Offshore Finds Place in Low-Carbon World

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Offshore oil and gas exploration is not what it used to be as major players have slashed budgets and shifted focus to shorter-cycle sources of production. But as the industry starts to emerge from recent tumult, with new mandates to keep both spending and emissions in check, established offshore basins are making a comeback. Companies like Chevron, Royal Dutch Shell, Repsol and others are touting the low-carbon intensity of their offshore operations and elevating regions like the Gulf of Mexico and the North Sea as some of the most attractive places to invest in an emissions-conscious world. These areas with robust infrastructure, large reservoirs and effective regulatory regimes continue to draw capital, even as companies largely downplay the role of exploration in their strategies. To be sure, offshore spending has been in sustained decline and does not figure to recover to levels seen before the 2014-16 oil price downturn. Barclays estimates offshore spending will fall by 4% this year after a 15% drop last year. That would make 2021 the seventh consecutive year of offshore spending declines. Some industry watchers worry that slowing exploration will hasten reserve depletion and could leave the world dangerously short of supply as demand recovers in coming years (PIW Jan.8'21). Explorers now must balance the competing tensions between capital discipline and declining reserves (PIW Oct.9'20). As the most advantaged barrels rise to the top of their priority lists, operators are finding some of their most strategic assets lie in offshore basins, even as frontier plays fall further out of favor. Offshore resources have emerged as an unlikely winner in the push to decarbonize the oil and gas industry (PIW May10'19). A sector long decried by environmentalists in the wake of catastrophic spills and accidents has cleaned up its act and now boasts some of the industry’s best emissions-intensity metrics (PIW Oct.1'18). William Langin, Shell’s vice president of exploration for North America and Brazil, tells Energy Intelligence that the company’s deepwater assets, particularly those in the US Gulf, “have arguably the lowest carbon intensity of any of our assets globally,” which makes them screen well in Shell’s “performance benchmarking” process. Sonia Scarselli, BHP’s vice president of exploration, says these types of “advantaged barrels” will allow the company to “replace and displace” carbon-intensive undeveloped resources “that will just not be competitive anymore in an ESG [environmental, social and governance] environment.” The US Gulf’s long prolific history and expansive existing infrastructure give it a distinct edge over less-developed deepwater plays, from both an economic and an emissions standpoint (PIW Dec.4'20). Smaller independent operators have made lots of money over the years drilling and promptly developing near-field reservoirs, tying them back to undercapacity platforms, and the trend has only accelerated. High-pressured reservoirs with low decline rates keep the oil flowing and the emissions intensity down. US regulators do not allow routine flaring and most platforms run on natural gas rather than diesel, driving the carbon footprint lower. Langin says extensive gas-export infrastructure “strongly incentivizes us to minimize potential gas leakage from our systems.” A recent Wood Mackenzie report concluded that Gulf producers “can validly claim lower emissions than the alternative of importing.” Other mature regions, such as offshore Norway, also get high marks for carbon intensity. Norway's oil sector emits just 8 kilograms of carbon dioxide per barrel of oil equivalent, compared to the UK’s 21 and the global average of 19, according to Rystad Energy. Meanwhile, exploration activity remains strong in Latin American countries like Guyana, Suriname and Brazil. While these areas are far less developed than the US Gulf or Norway, the sheer magnitude of the reservoirs -- typically produced through new and efficient floating production, storage and offloading vessels -- translates to enviable emissions-intensity rates (PIW Oct.16'20). Norway’s CO2 intensity is helped by the electrification of offshore platforms there. Eight such facilities are at least partly electrified, including Equinor's massive Johan Sverdrup development. Another eight electrification projects for offshore fields have been sanctioned in Norway. Several UK operators are now assessing the feasibility of electrifying some of their North Sea production facilities. Lowering emissions from new UK fields has taken on more urgency after the government said it will require new licenses to pass a "climate compatibility checkpoint" to ensure they align with net-zero 2050 objectives (related).

Exploration, Offshore Oil and Gas, Corporate Strategy
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