Achieving Carbon Competitiveness Without Sacrificing Cost in Oil & Gas
For oil and gas exploration and production (E&P) projects, the path to achieving more competitive carbon emissions profiles is relatively easy—just add or change the scope of the facility. But there is a catch. While this may help secure some easy wins in the form of reduced emissions, this approach eventually leads to significantly increased costs and reduced cost competitiveness. The challenge for all companies moving forward is achieving carbon capital effectiveness (CCE)—that is, achieving carbon competitiveness without sacrificing cost competitiveness.
Of course, achieving carbon capital effectiveness is a difficult task and it will only keep getting more difficult as carbon goals become more demanding in the years to come. The good news is that Independent Project Analysis (IPA) has identified a set of key practices that seem to drive this optimization of carbon and cost competitiveness, and we have started research looking for early indicators highlighting whether we are on the right track. Spoiler alert: the answer is yes! Before we share our findings, it is important to first understand what CCE is and how IPA measures it.
What Is Carbon Capital Effectiveness?
Carbon capital effectiveness is IPA’s measure of how well cost and emissions competitiveness are balanced for a specific project scope. In IPA’s observation, many companies are attempting to balance carbon performance and cost performance, but few are succeeding. By understanding the CCE of different projects in a portfolio, and different technologies for a particular project, decision-makers can select the right solution to meet the desired business objectives. Such clear Key Performance Indicator (KPI) balancing methodologies also enable the project teams to deliver improved project performance and competitiveness.
As shown in Figure 1, CCE comprises two components:
- Facility Cost Target: a measure of the cost to execute a specific scope relative to industry average
- GHG Intensity Target: a measure of GHG emissions during the life of field executed a given depletion plan
IPA’s current research focuses on 56 projects of varying types (floaters, platforms, subsea tiebacks, onshore facilities, etc.) in all regions of the world. The average total asset cost is over US$2 billion with an average annual emissions over the life of the project of 2.1 million tCO2e. As shown in Figure 2, 41 percent of these projects are in the optimal low cost – low carbon range. By understanding which projects are performing well in both dimensions, we can start to examine the practices used to get them there.
Finding Early Indicators With the Carbon Optimization Readiness Assessment (CORA) Metric
IPA recently developed a new Carbon Optimization and Readiness Assessment (CORA) metric to identify and measure practices that help companies reduce emissions while still achieving cost competitive outcomes. CORA has its roots in the GHG Readiness Framework developed in conjunction with the Carbon Working Group (CWG), an IPA-led group of industry SMEs from more than 35 owner firms across industrial sectors. The CORA metric is constructed from five elements and reported on a single descriptive scale, as shown in Figure 3.
We put the CORA metric to the test by closely examining the practices used by the projects in the low carbon – low cost quadrant mentioned earlier. We discovered that 67 percent of those projects received a Good CORA rating, a strong indicator that CORA is measuring the right practices (see Figure 4).
Key Practices Drive Better Carbon and Cost Optimization
Our research identified key practices that show strong indications of driving carbon capital effectiveness in IPA’s research. These practices, outlined in Figure 3, include practices clearly established as important for all types of projects, such as clear objectives and an integrated team, and others that may be important specifically for GHG projects, like having a specialist on the team. Some practices seem to have an effect only when used rigorously and in conjunction with other practices.
Conclusions
This study provides early indications that the practices associated with IPA’s CORA metric are linked to optimized carbon/cost outcomes, with some elements showing strong links to CCE outcomes. These indicators reflect that a rigorous, systematic approach to cost-effective carbon reduction is key. Not only does rigorously applying the practices outlined above enable effective target optimization, but there is also real value loss associated with not applying these processes—both through poor cost competitiveness and through less competitive emissions.
It should be noted that the sample size is not big enough to separate out all the different practices and accurately quantify cause and effect relationships. Hence, the results should be taken as indicative rather than predictive. However, IPA will continue to measure these practices for all projects in our quest to clarify core Best Practices.
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