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Saudi Aramco Aims for Net Zero Emissions Without Cutting Oil Production

With the global energy transition picking up steam, hundreds of companies have laid out plans to cut their greenhouse gas emissions with the more ambitious ones pledging to achieve net zero emissions. Given this backdrop, Big Oil companies are finding themselves in a dilemma whereby they are under pressure to join the fight against climate change at a time when demand for the energy commodities they produce remains high. Not surprisingly, many are coming up with innovative ways to clean up their act without giving up their legacy businesses. 

Saudi Aramco is not any different. The world's biggest oil and gas company has unveiled plans to reach net zero by 2050 without sacrificing oil and gas production.

During a rare two-day visit by Fortune in early May, the world's largest fossil fuel company lifted the curtain on dozens of research projects underway at its headquarters in Dhahran, in eastern Saudi Arabia, which the company believes will help it tackle climate change, even while pumping a mammoth 9 million barrels or so of oil a day. Aramco claims its tech breakthroughs have the potential to cut carbon emissions from each barrel of oil it produces by 15% by 2035, equivalent to 51.1 million tons of carbon a year.

"We don't see any contradiction. Combating emissions from these conventional energy sources is a very viable option," says Ashraf Al-Ghazzawi, executive vice president for strategy and corporate development.

"We need all sources of energy to meet the growth in demand, which is just tremendous in the developing world. The main pillar of our strategy and technology is efficiency and optimization of our existing production," Ahmad Al-Khowaiter, Aramaco's executive vice president for technology and innovation, told Fortune. According to Khowaiter, the company has tripled its research-and-development staff since 2010, and listed 1,033 patents with the U.S. patent office. Aramco now spends about $800 million a year on R&D, 60% of which is focused on "sustainability".

Carbon capture is one of the technologies Aramco has adopted to cut emissions. At its Hawiyah gas plant, the company captures carbon emitted during oil and gas production; transports it 50 miles away then injects it into an oil well to boost the recovery of crude, as well as to store the carbon. Khowaiter has revealed that the company aims to cut the cost of carbon capture by 50%, making it commercially viable. Aramco has set a goal to capture and store about 9 million tons a year of carbon in Jubail beginning 2028.

Aramco also aims to produce 11 million tonnes of blue ammonia from its Jafurah natural gas field by 2030. For over a decade, the company has explored potential technologies to produce lower-carbon hydrogen from hydrocarbons, including Thermo-Neutral Reforming (TNR) with a goal to produce 'blue' hydrogen from about two million tonnes of blue hydrogen--by capturing the CO2 emissions from the production. However, Aramco is likely to struggle to find a buyer for its blue ammonia, with CEO Amin Nasser revealing its blue hydrogen costs the equivalent of about $250 a barrel of oil- three times higher than the current Brent spot price.

"It is very difficult to identify any off-take agreement in Europe [for blue hydrogen]... and they explained it's because of the high cost. Even the customers in Japan and Korea [which are planning massive H2 economies] are waiting for government incentives. Until they get these incentives, it'll be costly for them to pursue that blue hydrogen," Nasser told a call with analysts.

Figuring out which among the multiple lines of R&D will finally work could take years for Aramco to determine, with time not on its side. Still, the company has rejected any notion that it should cut fossil fuel output, "We were never an either-or company. Aramco provides a great example where emissions can be dealt with, it can be managed," Ghazzawi, Aramco's strategy chief, has declared.

Big Oil Doubles Down On Oil Production

Saudi Aramco is hardly the only Big Oil company that has doubled down on oil and gas production in this age of climate change. Back in 2021,  In 2021, former Shell Plc (NYSE:SHEL) CEO Van Beurden declared that oil prices would remain low forever, and aimed for an expected reduction in oil production of around 1% to 2% each year until 2030. Last year, his successor  Wael Sawan ditched those plans and raised the company's dividend, diverting money that could be used to develop clean energy. The company says it still intends to achieve net-zero by 2050, but has made it clear that achieving that goal is out of its hands: "If society is not net zero in 2050, as of today, there would be significant risk that Shell may not meet its target."

Last year, shares of BP Plc (NYSE:BP) surged after the company walked back its plan to reduce oil and gas output. In the same year, Exxon Mobil (NYSE:XOM) noted in a regulatory filing that "it is highly unlikely that society would accept the degradation in global standard of living required." Exxon CEO Darren Woods has touted the company's Low Carbon business, saying it has the potential to outperform its legacy oil and gas business and generate hundreds of billions in revenues.

"This business is going to look quite a bit different from the base business of Exxon Mobil. It is going to have a much more stable, or less cyclical, profile," Dan Ammann,  president of Exxon's two-year-old Low Carbon Business Solutions unit, has vowed.

Meanwhile, oilfield services company Schlumberger Ltd (NYSE:SLB) recently created the SLB New Energy unit that will focus on carbon solutions, hydrogen, geothermal & geoenergy, energy storage and critical minerals. According to Gavin Rennick, president of SLB New Energy, these five segments have a minimum addressable market of $10 billion.

By Alex Kimani for Oilprice.com

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Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.  More