The profit potential in controlling emissions
There is a common misperception within oil and gas companies - and other carbon-intensive sectors such as chemicals and utilities - that reducing greenhouse gas emissions is inherently unprofitable.
They may undertake such reductions as a necessary chore imposed by government agencies or perhaps as a social obligation to future generations.
In truth, however, such reductions could be an economically attractive opportunity, as recent experience in the region illustrates.
One national oil company identified the potential for a 40 per cent reduction in emissions - with a net present value of several billion US dollars.
Reducing emissions can also help companies to improve their image and potentially benefit from global carbon finance mechanisms.
Finally, and perhaps most important, if national oil companies can reduce the environmental costs of producing fossil fuels, they will support the long-term sustainability of those resources in the global energy market as the world transitions to low-carbon fuels. Regional oil and gas companies can use their deep expertise to become global leaders in the sustainable development of fossil fuel resources, thus strengthening their own competitive positions.
But such an undertaking requires a strong level of commitment from a company's leadership. It must follow a systematic and methodical approach rather than wasting efforts in a series of ad hoc and uncoordinated initiatives. To reap the greatest benefits from their efforts, companies should follow three steps.
First, they must decide on their strategic course. Companies have a wide range of options in determining how intensively they want to pursue a reduction in emissions, and this decision will be the basis for their future actions.
At one end of the spectrum, they can choose to be merely compliant, implementing emissions' reducing policies solely to meet the requirements of national and international regulations.
Although this may seem like the safest approach, it leaves companies at risk of being caught off-guard by evolving regulations and missing out on opportunities.
At the other end of the spectrum, the most advanced strategic course is that of a differentiated leader, for companies that seek to establish best-in-class greenhouse gas emissions performance and innovation on a global scale. This means taking the risk of investing in cutting-edge technologies, which gives companies the chance to take a competitive position in generating intellectual property in this area.
Once companies have established their strategic course for emissions management, they should identify potential opportunities to reduce emissions across the value chain. Improvements in operations and maintenance require little capital investment but can reduce emissions by as much as 10 per cent.
Companies can also improve the efficiency of equipment such as heaters, burners, boilers, compressors, turbines and motor systems, which typically account for about 65 per cent of emissions.
Flaring and venting reduction is another opportunity. Venting is a major source of direct methane emissions that often results in significant loss of value; vapour recovery systems, which can capture up to 95 per cent of hydrocarbon vapours, can retain this value by allowing the vapours to be resold, used as on-site fuel, or fed to processing plants to recover valuable natural gas liquids.
Oil companies should also consider developing carbon capture and storage, which encompasses a variety of technologies to capture, transport and sequester carbon dioxide emissions.
They can use these captured emissions for enhanced oil recovery, replacing the gas that is currently used for this purpose and freeing it for other uses.
Finally, companies need to put in place the processes and infrastructure that will enable them to implement the plan defined in the first two steps. They will need to build specific capabilities, continuously improve their measurement methods, and regularly monitor their progress against their goals, tracking how successfully they have reduced emissions and whether there are new areas of opportunity.
Developing and implementing an appropriate communication strategy is also important. Within the company, the communication plan should seek to educate, enlist and reward participants, including company leadership, staff, contractors and business partners.
Companies should gear external communications towards celebrating successful initiatives and raising national awareness about the implications of climate change and the importance of energy efficiency.
Although Middle East countries are relatively moderate emitters of greenhouse gases and are not currently bound by reductions specified in the Kyoto Protocol, national oil companies in the region have a chance to get ahead of potential requirements and improve their competitive position in the process.
By making fossil fuels more environmentally sustainable, companies will be assured of not just doing good but doing well.
AWalid Fayad is a partner and Tarek El Sayeda principal with the global consultancy Booz & Company
Published: August 1, 2011 04:00 AM