspects however present interesting decarbonization avenues for Indian oil & gas companies. I will provide some inputs on each.
Making their operations low carbon
Oil & gas companies spend enormous amounts of energy in their upstream operations - exploration and drilling, and also in their mid-stream component - oil refining. The more energy and resource efficient they are, the less the carbon footprint of the final product. Estimates suggest that the oil & gas industry worldwide uses about 7% of their production for their own energy needs.
And it is not just energy efficiency - it is also resource efficiency. Estimates suggest that globally, about 400 million tons of CO2 were emitted from the flaring of excess natural gas. That’s not only natural gas wasted, but also emissions added. Of course, the oil & gas majors are trying to do something on this account, but more could be done. But note, most of the action in this regard is happening with the top 5 global oil majors (Exxon Mobil, Shell, BP, Chevron, Conoco Phillips). The Indian oil & gas firms (including private firms such as Reliance) are yet to do anything in this context.
Energy & resource efficiency represent the lowest hanging avenues not just for oil & gas companies, but companies in most high emission sectors. At the same time, however, a large portion of India's oil & gas come from imports - we import about 80% of our crude oil & 45% of our natural gas requirements. Thus, the scope 1 upstream CO2 emissions for India's oil & gas sector will be much lower (per unit of product) compared to those of global oil majors. All the same, the Indian oil & gas companies are exploring energy efficiency in every other part of their value chain - especially in their refineries and mid-stream and downstream logistics.
Shifting towards natural gas
Increasing the amount of natural gas, which has about 20% lower emissions compared to gasoline (petrol) or diesel, in their overall product mix enables the oil & gas sector to quickly cut down emissions, and is a viable decarbonization transition pathway. From an implementation standpoint, this is taking longer than it should in India mainly owing to the slow transition to CNG vehicles in many regions of the country - as of 2022, only a few states like Delhi (and NCR), Gujarat & Maharashtra have reasonably good CNG vehicle population.
Using renewable feedstocks
On the second aspect, today both oil and gas can be produced from renewable sources. This is possibly the most important decarbonization focus areas for Indian oil companies.
The two main variants of oil used in India - ethanol & biodiesel - can be made from feedstock such as sugarcane, molasses, vegetable oils, animal fats, and even used cooking oil. Natural gas can be produced from renewable sources such as food waste, animal & human waste and from crop residues.
Biofuels represent a fairly quick transition to decarbonization for the oil & gas sector as most of the existing infrastructure and end uses (vehicles) for instance can continue running the same way.
CO2 capture & sequestration
Oil & gas companies can capture & store (or utilize) the CO2 emissions from various components of their value chain, thus effectively reducing the carbon emission intensity of their products. CCUS, as this domain is called, is a doable but expensive proposition. While many stakeholders in the Indian oil & gas sector are exploring CCUS, I do not see them opting for it in any big way until at least 2030.