This report aims to provide clear and actionable guidance to help the sector achieve its environmental objectives.

The guidelines, produced under the expert guidance of Graham Filsell, Kent’s head of asset decarbonisation, focus on demystifying the economics of decarbonisation. “We have seen how difficult it is to compare decarbonisation projects to the economics of standard projects, with the only justification being the lower operating costs associated with carbon trading credits and potential incremental revenue from increasing gas sales volumes through the reduction of fuel and flare gas,” said Graham Filsell.

“The changes proposed in the NSTA consultation on the UKCS’ draft OGA greenhouse gas emission reduction plan provide a compelling case for incorporating the social cost of carbon and potentially the individual marginal cost of asset avoidance into the project economics for decarbonisation projects.”

The scope of this study focuses on the upstream sector in the UK North Sea, but is intended to serve as a basis for future research worldwide. The guidelines will address the following key objectives:

Demystifying the economics of decarbonization: Provide clarity for energy professionals with limited experience in project economics, such as environmental or sustainability managers.

Understanding Carbon Costs: Provides insights into how market forces calculate and influence carbon costs, including societal costs.

Alternative metrics: Recommend non-standard metrics beyond NPV to ensure decarbonisation targets are met. These will be communicated to industry as a technical note.

Justification of the metrics: Formulate and justify the selection of both the standard and non-standard metrics used in the instructions.

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 expand the scope to the entire value chain.

The interdisciplinary process to develop these guidelines will require collaboration between Kent’s Environmental Team, Asset Decarbonisation Team and Energy Economic Modelling and Communications (E3) Team:

Environment Team: Providing guidance on the UK carbon budget and other greenhouse gas regulations through comprehensive review and assessment of regulatory risk levels.

Plant Decarbonization Team: Maintaining current knowledge of industry laws and best practices on decarbonization, developing marginal mitigation curves, and considering regulatory risks when calculating the unavoidable greenhouse gas reduction value (UGV).

E3 Modeling and Communications Team: Guidance on assessing greenhouse gas emissions and demystifying the economics of decarbonization by estimating metrics for UAGV benchmarking analysis.

James Lawson, Chair of USEG (Upstream Environmental Group), highlighted the societal importance of this initiative: “Decarbonisation and greenhouse gas reduction projects are inherently holistic projects that involve a broad range of energy professionals, many of whom have not previously engaged in economic assessments and project prioritisation. In addition, these projects compete with other industries for capital and resources, so a clear, concise and targeted document that all energy professionals can refer to will be invaluable in ensuring that capital and resources are allocated appropriately and in line with net zero commitments.”

This cooperation represents a significant step towards achieving the environmental objectives of the North Sea Transition Agreement and ensures that the UK oil and gas sector can continue to operate in the North Sea with the lowest possible impact on the environment.

Read the article online at: https://www.oilfieldtechnology.com/special-reports/16082024/kent-to-develop-decarbonisation-economics-guidelines-for-upstream-oil-and-gas-sector-on-behalf-of-the-energy-institute/