Decarbonisation: Nigeria’s Pathway to the Great Transition

By Dr. Wisdom Enang

Fossil fuels provide 80 per cent of the world’s energy, and are undoubtedly the energy foundation upon which global societies function. A sudden change in the composition of that foundation can potentially destabilise the global economy and key elements of modern society. Energy transformation is shaped by a much broader and fundamental shift in terms of prosperity, progress, politics, and the environment. One of the cornerstones of this huge transition is ‘decarbonisation’.

This ongoing transformation does not only concern and apply to the energy sector, or to the change from one fuel source to another, or merely the technological leap. It is much broader, and reflects a change, a transformation, in terms of values, and also the way we understand the world around us nowadays. The great transition features a gradual breakaway from the older core values of security, reliability, and robustness which existing energy systems were built on, to new values of sustainability, flexibility, and affordability, enabled by a completely new way of producing, delivering, and consuming energy. This does not necessarily mean that the older frame of values will become obsolete or irrelevant anytime soon, but the centre of weight is definitely rebalancing itself.

The clarion call for decarbonisation is apt and comes in the context of critical global drivers such as the Paris Agreement, consumer energy needs, and investor activism. The Paris Agreement (signed in 2015) establishes a global framework to prevent dangerous climate change by limiting global warming to well below 2°C, and pursuing efforts to limit it to 1.5°C. These goals are set against the background, several scientific findings such as that of the National Academy of Sciences (NAS), which concluded in a 2015 study that it is possible that some extreme weather events such as heat waves and droughts to be attributed to changing climate, due to global warming.

The consciousness for responsible energy exploitation has also been taken seriously by investors like Black Rock, the world’s largest fund manager, with about USD$7 trillion of assets under management, who in 2020 declared that “climate risk is investment risk”, and stated that the group will be selling their direct investments in companies that derive more than 25 per cent of their revenues from thermal coal. While Black Rock’s strategy made headlines due to the fund’s size and influence, other investors have also been pressuring companies to take more action on climate change. For instance, Climate Action 100+, which Black Rock has joined, targets high-emission companies, and has grown into one of the largest investor-led engagement initiatives, with over 450 investor signatories, and representing over USD$40 trillion in assets under management across dozens of markets. To these investors, a competitive portfolio will no longer solely be determined by its breakeven price, but also by its environmental impact.

Another noteworthy driver is the quest for higher flexibility, convenience, and cleanliness of energy services demanded by customers, especially as income risers.

If the world is to come close to meeting its climate-change goals, the oil and gas (O&G) industry will have to play a big part. The industry’s operations account for 9 per cent of all human-made greenhouse-gas (GHG) emissions (Scope 1). In addition, it produces fuels that create another 33 per cent of global emissions (Scope 2).

As such, directly and indirectly, the oil and gas industry accounts for 42 per cent of global emissions. To play its part in mitigating climate change to the required degree, the oil and gas sector must reduce its emissions by, at least, 3.4 gigatons of carbon-dioxide equivalent (GtCO2e) a year by 2050 – a 90 per cent reduction in current emissions.

The decarbonisation problem, interestingly, presents a dual challenge, as there are equally significant emissions sources from non-energy sectors, necessitating collaborative and coordinated efforts across various sectors of the economy. Oil and gas stakeholders should work with key players and stakeholders from other sectors to support research and development of promising decarbonisation technologies.

In view of the previously discussed decarbonisation drivers, emissions intensity is, therefore, becoming an increasingly important metric in portfolio strategy, and as with the breakeven metric, not all oil and gas reserves are equal in terms of emissions intensity. Oil from Canada and Venezuela for example, creates more emissions than that of Nigeria, in addition to having lower breakeven prices. As such, when it comes to decarbonisation potential and technology pathways, all crudes are not equal.

In a recent (2020) World Bank study titled ‘Diversification and Cooperation in a Decarbonising World: Climate Strategies for Fossil Fuel-Dependent Countries’, Nigeria was considered as having a high exposure and low resilience to low carbon transition, owing mainly to the strong reliance of her economy on the oil and gas sector, which accounts for 90 per cent of the total exports, and 70 per cent of the government fiscal revenue.

As such, achieving a commercially attractive energy transition in Nigeria will depend heavily on the use of existing oil and gas infrastructure (infrastructure that is adaptable, reliable and affordable) which has been built around conventional resources over many decades, with billions of dollars in investment. It will be a missed opportunity not to plan for the role of existing infrastructure in the energy systems of the future. Therefore, efficient repurposing of existing infrastructure remains a key imperative for decarbonising the Nigerian upstream sector in the most cost-effective approach.

The task of controlling energy-related carbon emissions, as daunting as it may appear from today’s perspective, may, in fact, turn out to be less obstructive, if indeed an acceleration of long-term structural change trends is called for, rather than a departure in an entirely new direction.

Substantial acceleration of decarbonisation would thus entail both ambitious technological and policy levers. Policy declarations such as the Nigerian ‘Decade of Gas’ is a positive step in the right direction, as the exploitation of gas avails us with a more efficient and cleaner source of energy compared to liquid petroleum.

Large-scale decarbonisation of the oil and gas sector to a net-zero target would be extremely difficult to achieve anywhere in the world, as there are very limited commercially viable options. There are potential new decarbonisation pathways such as blue hydrogen farming and conventional carbon capture and storage (CCS). Yet, these technologies are still at their early stages, and are yet to be applied profitably on an industrial scale. The good news is that for Nigeria, there are things that can be done, which are affordable, effective, impactful, and relatively low-risk. Plausible decarbonisation options for the Nigerian upstream value chain, which could be leveraged to achieve sustainability, as well as meet carbon footprint reduction objectives include: efficient upstream energy utilisation, the advocation of gas as a transition fuel, promotion of carbon capture for sale, and the promotion of CO2 enhanced oil recovery for CCS where technically and economically viable.

The upstream petroleum sector accounts for over 66 per cent of oil and gas related GHG emissions in Nigeria, with much of this resulting from cold venting of methane, flaring and sub-optimal use of extraction energy. As such, process changes and minor adjustments that help oil and gas companies in Nigeria consume extraction energy more efficiently, eliminate flaring and cold venting will present the least expensive abatement options.

The specific options available to the various companies will depend on factors such as its geography, asset mix (offshore vs. onshore, or gas vs. oil). Nonetheless, from an operational standpoint, plausible decarbonisation options available to Nigerian upstream players include: improved maintenance routines to reduce intermittent flaring, and vapor-recovery units to reduce methane leaks (fugitive emissions).

Cutting emissions, using this approach, is not necessarily expensive. In a Mckinsey submission titled ‘The future is now: How oil and gas companies can decarbonise’, an onshore operator was reported to have achieved 40 per cent of the aforementioned initiatives, with a positive net present value (NPV) at prevalent crude prices, and an additional 30 per cent at an internal carbon price of $40/tCO2e. Companies can also cut emissions of methane (a powerful GHG) by improving leak detection and repair (LDAR), installing vapor-recovery units (VRU), or applying the best available technology (such as double mechanical seals on pumps, dry gas seals on compressors, and carbon packing ring sets on valve stems). Mckinsey estimates that reducing fugitive emissions and flaring could contribute 1.5 GtCO2e in annual abatement by 2050, at a cost of less than $15/tCO2e.

Non-routine gas flaring could also be reduced through improved reliability, predictive maintenance, and predictive analytics, which reduce the frequency of equipment outage. It has been reported in the literature that this method also increases production, in addition to reducing emissions. In one of such reports, an operator was able to reduce 50 per cent of all flaring emissions, as well as improve production by 10 per cent, by improving asset reliability. Another option is to implement initiatives that offset emissions by tapping into natural carbon sinks, including oceans, plants, forests, and soil; these remove GHGs from the atmosphere, and reduce their concentration in the air. Plants and trees, for example, sequester around 2.4 billion tons of CO2 a year.

Decarbonisation could be considered a blessing in disguise, as it also provides potential value-accretive business opportunities like carbon capture for sale and storage via CO2 enhanced oil recovery, to the upstream players. Converting these value-accretive opportunities to a commercially viable and sustainable business would definitely necessitate the collective collaboration of different players within upstream Nigeria, towards meeting the broad goal of decarbonisation, and providing a much greater return on investment, rather than a target-based approach.

If implemented wisely, such opportunities could deliver increased revenue streams, offsetting any negative effects of each company’s decarbonisation efforts on its balance sheet. For example, CO2 could be captured post-combustion, and turned into a valuable raw material.

Deloitte, in their report titled ‘The 2030 decarbonisation challenge: The path to the future of energy’, predicted trillion-dollar markets for the use of CO2 as feedstock, for a variety of industrial applications such as development of building materials, chemicals and synthetic fuels.

Part of the ongoing discussion of whether CCS will contribute enough to meet climate targets, is the discussion around the role of carbon dioxide enhanced oil recovery (CO2-EOR). Storing captured CO2 through CO2-EOR enters into a category called associated carbon capture, utilisation and storage (CCUS), where the captured CO2 is utilised for a commercial activity, in this case EOR, as it becomes ultimately stored. CO2-EOR works by simply altering the properties of the oil through reduction in viscosity and increase in pressure, making it easier to extract. Above the miscibility pressure, CO2 is highly soluble in crude oil, causing the oil to swell out of the rock pores, causes the oil viscosity to reduce, and results in the creation of a miscible flood front that sweeps through the reservoir, displacing the crude oil towards the production well.

It is estimated that between 50 and 70 per cent of the reservoir proven volumes can be recovered through the application of EOR. In a study conducted at the University of Texas, it was demonstrated that, depending on strategic operational choices, the incremental oil produced from CO2-EOR can achieve a net carbon negative status for most of the life of the operation. The mechanisms that trapped oil within the reservoir also acts to unavoidably and permanently trap over 90 – 95 per cent of CO2 used for EOR within the formation, which cannot be produced back to the surface along with the produced reservoir fluids.

Carbon dioxide enhanced oil recovery (CO2-EOR) has historically used more captured CO2 than any other industrial process, and is the only commercially established carbon utilisation option that provides large-scale permanent storage for captured CO2. In 2015, in the US, the EPA (Environmental Protection Agency) issued regulatory guidance that enabled CO2 injected during EOR to also be classed as stored CO2. As opposed to carbon storage generally being seen as a waste disposal activity when done in isolation of market activities, carbon storage paired with EOR can be a profitable activity that also reduces greenhouse gas emissions. Starting CCS projects at EOR sites, where oil profits offset the cost of deployment, is the most intuitive and economically justified action at the current stage of technology development. To transition to a large-scale CO2-EOR with storage, operators must account for the additional costs of monitoring, measuring, and verification (MMV), which can influence project costs.

Any great transition is always subject to uncertainty and obscurity, but also hopes for tomorrow. There is currently a continuous torrent of initiatives, formulating into a river of change. As always, a few will lead the way, and we must remember that: “Those who are crazy enough to think they can change the world are the ones that do”.

(Being a paper presented at the Nigerian Oil and Gas Technical Conference 2021 (NOG) at the International Conference Centre, Abuja on July 6, 2021.)