Go Green or Go Home: How Digital Transformation Helps the Oil and Gas Industry Grow Sustainably.

Pre-COVID, the world was entering a fierce battle against climate change: promoting the circular economy, fighting against plastic and searching for alternative bio-gradable packaging, which was all put on halt when the outbreak started. But as the world is gradually returning to the "new normal", environmental concerns are once again heating up.  Among those with the most environmental impacts, what does this means for the oil and gas industry? And how digital transformation may help the sector go green?

An accelerating focus

Global leaders are showing accelerated determination in tackling climate change. The recent 2021 United Nations Climate Change Conference (COP26) has seen some ambitious pledges. India vows to achieve net-zero emission by 2070. More than 100 countries agree to end deforestation by 2030, 40+ governments promise to phase out coal-powered energy. Most noticeably, world leaders sign the Global Methane Pledge to reduce methane emission by 30% by 2030 ^[1]. The US even takes a step further, aiming to curb 41 million tons of methane emissions during 2023 – 2025 with proposals to require methane emitters to reduce their discharge level by 70% compared to 2005 ^[2].

Going green is no longer a choice for oil and gas companies; it has become a must. The oil and gas sector is, directly and indirectly, responsible for 42% of global emissions ^[3], and governments are rushing to reduce the level of carbon discharge. There are currently 40 countries imposing carbon pricing – a policy aiming at reducing carbon emission through either carbon tax or emission trading scheme (ETS).  In the EU, the carbon price has risen to an all-time-high of €66 a ton in November 2021 ^[4] with new proposals to include sectors that were previously exempted from paying the price, such as aviation and maritime. China has recently launched its national ETS as part of its attempt to reach the net-zero emissions target by 2060. Singapore became the first South-East Asian country to impose a carbon tax at S$5 per ton ^[5].

With tightening regulations, oil and gas companies are hedging to lower their risks by taking pro-climate actions. The world fourth-largest oil company by revenue has announced its ambition to reach net-zero emissions by 2050 and diversify into renewable energy. Other companies, including those in the top 10 biggest oil firms, are making similar efforts to reduce their investment in upstream production. But ambitious announcement aside, doubts persist that oil and gas companies are actually decarbonizing.

Next-gen technology proves tremendous benefits in tackling climate change. According to a report by PwC and Microsoft, the application of AI can reduce global greenhouse gas emissions by up to 4%, with the energy sector potentially having the highest impact ^[6]. Here are some use cases of how technology can help the oil and gas sector hit its green initiatives:

1. Methane leak detection and prevention: Methane leaks are invisible to the naked eye, and detection of such requires special equipment, including surveillance cameras, sensors, drones and even less cost-effective methods such as aircraft and satellites. AI can study the characteristics of oil wells and develop algorithms to detect variables that expose wells to high risks of leakage. A study of 38,391 wells conducted by the University of Vermont uses machine learning to identify three key vulnerabilities of oil wells: (1) wells that deviate from a vertical line drill, (2) wells that use old drilling practices, and (3) wells with larger circumferences. The study shows a high accuracy rate of up to 87% ^[7]. Such application of AI can help companies better inspect and monitor wells with higher risks and sheds light on how future oil wells should be designed for the lowest chance of leakage.
2. Oil well maximization: Maximizing well production means fewer wells need to be drilled and less carbon emission produced. The availability of data, provided by the National Data Repository (NDR), means that oil and gas companies can reduce effort, cost and business risks associated with the exploration and production phase. Yet, these NDRs contain a large amount and data and in different formats. The U.K.'s NDR is 130 terabytes large, and to put it in context, it is equivalent to 8 years' worth of HD movies ^[8]. Analyzing this crazy large amount of data would simply be impossible for human, and this is where AI comes in handy.
3. Emission prediction: AI can help oil and gas companies predict future carbon emissions based on past data in relation to other variables such as business operation and market demand and allow them to make adjustments accordingly.

We are just getting started…

The oil and gas sector has realized the potential of next-gen technology in helping them reduce carbon footprint, with some of the world largest oil companies investing in technology start-ups to stay ahead of the game. Nevertheless, technology maturity is not the only factor of successful digitalization. In fact, it is the least concern of oil and gas company executives. Instead, overcoming issues of legacy system, shortage of digital talent, lack of agile culture, and the inability to identify business priorities, are the deciding factors for oil and gas companies to become digital leaders ^[9]. And therefore, we are just at the beginning of the revolution.