Jul-2020

Decarbonisation, electrification and the case for modern electric process heaters

Companies in liquefied natural gas (LNG) and other industries have been taking bold steps to reduce their carbon footprint.

Dennis Long
Watlow

Article Summary

The overall strategy of these companies is to tackle carbon emissions not only through alternative energy investment and increased efficiency, but also through converting key industrial processes (like process heating) to electric (rather than fuel-fired). This paper explores pressures to electrify process heating, as well as the role that electric heat exchangers are playing, particularly in light of innovations in the design of these heaters.

The Pressure to Electrify: Climate Change
Though there are still passionate debates about the scope and causes of climate change, governments and industry leaders are already taking huge steps to meet climate change goals, especially with regard to decarbonisation. According to the We Mean Business Coalition, over 700 companies have made far-reaching climate commitments, including many big players in the LNG industry.¹

What is striking about the pressure to address climate change is that it does not come from one segment of the population, or from one international agreement. This means that, even if one of the following drivers were to disappear, there would still be significant pressure to decarbonise and thus larger capital investments in electrification and decarbonisation are still completely justified.

The Paris Agreement
The watershed event that caused many LNG companies to consider decarbonisation strategies more seriously was the 2015 Paris Climate Conference, organised by the United Nations Framework Convention on Climate Change (UNFCCC), which led to a broad consensus about climate change and what needed to be done to combat it. The UNFCCC Parties agreed that, in order to avoid the most catastrophic effects of climate change, the increase in global average temperature would need to be kept to less than 2°C above pre-industrial levels.

This conference resulted in the “Paris Agreement,” adopted by all UNFCCC Parties, which was a first-of-its-kind legally binding global climate agreement. For its part in the agreement, the U.S. committed to reducing its net greenhouse gas emissions by 26% (compared to 2005 levels) by the year 2025.²

While the Trump administration signalled its intention to withdraw from the Paris Agreement in 2017, it did not do so officially until 2019. Article 28 of the Paris Agreement states that a country cannot give notice of withdrawal from the agreement earlier than three years beyond its adoption date, which was 2016 in the case of the U.S. and the Trump administration clarified its intention to comply with this article. Even after official notice, the withdrawal takes 12 months to take effect. All of this means that, despite the administration signalling its withdrawal, the Paris Agreement will continue to be in effect until at least November 2020. Industry leaders have been acting in accordance with this timeline.

The Deep Decarbonization Pathways Project
The Deep Decarbonization Pathways Project (DDPP) is a global research initiative seeking realistic “pathways” for countries to transition to a low-carbon economy. It includes domestic research teams from 16 countries worldwide, including some of the heaviest carbon emitters.

One of the most significant findings from the DDPP’s 2015 report, Pathways to Deep Decarbonization was that, in addition to energy efficiency/conservation and decarbonising the production of electricity, enabling fuel switching options for industry and transportation was one of the key ways to transition to a decarbonised economy.³

As industry has contributed roughly 50% of carbon emissions to date, low-carbon electrification represents a significant potential driver of overall decarbonisation.

These findings have prompted energy companies not only to explore alternative low-carbon sources of power, but also to further decarbonise their own processes, even when (especially when) it comes to LNG processing.

U.S. Domestic Laws
While the U.S. federal government has not pursued an aggressive climate agenda, the actions taken by individual states might give a better idea for where the political winds are blowing, so to speak. Increasingly, U.S. domestic legislation is beginning to follow the international consensus.

For example, in early 2019, Colorado passed a law giving counties and municipalities more direct control over energy laws. The law in effect grants these local governments the power to, for example, regulate drilling impact (i.e., noise and pollution) and the distance that oil wells must be from homes and schools. This has created some uncertainty around emissions standards. In response, companies running large gas-fired heaters have been looking to convert to electric heat exchangers.

More directly, Wyoming’s Department of Environmental Quality (DEQ) has passed new standards aimed at reducing emissions from new and modified oil and natural gas facilities in the state. It joins states such as California and New Mexico in passing laws specifically aimed to lower emissions from such facilities.

While local laws are often in flux, varying from state to state and county to county, there is a general prediction that more state governments will seek to step in with environmental legislation even in the absence of leadership from the federal government.

Changing Sentiment
Finally, one cannot ignore the reality that sentiment around climate change, both public and professional, is changing.

On the public side, fossil fuel companies have been facing mounting pressure from advocacy groups. Royal Dutch Shell, for example, has had its headquarters swarmed by protesters and one advocacy group even brought a lawsuit on behalf of 17,000 Dutch citizens. Another example is the Dakota Access Pipeline protests at Standing Rock, which became not only a sensational news story, but a viral movement on the internet.

Public concern over climate change is mirrored by concern from financial professionals who see less of a future for an energy industry dominated by fossil fuels. In 2018, Moody’s warned that the need to transition to alternative forms of energy represents “significant business and credit risk for oil companies.” Likewise, Bank of England head Mark Carney warned that the financial sector was being much too slow in divesting investments into fossil fuels, saying that unless firms woke up to the climate crisis, “many of their assets would become worthless.”⁴ Most recently, the world’s largest fund manager, BlackRock, joined Climate Action 100+ after losing $90 billion on fossil fuel investments in the past decade; in a letter earlier this year, CEO Larry Fink identified that “climate change has become a defining factor in companies’ long-term prospects.”⁵

These are just a few of the more well-known news stories about the pressure being put on LNG companies. They are likely part of what is driving these companies to make very public declarations of their strategy to further decarbonise operations.