Decarbonisation: following the carbon neutral path

Despite the growth of renewable energy, oil and gas represent over half of the global energy consumption, with entire industries dependent upon them.¹

Oil and gas companies have a significant role in energy delivery today and in enabling the energy transition for tomorrow. But as they continue the journey toward becoming carbon neutral by 2050, many steps to decarbonisation are presenting some unique challenges. Increased electrification, wide-scale use of renewable energy and intensifying energy efficiency measures are the most prevalent.

Changes in demands and attitudes

With changes in consumer attitudes, companies are acknowledging they need to embrace a low-carbon future. This is not just for the sake of the planet but also to improve customer loyalty and ensure long-term viability.

In the 2020 Deloitte Resources Study, three-quarters of business respondents said their customers demand that they procure a certain percentage of electricity from renewable resources. A rising portion (77%) actively publicises sourcing of renewables.²

Meanwhile, younger employees are increasingly choosing to work for companies that benefit society and produce a profit.³

The cost of decarbonisation

The pathway to 2050 will likely be lined with a financial burden in the form of carbon taxes. For those operators that can’t—or won’t—decarbonise fast enough, those taxes will levy a fee against every ton of greenhouse gas (GHG) emitted.

There are broader considerations, too, ranging from an increased focus on decommissioning to implementing new technologies. Companies also have to consider the new skill sets required to run these new technologies. The industry essentially faces the challenge of balancing short-term returns with its long-term licence to operate.

Mitigating climate change

Uncertainty about the future is a crucial challenge facing the industry. Minimising emissions from core oil and gas operations should be a first-order priority for all, whatever the transition pathway.

To play its part in mitigating climate change, the sector must reduce its emissions by at least 3.4 gigatons of carbon dioxide equivalent (GtCO2e) a year by 2050. That’s a 90 per cent reduction in current emissions.4

The specific initiatives a company chooses to reduce its emissions will depend on factors such as:

Its geography

Asset mix (offshore versus onshore, gas versus oil, upstream versus downstream)

Local policies and practices (regulations, carbon pricing, the availability of renewables, and the central grid’s reliability and proximity).⁴

There are cost-effective opportunities to reduce the emissions intensity of delivered oil and gas, including:

Minimising the flaring of associated gas and venting of carbon dioxide (CO2)

Tackling methane emissions

Integrating renewables and low-carbon electricity into new upstream and liquefied natural gas (LNG) developments.⁵

15% of global energy-related GHG emissions come from getting oil and gas out of the ground and to consumers. This means that reducing methane leaks into the atmosphere is the single most important and cost-effective way for the industry to bring down these emissions.⁵

Managing risks

Many contractors have started to expand their services to cover green and renewable energy projects, exposing their businesses to an entirely new set of risks in the process.

At Marsh Commercial, we’ve carried out extensive research to identify the insurance needs within this niche and developing sector. We can advise on key areas of company risk to help reduce claims and business disruption, protecting owner/operators and large-scale projects.

Covering biomass, anaerobic digestion, hydro, geothermal, wind , solar and more, we’re also valued members of the Renewable Energy Association and the Anaerobic Digestion and Bioresources Association.

Operating in the oil, gas and energy sector can be high risk. Working with AIG, we’ve created an exclusive energy contractors insurance solution not available anywhere else on the open market. Find out how we can help you reduce your exposures and mitigate risk wherever it occurs.

Download our whitepaper 'Staying future confident in a volatile climate'.

How oil, gas and energy contractors can manage risk against an uncertain backdrop.