Navigating environmental change in global oil and gas

While immediate energy demand is growing, prices are high and reserves are substantial, the industry is also facing new perceptions of viability in the global energy mix, stringent compliance, political uncertainty and increasingly vocal communities. So let’s explore how the oil and gas industry is responding to these challenges.

The International Energy Agency World Energy Outlook 2013 reports fossil-fuel subsidies of $544 billion and renewables at $101 billion. It is yet to be evaluated what impact the recent Intergovernmental Panel on Climate Change Fifth Assessment Report will have on the weighting of subsidies and how this might subsequently influence investors. However, the United Nations also indicates a quadrupling of renewable share up to 2050, which could have a radical impact, not least as global green trade is predicted to reach $2.2 trillion by 2020.

Collaborate and innovate

Technology and collaboration are key to exploiting reserves safely and profitably while the energy sector is in transition. However, the so-called “Macondo effect” following the 2010 Macondo 252 well blowout in the Gulf of Mexico, in the wake of the Deepwater Horizon oil spill also in 2010, has also triggered a flurry of legislation resulting in increasing costs of production.

Indeed, policymakers are aware that the importance of environmental rigour is resonating with the public, as the latest quarterly University of Michigan Energy Survey in the United States shows equal consumer concern over price and environmental impact.

Environmental consultancies have moved from the fringes into the boardroom to inform strategic decisions, reduce risk and help deliver shareholder value

We asked SLR, a UK-based global environmental consultancy, to comment on some key facets of strategic change in the sector and explain how they are helping clients, such as Exxon Mobil, BP and Shell, to adapt, mitigate and manage these critical transitions.

A new era in environmental consulting

“There is no doubt there has been a radical change in a relatively short timeframe,” says Hamish Wilson, global lead for SLR’s oil and gas consulting team. “We are assisting companies to improve compliance, yet also helping leading players rewrite their approach to ensure an environmentally aligned position from the outset, especially in the light of the ‘Equator Principles’ [social and environmental risk assessment in project financing]. Weighting social and environmental thinking equally should be an integral part of the technical decision-making process too.

“The rules of engagement have changed and will continue to change at a rapid pace as society demands more proactive engagement. So embracing this change and remaining profitable, requires new ways of thinking and operating.

“Environmental consultancies have moved from the fringes into the boardroom to inform strategic decisions, reduce risk and help deliver shareholder value. Whether it is increasing success in exploration, introducing new technologies, advising on carbon capture and storage, improving compliance metrics for managers, waste management, spill prevention, emergency response, diversification strategies into renewables or simply maximising existing assets, there are fundamental requirements, which we as strategic advisers are best placed to inform upon.”

One such example of this “new approach” is the report SLR has been commissioned to produce for Oil & Gas UK which is in response to the influential Wood Review. The 21st Century Exploration Road Map is a collaborative approach to improving exploration success and addressing the 50 per cent decrease in the number of wells drilled in the North Sea. This approach could form a global template for other strategic alliances to tackle issues such as risk and compliance on a regional, rather than corporate, level.

Effective consultation is the key

Response-driven innovation has also been developed as a counterpoint to the emotive issue of shale gas extraction. Mi-SLTO™ (pronounced mistletoe) delivers a pragmatic and commercial response to the sensitivities of social licence to operate (SLTO). Developed by SLR, jointly with the University of Nottingham, this simple yet unique tool provides evidence-based data showing oil companies the actual, rather than perceived, risks to the communities in which they operate. They can now respond in a transparent, dynamic and responsible way to manage local consultations objectively.

“Shale gas has a critical role to play in the energy mix,” explains Dr Tony D. Smith, SLR technical director and lead for Mi-SLTO™. “We are responding to the challenges of balancing security of supply with very real environmental concerns requiring fit-for-purpose solutions. This ensures we can deliver unconventional gas responsibly, enabling oil and gas companies to take a holistic approach from the outset.”

Good compliance reduces risk

Compliance and risk management is another SLR service which is experiencing a shift in focus. Lisa Haas, based in Anchorage, Alaska, is director, North America oil and gas, and global lead in compliance and management systems for SLR. “Oil and gas companies have always had compliance programmes, but there has quite literally been a sea-change in the wake of recent accidents and environmental concerns,” she says.

“We are working closely with clients to go beyond day-to-day compliance to better understand why and how non-compliance occurs. We help drill down into the organisation to identify and address the cultural, communication and procedural weaknesses, which can lead to failure, and help our clients develop successful solutions.”

Innovative collaboration and engagement driving greater success

There is no doubt the challenges facing the whole energy sector require unparalleled levels of collaboration and co-operation. Companies such as SLR are demonstrating thought-leadership and industry-led guidance through engagement with operators, international oil and gas organisations, and governments, or simply by developing best practice as responsible global custodians of the industry.