The oil and natural gas industry is facing two huge challenges, improving competitiveness and managing a transition toward a low carbon future, which combined represent "quite a frightening cocktail if we do not manage them in a proper way," Statoil ASA's CEO said.
Last Tuesday, as a keynote speaker at IHS CERAWeek in Houston, Statoil CEO Eldar Saetre told the audience that it cannot only focus on efficiencies to improve competitiveness. It also has to train attention on the "interlinked and fundamental challenge" of climate change. Saetre took over as chief of the Norwegian-based energy behemoth this year (see Daily GPI, Oct. 14, 2014).
"Low cost and low carbon, each one represents quite a formidable challenge," he said. "Some people say that the secret to happiness is nothing more than good health and bad memory. I guess there is some truth to that for some of us in this industry...Having gotten used to a $100/bbl world for almost four years, last year's turning point hit us very hard, and with surprise once again. And with every downturn comes the familiar measures," such as reducing capital expenditures, laying off staff, cutting dividends and lowering share buybacks.
This time, however, "we must do more than just hit the brakes. I think fundamental change, embedded into a more sustainable, cost-performance culture, is what is really needed to create a lasting impact...Standardization, simplification and industrialization are not yet words that are immediately associated with our industry, but the potential is large in many areas."
Statoil works in the offshore and onshore, and it is one of the biggest operators in the United States. In the past decade, the cost of subsea developments has increased by 250%. So Statoil standardized its operations to trim expenses. "We think of it as putting Lego blocks on the seabed, and we are working together with our suppliers to achieve this mission."
The same principles apply in the onshore, where in the United States Statoil works in the Eagle Ford Shale and other basins.
"When we entered the Eagle Ford in 2010, the average well took 52 days to drill. Last year, that was down to 15 days. And we're not satisfied yet. We just need to continue to find new solutions, together with our partners and suppliers."
As resources, regulations and specifications have become more complex, "we have countered...with even more complexity. Getting to simplicity is harder. It means getting to the core of what's needed. Cutting costs in the simple manner is rather easy. Cutting the right costs is much more difficult. And if we get it right, we will go from a culture characterized by 'not invented here,' to a culture of 'proudly found elsewhere.'"
Unlike many of his industry peers, Saetre said it was time to be open and unafraid to tackle climate change.
"The science...is clear," he said, and Statoil "acknowledges the scientific consensus on human-induced climate change. We embrace the need to meet the 2-degree scenario," recommended by the United Nation's Intergovernmental Panel on Climate Change. However, while many companies are working to reduce carbon emissions, the oil and gas industry "still is perceived mostly as part of the problem and not seen as wanting to be part of the solution."
Saetre suggested engaging with policymakers now on the "right kind of regulation and with civil society to create trust in our contributions. If we don't, we risk becoming an industry that neither gets access nor acceptance."
For one thing, "we can continue to replace coal with natural gas. It's an immediate and highly effective way of cutting emissions. And both Asia and Europe should follow the U.S. on this journey."
Statoil also has recommended that across the industry, companies set a price on carbon dioxide emissions. Many producers now use carbon costs in their operations in anticipation of carbon taxes. Earlier this month BP plc agreed to acknowledge more about how its operations may impact climate (see Daily GPI, April 16).
The shift toward a carbon tax would be a volatile and partisan in the U.S. Congress, but Saetre said Norway has had a "high CO2 tax for more than 20 years. It's currently at about US$65/ton, "and it has not reduced the Norwegian Continental Shelf as an attractive basin financially."
As well, the industry should "put its powers of innovation to work and invest in new solutions" on reducing emissions. Statoil is collaborating with General Electric to reduce flaring emissions in the Bakken Shale (see Shale Daily, Jan. 28). Using GE's CNG In A Box, created with Chesapeake Energy Corp. in 2012, Statoil is capturing, compressing and using gas that otherwise would be flared to power its drilling equipment (see Daily GPI, Feb. 25, 2014).
Saetre also encouraged more companies to support global emission initiatives, such as the newly launched Zero Routine Flaring by 2030, in which Statoil is participating (see Shale Daily, April 20). The project "is one of the most important contributions our industry could make, and by achieving it, 300 million tons of carbon emissions could be cut."
In general, "there is a lot of naivety when it comes to what it will actually take to transform the global energy systems and transition to a low carbon society," Saetre said. "I see a strong role for oil and gas in the world's future energy mix. Delivering all the oil and gas that a growing population needs is a major challenge. Delivering it with low costs and low carbon will require even more."