More oil and gas companies are ditching diesel and natural gas generation for renewables to power field operations, a new study from IHS Markit suggests.
The market research company said in July it has so far tallied 45 announced projects at new development and existing assets in its Oil and Gas Field-based Renewable Energy database. While only 14 announcements were made before 2018, 13 were made in 2018, and 15 were announced in 2019. While the analysis suggests that activity in the energy-intensive production sector is still in the “early adopter stage,” it is still a “dynamic and important trend to follow,” said Judson Jacobs, managing director at IHS Markit’s Upstream division.
Jacobs said the group, which studies oil and gas technology, began tracking the announcements as part of work related to greenhouse gas emissions management. “So, we said let’s actually collect all these and go through them to see if we see a trend,” he said. “And we plotted it up and it was pretty dramatic in terms of growth. It was [one or two] projects through 2017, and then all of sudden a dramatic rise in 2018 and 2019.”
Exploring Several Ways of Procuring Renewables
Among key insights IHS Markit shared with its clientele is that projects range in size from 2 MW to 300 MW. Solar is the most prominent renewable technology, followed by hydropower and wind.
But the analysis also shows that companies are mainly exploring three ways of procuring renewable power. “One, which is just straightforward renewables, where they’ll construct a renewable installation adjacent to the oil and gas asset,” Jacobs said. Another is power from the grid, and that’s especially prevalent in regions where renewables make up the bulk of power fed into the grid, such as in Norway, which is a major hydropower producer. Finally, pointing to a “dynamic commercial market” for renewables, several prominent oil and gas companies are exploring virtual power purchase agreements (VPPA).
Compared to a physical PPA, which places the responsibility for monetizing and selling the electrons produced by a renewable project on the buyer, a VPPA is merely a financial transaction in which a corporate buyer exchanges a fixed-price cash flow for a variable-priced cash flow and renewable energy certificates. As Rachit Kansal, a senior associate at the Rocky Mountain Institute explained, the VPPA structure has gained traction in recent years because it allows smaller buyers and companies without energy trading expertise to participate in energy markets. “The VPPA has enabled many companies to make quick and significant progress toward ambitious renewable energy goals,” he said. One reason is that “VPPAs are easily scalable and enable buyers to satisfy a large portion of their sustainability goals with a relatively small number of deals,” he said.
A prominent example of a VPPA is oil major ExxonMobil’s 2018 multi-year supply contract with Danish renewable firm Ørsted for 500 MW split evenly between wind and solar to power ExxonMobil’s Permian operations. Ørsted commissioned the 338-MW Sage Draw Wind project in Texas affiliated with that agreement this April, and the remaining 250 MW will come from the 350-MW Permian solar photovoltaic complex, which is slated to begin operations in mid-2021.
What Is Driving Renewables Installations in the Oil and Gas Field?
IHS Markit’s analysis also revealed several drivers for the emerging trend. “Stakeholder pressure to reduce emissions is a factor,” Jacobs said. “It is also about steeply declining costs for renewables and the industry’s growing familiarity and experience with these technologies. And there are tangible improvements to operational performance that go along with using them.” Jacobs, notably, pointed to reliability as a driving factor. Power at oil and gas field facilities is used for a lot of things, such as pumping, processing, transporting, compressing, or just keeping the lights on. “All these things are pretty power intense,” he said.
Santos, a leading independent oil and gas producer in the Asia-Pacific region, for example, is exploring outfitting more than 200 wells distributed across 130,000 square kilometers (km) in remote South Australia and Queensland with a series of off-grid solar and battery systems. So far, it has rolled out the renewables systems (Figure 1) at 22 wells in 2019, and 34 in 2020—a total of 3.2 MW—at a cost of $11 million. As part of its strategy, Santos has also established a standard design for the solar and battery system, and it has said the benefits are already tangible.
1. Solar panels and an Ecoult UltraBattery Energy Storage System allow Santos to keep the oil pumping at a well in Australia’s Cooper Basin. Courtesy: Santos
Santos pursued the option to cut down on three to four visits per well per month, owing to repeated downtime events related to diesel-powered beam pump system issues at the wells. “What they’ve seen is that since they put in the solar battery installations, their uptime is 99.9%, and they’re not driving out there and exposing their personnel to safety [hazards], they’re saving on GHG [greenhouse gas] emissions from driving, and their maintenance costs are lower as well,” Jacobs said. Electrification is also a driving factor. “Drawing renewable-generated power direct from the grid, as to offshore platforms in Norway, removes most energy generation equipment entirely, enabling fewer on-site personnel needed to operate it and smaller facility footprints,” he said. Another benefit companies highlight is the elimination of fuel deliveries to site, he said.
Jacobs expects the number of field-based renewable energy projects will continue to accelerate in coming years, but he also pointed to several key hurdles before widespread adoption can take place. These include cost relative to traditional energy generation sources; the development of supply chains in remote regions; and energy storage for intermittent renewable sources.
Some encouraging factors for future growth are that as oil and gas companies increasingly make investments into clean energy as part of longer-term business strategies, they are applying these technologies to their own operations. “I think we’re beginning to see infrastructure build-out,” Jacobs said. In the North Sea, for example, Equinor—Norway’s state-owned oil company—recently announced a final investment decision to build the 88-MW Hywind Tampen project, a floating wind farm that will power oil and gas platforms 140 km offshore Norway.
A Challenged Sector
But among discouraging factors are the economics associated with oil and gas production, which has left producers with significantly reduced capital expenditure funds this year, he noted. That’s likely why future installations will be focused at brownfield projects.
However, as IHS Markit Research Analyst Minuri De Silva pointed out, growth will likely vary by region. “North America and Europe, where renewables deployments have been most prolific to date, are still growing,” she said. “And other conducive regions such as the Middle East, Latin America and Asia are also poised for greater adoption as they address technical and commercial issues. The growth potential is significant.”
IHS Markit also projects that the types of oil and gas companies using field-based renewables will widen. While trends so far have been led by international oil companies, renewables have increasingly been taken up by national oil companies, independent exploration and production firms, and even oil field services firms in recent years, the firm said.
—Sonal Patel is senior associate editor for POWER.