22-08-2024

Kent to develop economic guidelines for upstream oil and gas decarbonisation

Kent and the Energy Institute are pleased to announce a new collaborative effort to create comprehensive guidelines for decarbonisation economics in Greenhouse Gas (GHG) emission reduction projects in the upstream oil and gas industries. This report will provide clear, actionable guidance to help the sector achieve its environmental goals.

The guidelines, prepared under the expert guidance of Graham Filsell, Kent’s Asset Decarbonisation Lead, will focus on demystifying the economics of decarbonisation.

"We have seen the challenges of presenting decarbonisation projects against standard project economics with the only justification being the reduced OPEX related to Emission Trading Scheme credits and potential increased revenue from an increase in sales gas quantities from reducing fuel and flare gas," said Graham Filsell. "With the changes proposed in the NSTA’s consultation on the draft OGA Plan to reduce UKCS GHG Emissions, there is a strong case for the societal cost of carbon and potentially an individual asset marginal abatement cost to form part of the project economics for decarbonisation projects."

The scope of this study focuses on the UK North Sea upstream sector but is intended to serve as a basis for future research globally. The guidelines will address the following key objectives:
- Demystifying Decarbonisation Economics: Provide clarity for energy professionals with limited exposure to project economics, such as environmental or sustainability managers.
- Understanding Carbon Costs: Offer insights into how carbon costs are calculated and influenced by market forces, including societal costs.
- Alternative Metrics: Recommend non-standard metrics beyond NPV to ensure that decarbonisation goals are met, delivered as a technical note to the industry.
- Justification of Metrics: Articulate and justify the choice of both standard and non-standard metrics used in the guidance.
- Upstream O&G Value Chain: Focus on the upstream sector of the O&G value chain affected by decarbonisation and assess the potential to broaden the scope to the full value chain.
The interdisciplinary process to develop these guidelines will involve the collaboration of Kent’s Environmental team, Asset Decarbonisation team, and Energy Environment Economic (E3) Modelling and Communications team:
- Environmental Team: Providing guidance on the UK Carbon Budget and other GHG regulations through comprehensive review and evaluation of regulatory risk levels.
- Asset Decarbonisation Team: Maintaining up-to-date knowledge of industry legislation and best practices for decarbonisation, developing Marginal Abatement Curves, and incorporating regulatory risk to calculate the Unavoidable Abatement Greenhouse Value (UAGV).
- E3 Modelling and Communications Team: Guiding the valuation of GHG emissions and demystifying decarbonisation economics by estimating metrics to benchmark the UAGV.

James Lawson, the Chair of USEG (Upstream Environmental Group) highlighted the societal importance of this initiative: "Decarbonisation and GHG reduction projects are inherently holistic, involving a wide spectrum of energy professionals, many of whom have not previously engaged in economic assessments and project prioritisation. Furthermore, these projects compete for capital and resources with other industry sectors. Therefore, a clear, concise, and targeted document that all energy professionals can refer to will be invaluable for ensuring that capital and resources are allocated appropriately and in line with net zero commitments."

This collaboration marks a significant step toward achieving the environmental objectives of the North Sea Transition Deal and ensuring that the UK North Sea upstream oil and gas sector can continue to operate with the lowest possible environmental impact.