Project addresses upstream decarbonization economics

Kent and the Energy Institute are collaborating to develop guidelines for decarbonization economics in greenhouse-gas (GHG) emission reduction projects for the upstream oil and gas industries.

The guidelines will be prepared under the guidance of Graham Filsell, Kent’s asset decarbonization lead.

"We have seen the challenges of presenting decarbonization projects against standard project economics,” he explained, “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.

"With the changes proposed in the North Sea Transition Authority’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 decarbonization projects."

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While the study will focus on the UK North Sea upstream sector, Kent said it should provide the basis for future research globally.

The guidelines will address the following:

Demystifying decarbonization 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 decarbonization 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 oil and gas value chain: Focus on the upstream sector of the oil and gas value chain affected by decarbonization and assess the potential to broaden the scope to the full value chain.

The project will involve collaboration between Kent’s environmental, asset decarbonization, and energy environment economic (E3) modeling and communications teams.

James Lawson, chair of USEG (Upstream Environmental Group), said, "Decarbonization 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 prioritization. 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."