Offshore oil has built some well-deserved bad rap over the decades because of oil spills, and it has frequently been the specific target of protest action from environmentalists. But if we’re talking about emissions, the truth about offshore oil will shock some: they’re much lower than other forms of oil production.
The fact may not be universal but, as per an Energy Intelligence report that quotes executives from Shell and BHP, it remains a fact for much of the industry. There are several reasons for that, and these commonly have to do with the size of the offshore deposits and their operators’ cost control and environmental protection efforts.
If you take a look at a global map of the hotspots in oil exploration, you will notice that with the notable exception of U.S. shale, they are all offshore. Brazil’s pre-salt zone will be on this map, as will Guyana’s newly discovered massive fields. West Africa will also be on the map. And Malaysia and Brunei just recently signed a deal to jointly explore for oil and gas in the deep waters along their maritime border.
Shell’s Gulf of Mexico assets “have arguably the lowest carbon intensity of any of our assets globally,” the supermajor’s vice president of exploration for North America and Brazil, William Langin, told Energy Intelligence. And Shell is not the only one. A senior BHP executive called offshore barrels “advantaged”, according to the Energy Intelligence report. Advantaged barrels are the ones that are recoverable at a profit in the current market conditions, including the drive for lower emissions across industries.
One of the advantages of offshore oil and gas deposits came into the spotlight after the last oil price crash in 2014. In the U.S., one of the oldest offshore producing regions, onshore and offshore oil both suffered the consequences of the price crash, but offshore oil recovered more quickly than the shale patch because of the way it is organized. Offshore wells take years to start pumping, but once they start, they can keep producing for decades. Shale wells, on the other hand, start producing very quickly, but they get exhausted just as quickly, which makes them less cost-efficient than offshore wells. Related: Morgan Stanley: Oil Prices Stuck In $60 Range This Summer
Besides, the oil price crashes have taught offshore drillers to reduce costs to the possible minimum, and this has included steps that have helped them reduce their carbon footprint such as power supply, for instance. Many offshore platforms are powered by electricity produced from natural gas rather than the more polluting diesel, and some even get their power from renewable resources.
Norway is a case in point here. The country, which produces all of its oil offshore, has a carbon intensity rate of 7 kg per barrel of oil equivalent. The UAE, which has both offshore and onshore production, has the same carbon intensity rate. Canada, on the other hand, with its oil sands, has the highest carbon intensity rate among major producers, at 39 kg of carbon dioxide per barrel of oil equivalent, according to data from Rystad.
In legacy producing regions, well-developed production and transportation infrastructure help keep the carbon footprint of offshore wells low. Even in newer producing regions, notably Guyana, carbon emissions are low because of, on the one hand, the size of the deposits, and, on the other, the development of newer, more efficient extraction technologies.
Basically, offshore oil drilling is very much like electricity consumption by households. Being frugal with both leads to rewards in terms of production costs/utility bills and a lower environmental footprint because you are simply using fewer resources. Related: Saudi Oil Minister: OPEC+ Strategy Is Not Set In Stone
Despite its emission advantages over many onshore fields, offshore oil and gas production is not without its problems. The upfront investments remain among the highest in the industry, and payback periods are longer than many investors would like, which is why investment in offshore exploration has been on a steady decline over the past few years. This may change in the coming decades as most of the world’s untapped oil resources are offshore, and we will continue to need oil for many years to come, with or without an energy transition.
If more investors are to be attracted to offshore oil, more companies—and countries—need to do what Norway did to achieve the lowest carbon intensity in the world. One, it has a carbon-trading scheme, and it also participates in the EU’s carbon-trading program. Two, flaring has been banned in Norway since the 1970s, with few exceptions, allowed for safety purposes.
Flaring makes up a big part of offshore oil’s greenhouse gas footprint, and it has been garnering growing attention from regulators and environmentalists alike. Flaring—and venting, which is even worse—is also a loss of product for the company doing it, which could provide additional motivation for curbing the practice. Ultimately, thanks to its lower footprint, offshore oil could find a comfortable place in the energy mix of the future when onshore oil wells get abandoned because of their high carbon intensity.
By Irina Slav for Oilprice.com
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