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Decarbonization of Oil and Gas: International Experience And Decarbonization of Oil & Gas: International Experience and Russian Priorities March 2021 EDITED BY Tatiana Mitrova Professor, Research Director, Energy Centre, Moscow School of Management SKOLKOVO Irina Gayda Director, Energy Centre, Moscow School of Management SKOLKOVO AUTHORS Ekaterina Grushevenko Senior analyst in the oil and gas sector, Energy Centre, Moscow School of Management SKOLKOVO Sergey Kapitonov Analyst, Energy Centre, Moscow School of Management SKOLKOVO Yuri Melnilkov Senior Analyst, Energy Centre, Moscow School of Management SKOLKOVO SKOLKOVO Energy Centre 2 Decarbonization of Oil & Gas: International Experience and Russian Priorities March 2021 Anastasia Perdereau Senior Analyst, Energy Centre, Moscow School of Management SKOLKOVO Nadezda Sheveleva Assistant professor at Gubkin Russian State University of Oil and Gas, Department of Economics and Management of Oil and Gas Industry CEO at Eco Oil Gas Consulting Dmitriy Siginevich Expert, Energy Centre, Moscow School of Management SKOLKOVO Energy policy Director, “Concern Rosenergoatom” The authors express sincere appreciation and gratitude to the reviewers for their detailed comments and suggestions: Jonathan Stern, Distinguished Research Fellow of the Natural Gas Research Programme, OIES Tim Gould, Head of Division, World Energy Outlook / Investment, International Energy Agency Julien Perez, VP Strategy & Policy, OGCI Tim Boersma, Director, Sustainability & Strategy Advisory at ABN AMRO Holdings USA LLC Jorge Fernández Gómez, Senior Researcher and Energy Lab Coordinator, Orkestra-Basque Institute of Competitiveness Dmitriy Denisov, Head of Ecology and Low-Carbon Technologies, VEB Engineering LLC You can send your comments and proposals on the research at: [email protected] SKOLKOVO Energy Centre 3 Decarbonization of Oil & Gas: International Experience and Russian Priorities March 2021 TABLE OF CONTENTS FOREWORD ..................................................................................................... 6 LIST OF ABBREVIATIONS ........................................................................... 7 EXECUTIVE SUMMARY ............................................................................... 9 INTRODUCTION ........................................................................................... 14 GHG EMISSIONS IN THE OIL AND GAS INDUSTRY ...................... 18 Growing share of the oil and gas sector in the global GHG emissions .......................................................................... 18 Breakdown of GHG emissions in the oil and gas industry ................................................................................................ 21 GHG emissions across the supply chain ..................................................................... 21 GHG emissions by scopes 1, 2, and 3 ............................................................................ 25 THE DECARBONIZATION GOALS, STRATEGIES, AND METHODS OF LEADING INTERNATIONAL OIL AND GAS COMPANIES ...................................................................... 28 Decarbonization goals of leading international oil and gas companies ........................................................................................ 28 Developing a decarbonization strategy ................................................ 32 Operational methods ........................................................................................... 34 Operational efficiency improvement ............................................................................. 34 Recycling, reuse, and the utilization of secondary energy sources .............................................................................................................................. 35 Energy efficiency ......................................................................................................................... 41 Working with counterparties to reduce their GHG emissions .................... 43 Effective methane and APG monetization .......................................... 43 Flaring reduction and utilization of APG ...................................................................... 43 Methane leaks reduction ....................................................................................................... 48 Vapor recovery units on large tanks, methane leak reduction, and stripping gas utilization ............................................................. 53 Shifting to low carbon energy sources .................................................. 55 Using renewable energy sources ....................................................................................55 GHG emission reductions during oil and gas marine transportation by shifting to low-carbon fuel types .......................................... 58 Corporate strategy methods ......................................................................... 61 Portfolio optimization ................................................................................................................ 61 Merges and acquisitions ........................................................................................................ 63 Carbon allowances and carbon credits trading ............................. 68 GHG reduction due to investments in regenerative land use (projects related to reforestation, natural sinks, and agricultural lands) ........................................................................................................................ 73 Carbon capture, utilization, storage and removal .......................... 78 Carbon capture, utilization and storage ..................................................................... 79 Carbon removal ............................................................................................................................ 85 СО2-EOR ........................................................................................................................ 87 Hydrogen ...................................................................................................................... 89 Hydrogen production, transportation, and sales ................................................. 90 Hydrogen consumption for inter-company needs ............................................ 92 Decarbonization of the petrochemical sector .................................. 93 Business diversification towards the petrochemical and chemical industry ............................................................................................................. 95 APG utilization in the oil and gas chemicals industry ....................................... 99 SKOLKOVO Energy Centre 4 Decarbonization of Oil & Gas: International Experience and Russian Priorities March 2021 Production of new materials for other industries ................................................ 99 Production method improvements in the industry of oil and gas chemicals ...................................................................................................... 100 ECONOMICS OF DECARBONIZATION IN OIL AND GAS SECTOR ....................................................................... 103 CONDITIONS FOR DECARBONIZATION IN RUSSIA AND DECARBONIZATION PRIORITIES OF THE RUSSIAN OIL AND GAS COMPANIES ............................................... 108 Conditions for decarbonization in Russia – positions of the main stakeholders regarding climate change ............... 108 Public attitude towards climate change issues .................................................. 108 State position regarding climate and GHG regulation in Russia ............ 108 Position of the financial sector and green financing ........................................ 116 Position of the business ......................................................................................................... 118 Decarbonization priorities of the Russian oil and gas companies ............................................................................................. 119 Operational methods .............................................................................................................. 122 Efficient monetization of methane and APG ......................................................... 125 Shifting to low-carbon energy sources .................................................................... 130 Corporate decarbonization methods .......................................................................... 131 Decarbonization of the petrochemical sector ..................................................... 136 Other measures .......................................................................................................................... 138 CONCLUSIONS AND RECOMMENDATIONS .................................. 139 Recommendations for the Russian government ......................... 139 Recommendations for Russian oil and gas companies .......... 141 SKOLKOVO Energy Centre 5 Decarbonization of Oil & Gas: International Experience and Russian Priorities March 2021 FOREWORD First and foremost I express heartfelt appreciation to our colleagues from Petroleum Advisory Forum and each of its member companies for making this study possible and sharing generously their knowledge and time. This research is the first collaboration of SKOLKOVO Energy Centre and Petroleum Advisory Forum and we were very excited to have an opportunity to incorporate intellectual contribution from leading international oil and gas teams into our study. The level of
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