Manas Majumdar, Energy & Resources Leader and Partner, PwC India.

The journey to Net Zero has several obstacles. How are the oil & gas companies preparing to face the evolving challenges in this energy transition?

To navigate the energy transition, oil & gas companies are adopting a two-pronged strategy: a) focusing on emissions reduction across their value chain, and b) proactively adopting low-carbon/green solutions and becoming broader energy players.

Investment in innovative technologies such as carbon capture, utilisation, and storage (CCUS), application of circularity in refinery operations, and development of multi-energy portfolios [investments in solar, wind, biofuels, renewable (green) hydrogen] are some of the central themes to this dual-prong strategy. Within their traditional oil and gas operations, companies are increasingly focusing on lower-emission projects/products and moving further downstream to higher margin chemicals. International examples abound – Saudi Aramco investing to build up 12GW of solar and wind energy facilities, and bp developing UK’s first CCS project.

Companies are also heavily banking on advanced analytics and digital interventions such as advanced process controller (APC), AI-ML based operations and other sensor-based controlling and monitoring systems to improve process efficiencies and reduce waste and emissions.

To further bolster the transition, oil & gas companies are advocating for supportive government policies and regulatory measures to assist in decarbonisation of current operations and have an incentivising ecosystem to invest in new green energy solutions.

What policies or regulations could be most effective in driving decarbonisation in the industry in general, the oil & gas industry in particular?

Effective policies and regulations are critical to drive decarbonisation in the oil & gas industry; these can be in terms of positive measures towards clean energy solutions or disincentives for traditional, fossil fuels to reduce their production/consumption. Key inhibiting measures include introducing and implementing carbon pricing mechanisms to price in the carbon emissions cost, while setting up emissions trading system (ETS), which provides credits for decarbonisation through development of global and regional carbon markets. Other variant mechanisms include carbon taxes or cap-and-trade systems, which encourage companies to invest in cleaner technologies and practices to lower their emissions footprint.

Positive enabling regulatory frameworks and incentives also play an essential role, e.g., in CCUS, ensuring efficient permitting and licensing processes for infrastructure setup helps in faster implementation. Additionally, regulatory frameworks can provide direct incentives for green energy like for green hydrogen production, and for early retirement or repurposing of existing oil field operations while promoting transition toward lower-emission alternatives. The European Union, for example, has officially enacted its revised Renewable Energy Directive (RED III), which sets out green energy goals and incentives for progressively increasing use of green hydrogen in industry and transport sectors, over time.

Furthermore, regulatory mandates on end user level such as usage of biofuels, EV in transport shall play a key role to create a larger ecosystem for a low-carbon future. Collectively an appropriate combination of above regulatory toolkits can reduce fossil fuel production and use and promote cleaner energy expansion, to accelerate the transition to a low-carbon economy.

Which emerging technologies show the most promise for reducing emissions in oil & gas operations? How feasible is hydrogen that is seen as a possible solution?

There are a wide range of emerging and innovative solutions that hold significant potential to reduce emissions in oil and gas operations. These include CCUS; usage of bio-based feedstocks; and energy efficiency improvements through energy management systems (EMS); advanced process controls (APC); and application of AI/ML for process and production optimisation. Among the above, the momentum gained by digital applications has shown particular promise – advanced analytics have enabled optimisation of spares and consumables inventory, manage energy consumption more effectively, and extend reliability and longevity of existing plant equipment, thereby reducing overall energy intensity.

Coming to hydrogen, it is first noteworthy to highlight that hydrogen is already in significant use in oil refineries in hydrotreating and hydrocracking processes and accounts for around 10% of feedstock input in the refining process. However, this hydrogen is made from natural gas through steam methane reforming process so by itself it is not fossil free and is called grey H2; when used along with a CCUS solution, then we have blue H2. The key is therefore to look at renewable hydrogen, primarily green H2, which is made through electrolysis of water through renewable power, and which would be a zero-carbon solution. For green H2, a notable project is Shell's upcoming Holland Hydrogen 1 plant, one of Europe's largest renewable hydrogen facilities. Another key example is Saudi Arabia’s ambitious NEOM Green Hydrogen Project, which aims to produce 600tpd.

While these projects indicate the growing momentum of GH, it is important to note that current economics of GH are 3-4 times the cost of grey H2. Thus, the feasibility of GH as a widespread solution hinges on the ability to scale production and reduce costs. In the long-term GH, with its dual role as a feedstock and energy carrier, is a pivotal element in energy transition. It is expected that as hydrogen production technologies advance and costs of renewable energy decrease in the next 5-10 years time frame, GH will become more feasible and fulfill its promise as a key sustainable energy solution.

What are the key strategies for reducing emissions in upstream, midstream, and downstream operations?

a. Upstream: First part of reduction would be by eliminating routine flaring, which can be addressed through efficient planning and production. Further to address emissions during oil and gas production, implementing carbon capture and storage (CCS) solutions would be a key initiative. For offshore rigs there can be further decarbonisation of energy use by electrifying operations using offshore wind energy which would be a proximate and relevant solution. For example, ExxonMobil has introduced electric frac units and replaced all the pneumatic devices in its Permian basin operations.

b. Midstream: In midstream operations and oil and gas transportation, a key challenge is fugitive emissions – adopting leak detection systems and monitoring technologies through drones and satellite imagery, alongside intelligent pipeline repair programs would help in first accurate tracking and then minimising emissions. These technologies can mitigate emissions by close to 80% and the gas saved can be productively used/sold, highlighting the economic viability of these measures.

c. Downstream: on the refining and consumption side, companies are decarbonising by pivoting towards biofuels and green hydrogen, and their blending in transport fuels and gas. Companies are also moving towards broader energy retail by setting up EV charging in fuel pumps, which helps them meet emerging customer demands, while decarbonising.

What incentives or funding mechanisms are available to support the transition to net zero?

First point to acknowledge is that energy transition is complex, and it will not be achieved easily and will take significant investments and effort. An IEA estimate suggests that an upfront investment of USD 600 billion is needed to reduce the emission intensity to half by 2030.

At the recent UN Climate Change Conference (COP28) held in Dubai, nations committed more than $83 billion for climate financing. This funding encompassed contributions to the Green Climate Fund, the Least Developed Countries Fund, the Special Climate Change Fund, and the Adaptation Fund, all of which are multi-governmental initiatives.

In addition, several countries have taken the carbon market and carbon credits route to support energy transition. Carbon credits provide revenue streams for companies developing transitional technologies, enabling further investment and deployment. There also have been targeted grants towards certain applications such as grants/incentives for green hydrogen plant establishment, regulatory support for CBG (Renewable gas) ecosystem development, etc. Australia, for example, had grants to support electric charging facilities, and since 2020 broadened it to a EV infrastructure funding program, and then expanded program to support electric HDVs in 2022

And there are also other corporate/private funding options such as green financing through green bonds, ESG rating linked finding mechanism. Further, multiple International Development Agencies (IDA) such as Asian Development Bank, The World Bank Group, GIZ, etc., are funding many energy transition projects across the globe.

Additionally, funding is being directed towards R&D in low-carbon technologies, this is typically through fiscal grants, tax credits, and other financial incentives aimed at providing incentives to innovate and deploy these technologies at scale, hence enhancing the economic viability of these solutions. Overall, a combination of governmental incentives, IDA funding and private sector financing, along with robust administering mechanisms will be required to facilitate the clean energy transition.

What role do cross-industry partnerships (e.g., with renewables and carbon markets) play in decarbonisation efforts?

Cross-industry partnerships are pivotal in accelerating decarbonisation efforts, as the net-zero journey cannot be traversed alone and it needs collaboration across countries, governments, industry, academia, and financial institutions to make it happen. In oil and gas, companies are increasingly partnering with renewable energy providers to provide clean energy to their operations and even jointly setting up renewable plants. For instance, IOCL and ReNew Power are partnering to bring green energy to refinery operations and are also jointly exploring green hydrogen facilities. Similarly, Shell has partnered with Baker Hughes to bolster its energy transition initiatives. Joint ventures and alliances with startups and academic institutions are also paving the way for exploring transformative technologies.

By joining forces, industries can share resources, expertise, and innovations, facilitating the rapid development and deployment of sustainable energy solutions. These collaborations help reduce the cost of cutting-edge technologies, making them more accessible for widespread adoption. Overall, cross-industry alliances are indispensable for achieving broader climate goals and creating a resilient and sustainable energy landscape.

(The views expressed in interviews are personal, not necessarily of the organisations represented)

Manas Majumdar has more than 22+ years of experience in the Energy and Chemicals domain, in India and globally. He is primarily anchored in Strategy and Transformation work in these sectors and his recent focus has been on New Energies and Transition (viz., hydrogen, green-fuels, hybrid energy offerings, direct-to-chemicals) and Digital Transformation to enable the transition and grow across markets.

In addition, he has advised both government clients, ministry & regulatory bodies and the private sector, along with supporting startups on topics such as market reform, resilience & preparedness, strategic growth plans & product-market strategy, business restructuring, operations performance improvement, cost optimization and supply chain transformation.

He is currently the Oil & Gas Sector Leader at PwC and leads Fuels and Resources consulting practice in India. Prior to that he was with KPMG, where he was National Leader for Oil & Gas and Chemicals; and before that he was with Kearney (USA) where he was leading the strategic operations team serving global chemical and oil & gas clients.

He has advised Fortune 500 clients, working across various geographical locations like the US, South-East Asia, Middle East and India. He has been a speaker at various international & national conferences and has also been recognized with global and regional awards for thought leadership and intellectual capital development in the energy domain.

Manas has done his integrated Masters in Technology from IIT Delhi and MBA from IIM Calcutta.