THE SUSTAINABILITY OF THE OIL AND GAS INDUSTRY

THE SUSTAINABILITY OF THE OIL AND GAS INDUSTRY

Introduction

This research paper examines the notion of sustainability and the role of the oil and gas industry in realizing sustainable development. The paper brings a rational method for defining the critical issues for the oil and gas sector that have an impact on sustainability, along with attempting to come up the needed skills and mitigation techniques adopted by these firms. Sustainability is an issue that is fast gaining prominence today. As novel conventional sources of oil and gas decrease, unconventional sources, like Canada’s oil sands, the U. S’s shale gas, Australia’s coal seam gas, and deep-water offshore wells in Asia, West Africa, and Brazil have been singled out as crucial areas with potential for substantial reserves. In spite of the potential for growth, sustainability risks like climate change, communal disagreements, and safety risks put pressure on the economic viability of these opportunities.

The three features of sustainable development; environmental, social, and economic, typically called the Triple Bottom Line (TBL), can be utilized to evaluate a firm’s performance on environmental, social, and financial aspects. These three aspects of sustainable development, are also usually called the 3Ps; Planet, People, and Profit.

The paper also places focus on examining the different threats that could hinder sustainable development being conducted by some firms in the oil and gas industry. The importance of sustainable economic development in the oil and gas industry is also discussed. The aforementioned 3Ps can be used to group key risks/issues that affect sustainability. Sustainability initiatives endorsed by the oil and gas industry are not sufficient; however, there is robust evidence of improvement in the long run. To that extent, the following paper will attempt to suggest methodologies and strategies for increasing the effectiveness of sustainability programs and strategies for the industry.         

Rationale for Sustainability

Whereas offshore innovations have made progress in drilling and exploring deep water oil and gas, they have also become the causes of environmental pollution and harmful mishaps at different steps of the process of production. Drilling accidents as a result of personnel mistakes, extreme natural calamities, or equipment failure can be related to large scale oil spills and hydrocarbon leakage. In scenarios of prolonged gushing of hydrocarbon, the cause of system failure is typically when the tremendously high drilling zone pressure cannot be handled by well muffling process (Kirat 2015). On the other hand, routine or regular blowouts of hydrocarbon during drilling processes, counter measures can be used like changing the density of drilling fluid or blowout preventers. Nonetheless, the issue remains that any type of leakage can end up being catastrophic.

There is a clear relationship established between the lack of sustainable practices and mishaps in the oil and gas industry. The last thirty years have seen many catastrophic offshore disasters. An example of such an incident, which killed 167 people in 1988 was the Piper-Alpha Oil Rig Fire in 1988 (Kirat 2015). Another gas leak exploded in Venezuela at the Amuay Refinery, leaving 39 people dead (Kirat 2015). Another incident occurred in the Gulf of Mexico in 2010 where there was a massive oil spill; following this was the Deepwater Horizon Oil rig incident whereby it exploded and sunk (Kirat 2015). With such disasters in the oil and gas industry, it has become mandatory for companies in the industry to follow sustainability regulations.

A simple viewpoint of sustainability is protecting the natural environment for resources that may either have a direct or indirect effect on the survival of life and the environmental, social, and economic well-being of the community. As stated previously, this the point at which voluntary sustainability reports assist both internal and external stakeholders to monitor the social and environmental impacts of oil and gas production enterprises by adding value and coming up with improvements to mitigate such disasters in the long run.

The Enforcement of Sustainability in The Oil and Gas Industry

            More than twenty years have passed since the Earth Summit was held in Rio de Janeiro in 1992, whereby the nations endorsed “Agenda 21”, that is, a proposal to ensure protection of the environment, ensure social equity, and enhance economic growth (Abdulrahman, Huisingh, and Hafkamp 2015). It was also the first point when the lifestyle of the conventional society was examined and the need for transformation in the production and consumption trend was suggested. The United Nations Framework Convention on Climate Change (UNFCCC) followed the same. UNFCCC was endorsed at the Rio Convention and it aimed to restrict the dangerous interference of the climate by human beings. The ultimate goal of the gathering was to stabilize the concentrations of green-house gas and restrict hazardous climate change induced by humans (to be realized within a period sufficient to enable the ecosystems to adjust naturally), facilitate sustainable economic development, and ensure the production of food is no threatened (Abdulrahman, Huisingh, and Hafkamp 2015). In addition, the oil and gas industry is the most crucial sector to the global economy and has a profound input in facilitating energy for the society’s development. Due to the rise in unconventional gas and disasters like the one in the Gulf of Mexico, sustainability has become increasingly important. It is for a similar reason that bodies like OGP, API, and IPIECS acknowledge the importance of handling sustainability in in the energy sector and motivate the member organizations to interact with their stakeholders; the environmental, governance, social, and economic effects of their enterprises in the shape of ‘Voluntary Sustainability Reports’ for the purpose of disaster management and transparency (Abdulrahman, Huisingh, and Hafkamp 2015). To that extent, there are certain ways in which the oil and gas industry is enforcing sustainability, namely, the use more renewable energy sources and planning emphasis on energy efficiency through the whole fuels distribution line and reduction of flaring gas from processes and identification of opportunities to recycle captured gas on-site or facilitate energy to local communities.

The Use More Renewable Energy Sources and Planning Emphasis on Energy Efficiency Through the Whole Fuels Distribution Line

The oil and gas sector is dedicated to enhancing energy efficiency in its processes and collaborating with end-users to enhance efficiency in the utilization of its products. Highlighting ways to utilize energy more efficiently can make a key contribution to shifting the world towards a path of more sustainable energy. Oil and gas firms also have a robust financial incentive to save energy, since the large percentage of energy in the total cost of running their facilities.

The process of producing and supplying oil and gas across the fuel distribution chain is extremely energy intensive, and key opportunities exist to enhance energy efficiency and to include more renewable fuels. Even though the sector has already deployed numerous energy efficiency initiatives and in fact, the sector manages to maintain energy consumption from production and distribution of a standard diesel or gasoline product to less than eighteen percent of that consumed throughout their lifetime, there are numerous factors that have decreased the overall effect of energy efficiency enhancements and the sector can continue to be more efficient. For instance, “easy oil” is not available anymore and exploration and production committees need to utilize more energy to extract the hydrocarbons from the surface (Badiru and Osisanya 2016). Additionally, crude has to be processed further in refineries to meet low-Sulphur stipulations and treat heavy crude, needing extra energy. Lastly, novel environmental mitigation innovations like carbon capture and storage, even though it reduces carbon emissions, may also increase the use of energy.

To make improvements in this sector, oil and gas firms will need to continue to decrease waste and enhance logistics and efficiency across its whole supply chain, along with considering opportunities to utilize renewable energy. There are numerous waste streams related with the production of oil and gas, only some of which are at present managed though recovery or reclamation as operational fuel (Badiru and Osisanya 2016). By recycling waste streams to generate on-site energy, companies can substantially decrease operational costs related to energy. There are numerous technology or process improvements oil and gas firms can deploy arcos the supply chain to become more energy efficient. These includes:

Upstream: Using turbines that are more energy efficient on platforms could substantially enhance efficiencies in exploration and production processes. Utilizing electricity from grids that are land-based instead of gas turbines can facilitate opportunity to use renewable energy that is grid based, enhance energy efficiency, and decrease CO2 emissions. This innovation is currently being used in Norwegian Continental Shelf and the North Sea (Badiru and Osisanya 2016). Solar energy is also being tested for steam generation to complement steam derived from natural gas for oil recovery. Firms are also beginning to deploy multifaceted plant instrumentation to enable energy efficiency to be improved and managed.

Transport/Midstream:  The oil and gas transportation framework is a multifaceted network of pipelines developed to distribute petroleum products from producing areas to end-use markets with significant possibility for energy losses. Even though, natural gas pipelines are more efficient that electrical lines, with just 2% losses in comparison to 7% losses, there are still areas that can be improved (Badiru and Osisanya 2016). Key innovations for energy efficiency in midstream include enterprise software, low-voltage products, high pressure pipelines, instrumentation, and efficient motors, drives, pumps, and compressors. Analytics and software could also reduce energy consumption and enhance downstream supply logistics.

Downstream Refining:  The refining of petroleum needs large amounts of energy. For instance, in the United States, refining consumes more energy than any other manufacturing sector. Some research show that 50% of cost in refineries is attributed to energy costs (Badiru and Osisanya 2016). Due to this, coming up with realistic goals for enhancing energy efficiency should be a key priority for most managers of refineries. The need to decrease operating expenses increases as refining margins reduce. Any solution that the recovery, conservation, and recycling of heat will enhance the efficiency of the refinery; methods like increased automation, increased heat integration, the use of modern catalysts, and energy management software can enhance a refinery’s energy efficiency (Badiru and Osisanya 2016). Cogeneration plants, also referred to as combined power and heat, generate electricity more efficiently as the average power distributed by a local utility firm and are important energy efficiency innovations in refineries. Even basic methods like planned and improved maintenance can equipment to function more efficiently.

End Consumer: In most scenarios, consumers have viewpoints about energy efficiency and about the oil and gas sector. Oil and gas companies, in the same way as automobile firms, have the chance to interact with end consumers to inform them on what efficient practices in regards to operations they are deploying as a firm and the steps the end consumer can take to be more energy efficient and sustainable (Badiru and Osisanya 2016). Additionally, oil and gas firms can facilitate energy saving products to its consumers like gasoline and lubricants with fuel additives.

Reduction of Flaring Gas from Processes and Identification of Opportunities to Recycle Captured Gas On-Site or Facilitate Energy to Local Communities

Significant wastage of energy occurs in the processes of oil and gas companies. Gas flaring related with the production of oil is one of these sources. According to a report by the World Bank, around 150 billion cubic meters of natural gas are being flared and emitted each year across the world (Badiru and Osisanya 2016). This is the same as a third of the gas consumed by the European Union or a quarter of the gas consumed in the United States. Indeed, the 35 million cubic meters of gas flared each year in Sub-Saharan Africa is sufficient to generate half of the region’s power needs (Badiru and Osisanya 2016). Endeavors too decrease gas flaring in the production of oil is one illustration of a win-win effort to enhance energy efficiency, potentially enhance energy access for more citizens, and decrease carbon emissions.

Gas derived from crude oil is flared for numerous reasons; if there lacks a network of pipeline to distribute gas to the market; if there is not alternative to liquefy the gas and supply it to the market by ship, rail, or, road through trucks; if the gas cannot be put into a reservoir for disposal or pressure support; and if there lacks regulations to restrict flaring (Badiru and Osisanya 2016). Flaring of gas wastes a key source of clean energy in most developing nations where most of the oil is produced.

Innovations exist to trap the flared gas; however, the utilization of gas needs to be improved, along with the supply infrastructure to enable producers to unlock the potential of the natural gas that is currently being wasted. As illustrated by the World Bank Global Gas Flaring Reduction Partnership, companies in the oil and gas sector should focus on reduction of gas flaring to improve energy efficiency, contribute to the mitigation of climate change, and enhance access to energy.

The Effect of Sustainability in The Oil and Gas Industry

In accordance to its description, sustainable development examines the association among economic development, social equity, and environmental quality. The economic aspect of sustainable development is called profit. Nonetheless, economic development cannot simply be abridged by the materialistic benefits realized. The development has to be environmentally sustainable and socially inclusive (Al-Maamary, Kazem, and Chaichan 2016). When the firms involved develop an economic value to their work setting, this is termed as sustainable growth. The real goal of sustainable growth in the industrial setting is when the Real Output, determined by Gross Domestic Product (GDP), increases across time at stable prices (Al-Maamary, Kazem, and Chaichan 2016). It is also important that sustainable economic growth does not develop economic problems by depleting resources for future generations.

It is looming with increasing population in a certain region or with the industrial development of fertile land, there is a general increase in aggregate demand because of consumer spending. As such, the role of sustainable economic development should not be restricted to creating value. A growth that is sustained is an overall rise in output. Failure to enhance the output would inevitably lead to an increase in prices for the current and future generations. A key role of the transnational firms involved in exploration of oil is generating revenue.

A close analysis of the revenue generated by oil exploration companies reveals that the income generated by these firms surpass the GDP of the nations which have demonstrated the fastest growth in GDP in the last decade, like Equatorial Guinea, Libya, Azerbaijan, and Qatar (Al-Maamary, Kazem, and Chaichan 2016). China is the most populous country in the world and has the fastest growing economy. Figures from the IMF show that China’s GDP growth rate has increased to 10% in thirty years and based on the ‘Rule of 70’, the nation’s economy would grow two-fold in the next seven years (Al-Maamary, Kazem, and Chaichan 2016). It should not be astonishing that China is the 4th largest oil producer in the globe, reinforcing the fact that the oil and gas sector drives economies of nations.

Today, oil exploration is also used in generating electricity. Oil power stations transform the chemical energy produced by oil combustion into electrical energy that can be utilized at consumer businesses and homes. For a nation as large as the U.S, almost 40% of the country’s total power requirements are met through oil being utilized as fuel (Al-Maamary, Kazem, and Chaichan 2016). Even though oil has primarily been utilized for transportation and heating purposes in households, the increased use of oil as fuel to generate electricity in power plants has brought about a significant rise in global fuel consumption and consequently having a negative impact on the environment.

The message to be disseminated from sustainable economic growth is that the first tenet of sustainable development, the wellbeing of the economy, is a thing that is achievable. It is being realized in many parts of the world and oil firms play a key role in it. The investments of oil firms indirectly enable population growth. With increasing population comes improved medical care and health facilities. Consequently, the average life expectancy has risen. The rate of infant mortality has reduced from 134 for every 1000 to 37 for every 1000 births (Al-Maamary, Kazem, and Chaichan 2016). Economic development can enhance livelihoods where individuals get the reassurance that their children would grow up healthy.

In the battle to gain control of oil and gas reserves, firms are brining formerly regarded unconventional sources like shale gas, oil sands, deep-water wells, and coal seam gas to the core of their strategies. In spite of the potential of growth, the unconventional sources bring up numerous social and environmental barriers like safety risks, large greenhouse gas (CHG), water and land degradation, spills, and depletion of natural resources. Additionally, most of the novel sources are found in regions that are regarded as nontraditional, where firms must surpass local hurdles to entry that can vary from opposition by locals to war to bribery. Further, as these unconventional sources are exceedingly tapped, mismanagement of risks by some firms is instigating increased regulations. For example, following BP’s Macondo disaster, the United States enforced a temporary suspension on well development and offshore exploration. After lifting the ban, the US government asserted that operations must follow higher standards (Al-Maamary, Kazem, and Chaichan 2016). The incident has induced other nations, like Brazil, to examining their offshore licensing (Al-Maamary, Kazem, and Chaichan 2016). In spite of taking a more cautionary approach, licenses are still being given.

Additionally, oil sands are encountering regulatory battles posing threats to operations like delays in construction and possible termination of the Keystone XL pipeline, meant to transport bitumen form Alberta to refineries in the Gulf Coast (Al-Maamary, Kazem, and Chaichan 2016). Further, natural gas opportunities are also encountering legal hurdles like either placing suspensions or banning hydraulic fracturing inn different regions across the world, including Scotland, Germany, France, and US (Al-Maamary, Kazem, and Chaichan 2016). The US Environmental Protection Agency (EPA) is examining more robust federal regulation of shale gas production. In addition, Australia’s coal seam gas is encountering increasing enquiry form regulators, affecting its development. Such occurrences interfere with the ability of companies to capitalize on increasing demand, which may be substantial. In particular, the US Energy Information Administration states that the consumption of natural gas is expected to rise significantly in the next 20 years (Al-Maamary, Kazem, and Chaichan 2016). Further, the combustion of natural gas emits around 30% less emissions of CHG than oil on the basis of energy, creating suggestions that natural gas will exceedingly be used in markets that are carbon-restrained.

Threats to the Sustainability in the Oil and Gas Industry

The population on earth today has surpassed 7 billion and there would be an extra billion in the twenty years. With these billions of individuals striving towards economic prosperity, the world has an economy that is growing rapidly, however, in an unusually unequal manner. This is placing a threat to the planet. Humanity relies on natural resources like water, food, safety from diseases and environmental threats, and survival materials. Nonetheless, for a species reliant on the magnanimity of environmental services, the effort put in to safeguard the physical environment is not sufficient. Therefore, the expanding economies have began to cause environmental hazards, harming the safety of all other living things. Large scale economic activities are transforming the planet’s climate, ocean chemistry and water cycle. Engaging in sustainable development would do well to make sure the expanding economies are being well distributed across the land. However, the unprecedented threats to sustainability are felt by the rich and poor alike. The threats to sustainability can be widely grouped into two varieties; Geographic and Operational threat.

Operational Threats

These are described as the threat of loss due to failed or insufficient processes, systems, and people or from external occurrences. This may comprise legal threat, but does not include reputational and strategic threat. In the case of oil and gas, the threats are highly reliant on the nature of the sector. It includes the following:

Carbon Emission: Oil and gas companies have high emissions of CHG based on intensity in comparison to other industries. The production of oil and gas involves the expelling, flaring, and accidental emission of natural gas (methane) (Comyns and Figge, 2015). Many scholars argue that methane is a CHG that contributed to global warming 25 times more than CO2.

The U. S’s Center for biological Diversity has deployed numerous campaigns and sought legal intervention to stop oil and gas production the country’s waters which are a key habitat to endangered species (Comyns and Figge, 2015). The protests of the Center are also against leases of oil and gas companies that are worth millions of dollars, which in numerous ways compromise with the safety of the environment against depleted water quality, greenhouse gas emissions, and endanger fauna and flora species.

Health and Safety: Both offshore operations have high possibilities of health and safety (H&S) occurrences that can have harmful effects. The key H&S threats for the oil and gas industry in general are encompassed by devastating scenarios like BP’s Macondo well explosion that led to 11 deaths (Comyns and Figge, 2015). The management of H&S, along with integrity of rigs, installations, wells, and pipelines are key in reducing risks of fires, well blowups, and mistakes that can lea to the injuries and fatalities among workers.

Operations that are safe and free of incidents are also important to robust efficiency and productivity.  Also, large scale disasters are not exceedingly common but they till need substantial resources to develop emergency response and prevention capacity. The failure to adequately contain such risks will not end up in injuries or fatalities, nut also regulatory and other fines.

Geographical Threats

In regards to the oil and gas sector, geographical threats have very little to do with earth bodies, region, or landscape suitable for the exploration of oil. Rather, this section would primarily examine the looming corruption which bears its grip on the sector. The government of a country that permits the flow of investment from multinational firms plays a key role in the well being of a country’s economy. However, when there is ambiguity and discrimination on the part of the state, sustainable development no longer becomes a mutual objective. Geographic threats, therefore, play a key role in environmental stress, wide divisions, and unprecedent poverty.

Corruption in Oil and Gas Sector: The exploration of oil sources typically leads to operations in areas typified by violence, corrupt business practices, and violence. Even though such regions typically facilitate robust opportunities for growth, the stock prices of a company can rapidly loose value when investors become unsettled with regional political instability as calamitous scenarios can escalate and interfere with operations (Comyns and Figge, 2015). Further, political regimes could request payouts that would be deemed illegal in most of the home countries of the companies. Penalties for violating these regulations are also becoming more common and greater as nations like the UK and US raise requirements and enforcement of these regulations.

The oil and gas industry currently lacks transparency. The revenues are not announced and payments made to governments for the exploration of resources are concealed. Therefore, the industry and politicians many at times reap illegal benefits. Most of the oil and gas companies are either partially or fully state owned (Comyns and Figge, 2015). Emerging markets are usually bureaucratic, which leads to numerous ‘touch points’ with the state where bribes can be requested. The oil and gas firms also safeguard the identities of their equity holders and subsidiaries, which makes it easy for corrupt leaders to conceal stolen money (Comyns and Figge, 2015). Without any stated information and proof of concealed taxes and royalties, it becomes vey hard to hold the government accountable.

Conclusion

This research paper examines the notion of sustainability and the role of the oil and gas industry in realizing sustainable development. The paper brings a rational method for defining the critical issues for the oil and gas sector that have an impact on sustainability, along with attempting to come up the needed skills and mitigation techniques adopted by these firms. The paper also places focus on examining the different threats that could hinder sustainable development being conducted by some firms in the oil and gas industry and suggests methodologies and strategies for increasing the effectiveness of sustainability programs and strategies for the industry.

There is a clear relationship established between the lack of sustainable practices and mishaps in the oil and gas industry. Due to recent natural disasters, it has become mandatory for companies in the industry to follow sustainability regulations. A simple viewpoint of sustainability is protecting the natural environment for resources that may either have a direct or indirect effect on the survival of life and the environmental, social, and economic well-being of the community. There are certain ways in which the oil and gas industry is enforcing sustainability, namely, the use more renewable energy sources and planning emphasis on energy efficiency through the whole fuels distribution line and reduction of flaring gas from processes and identification of opportunities to recycle captured gas on-site or facilitate energy to local communities. Engaging in sustainable development would do well to make sure the expanding economies are being well distributed across the land. However, the unprecedented threats to sustainability are felt by the rich and poor alike. The threats to sustainability can be widely grouped into two varieties; Geographic and Operational threats. Both governments and companies should put in effort to overcome these threats as the sustainability of the oil and gas sector is imperative for protection of the environment and economic development.

References

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