Carbon Trading and the Oil & Gas Industry

By Garry N. Kolafa, Consultant

Research & Technology Group

with approval from the MoOwww.kockw.com

Why the carbon finance industry needs to engage with the world’s oil companies ?

• The Oil and Gas industry has many people, Geoscientists and Specialized Engineers, that have the right kind of knowledge on how to deal with problems of what to do with GHGs, and other types of gases, which may be considered toxic or pollutants.

• The Oil and Gas industry has unique know-how and technologies in enabling several alternative energy sources, and also has the requirement to use them. It takes energy to produce energy.

These new unique technologies allow us to do things we were never capable of doing in the past, for example directional drilling, multilateral drilling, etc., these will be key technologies in developing alternatives such as geothermal energy in the future.

• The Oil and Gas Industry has unique know-how in how to identify and select safe natural storage locations for GHGs, and how to manage them over time, and do so commercially.

• Most importantly the oil and gas companies have some of the most effective sequestration technologies available, and have long been ahead of other industries in what to do with excess CO2. GHGs have long been used in EOR (Enhanced Oil Recovery).

Directional Drilling

Source: www.americandirectionaldrill.com/

Geothermal Field in California

Source: DOE

Matching Oil & Gas with the Carbon Industry: Challenges and Opportunities

• Challenges

– Coping with a complex environment– Addressing Sustainability Issues, Meeting Future Demand, – Complying with regulatory and reporting requirements– Improving performance and operational effectiveness (managing decline)– Industry transactions and consolidation– Managing Financial Risk, Maintaining and Increasing Investment Levels.– Managing Geopolitical Risk – Recruiting and retaining a skilled workforce– Securing the supply– Allowing Alternatives to find their respective niches, and allowing changes in infrastructure

to take place. – Accommodating the inevitable fundamental shift of production from lighter to heavier

crudes, to heavy oil, tar sands, and coal.– Saving hydrocarbons for better things than fuel !

Matching Oil & Gas with the Carbon Industry: Challenges and Opportunities

• Opportunities In the future, the opportunities will be found in an inter-reliance of energy sources, i.e. we will need nuclear energy to produce Hydrogen, or we will produce electricity from geothermal energy to drive injection pumps in mature fields, etc. etc.

– Nuclear Energy

– Hydrogen Combustion & Nanotechnologies

– Hydrogen Fuel Cells & other Electric Solutions

– Desalination and Electrolysis of Water

– Water and Steam Management

– Geothermal Energy

– Solar, Wind, Chemical Energy, Thermodynamics etc.

– Cleaner Operations

Kuwaiti Oil Fires in 1991

Source: internal

Kuwait Oil Company’s current involvement in GHG emissions reduction.

• Kuwait has signed the Kyoto Protocol

• Kuwait has one of the largest carbon footprints in the world, this is not because Kuwait is a conscientious abuser, but because the country is only 17,820 km², about the size of New Jersey, but produces ca. 3 – 4 % of the world’s oil.

• This is why carbon footprints may not be a fair way to base trading.

• The Kuwaiti oil sector has invested 561 million Kuwaiti dinars (1.87 billion US dollars) between 2004 and 2007 in environmental protection projects to limit refinery emissions.

• This was done quite successfully and a study showing the results is published in the American Journal of Environmental Sciences 4(1):31-38,2008 by Khaireyah Kh. Al-Hamad of KOC’s R&T group and A.R. Khan of KISR.

• Kuwait is committed to environmental protection and has been recovering from one of the most damaging environmental events in history.

• His Excellency, The Emir Sabah IV Al-Ahmad Al_Jaber Al-Sabah recently announced additional commitments and measures to help protect coral reefs and marine life in the Al-Khaleej (Arabian Gulf).

Kuwaiti Emissions Reduction

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Yea

r

Total annual CO2 emissions in Tonnes/106 barrel of crude produced

The Downward Trend is identifiable, the highs are due to new field additions and unexpected changes in GORs.

Impact of engaging the oil & gas industry effectively

• Research and Development needs to be shared across many disciplines to come up with viable solutions.

• Although the Oil and Gas Industry has many technologies, we must go beyond the conventional divisions of industries to combine and bridge with other industries, such as the Space Agencies, IT industries, Material Sciences and Nanotechnology, to combine resources for providing safer and cleaner solutions for the future.

• The Oil and Gas Industry has long benefited from multi-disciplinary collaboration and recognizes that synergy may also be achieved with other industries in overcoming environmental issues with combined resources.

Synergy

Multi-Disciplinary

Cross-IndustrySolutions

Opportunities for both Carbon developers and Oil and Gas Companies in a shared future

• One of the most significant opportunities is moving away from using oil and gas for heating, electricity generation, and transport fuel.

• Allow oil and gas to be used for other purposes, such as lubricants, plastics, and other materials.

• Another significant opportunity is to exploit coal cleanly and manage transforming coal into liquid and gas forms for improved combustion efficiency, better and safer handling, and transport.

Clean and Safe

Carbon Trading and the Oil & Gas IndustryThe Nerve Points

Society’s Perspective ?

Carbon Trading is in an experimental stage and is being evaluated by society to see if it makes sense to introduce “Carbon Trading” as a measure , seen as helpful in reducing CO2 in the atmosphere, and to work towards avoiding accelerated or excessive global warming.

Carbon Trading is a measure which may be characterized as an approach designed by economists and politicians to create incentive to participate in this effort. It may be seen as a forum to give concerted structure to other measures.

Carbon Trading is only one measure out of many that may help. Measures designed by Scientists and Engineers are more direct and require support, as they will more likely provide the true physical results we are trying to achieve, especially when coupled with Carbon Trading.

• How may this be accomplished ?

• A key enabler for a robust market is fair taxation, and or a fair rewards system. • An additional key to longevity and effectiveness of a market is regulation flexibility• Therefore, if a market for carbon trade is established, then the above elements

should be taken into account. • The most difficult points in establishing this type of market is quantifying the degree

of allowable flexibility, which is dependent on determining and modeling supply versus demand. This will indicate true viability.

• Another key nerve point is enforcement of generated policies that have been formulated to exercise the above.

• The overall impact of these activities are seen as critical. • Instrumental to achieving these goals, is an extensive information management

system.• This is a point that has been realized by KNPC and KOC in their endeavours and their

relationship with the public.

Carbon Trading and the Oil & Gas Industry

Carbon Trading and the Oil & Gas Industry• Carbon Trading Considerations for Society:

• Is The Premises for Carbon Trading sound ?– - Global Warming & The Human Impact Factor ? – ( Pay attention to Rates and Percentages )– - Is CO2 to be considered a pollutant or not ? – (I say no, as it is clearly part of the life cycle)– - minimizing or balancing CO2 emissions versus economic prosperity ?– (Where do we draw the line ??)– - Will one company’s benefit be attractive enough to trade with another company’s ? – (How will supply and demand measure up ? )• Solution Focus – Should they be Trade Based or Science/Engineering Based ?• How efficient, over what length of time can trade based solutions be? Are they

lasting/sustainable solutions ?• The Carbon Footprints - Fair or Unfair Analysis ?

• Other significant measures:• Fix the Ozone, Increasing and making Nuclear Energy safe, Guide Solar and Wind to

their niche markets, Increase vegetation and oceanic phytoplankton sinks to balance CO2 emissions.

Natural versus Human Impact

• It is perfectly natural when going from a glacial phase to an interglacial phase, as the earth warms up, that the CO2 levels will rise. Even without humans the CO2 levels moved back and forth from ca. 180 parts per million to ca. 320 ppm in Geological History.

• It should be noted there is 50 times as much CO2 in the oceans than there is in the atmosphere, and that when the earth and oceans warm up, a large amount of CO2 is released from the oceans, naturally, as temperatures rise.

• Additionally, when the climate warms up, it is more conducive to supporting both plant and animal life on the planet. Just think of the size and plentitude of plants and animals from previous interglacial epochs, such as dinosaurs and the huge swamps, and forests which inhabited the earth and eventually formed the oil we exploit today !

• So given the fact that we have entered an interglacial period for over 11,000 years, it is to be expected that due to the oceans and the increased amount of life on the planet, our CO2 levels will have returned to the 320 level and above.

• Recently we have only exceeded this level by 60 to 80 ppm.

It has been observed that polar ice transgressions and regressions have been in sync with those on Mars, where there are no human beings and no SUVs.

Planetary cycles, i.e. obliquity, precession, eccentricity, their relative positions, and solar surface activity accounts for more than 95% of meteorological phenomena.

In 2003, Mars was the closest to us, in over 60,000 years

SUN Mars

Venus

2003

Mercury

Natural versus Human Impact !Consider some of the following “not so” widespread facts regarding CO2

production:

• From submarine operational data, we know that one man produces 1Kg of CO2 per day

• The population of the earth has increased from 1 billion to 6 billion since the industrial revolution, which means we now have 5 billion kilos of CO2 more to account for, everyday of the year (x 365.25) bringing the yearly total to ca. 1.700 trillion kilos of CO2 !!

• Imagine in just a few years time when we have reached 10 billion individuals !!

• This is the direct Human impact. Early publications concerning global warming rarely included this factor, and only pointed to estimates derived from industrial output, or livestock.

Back to the Ozone Hole

• Early on, many scientists blamed the Ozone Hole or ozone depletion on CFCs, however, this was mainly in connection with tropospheric ozone

• The Montreal protocol called for the discontinuation of the use of aerosols, and other CFC-rich products such as refrigerants, etc. , mainly because of tropospheric ozone levels.

• Few spoke of the numerous nuclear blasts in the South Pacific as the true piercing mechanism of the atmosphere and carrier of heavy molecules to the height of 20-50 km’s, in the southern hemisphere, not to mention violent volcanic activity, in connection with Stratospheric Ozone where the Ozone Hole is found.

• CFCs are heavy molecules and unlikely to win over gravity at such altitudes, and even if they do make it to that height, their presence is limited as we have seen from volcanic studies.

• So even though their contribution to ozone depletion is not trivial, and has been tempered, The extent of damage was more likely due to nuclear blasting.

The Impact of the Ozone Hole

• Does ozone have an impact on the ocean's role as a “carbon sink”?

• YES,.. according to researchers from three laboratories attached to INSU-CNRS , UPMC, CEA, IRD, MNHN and UVSQ.

• Using original simulations, they have demonstrated that the hole in the ozone layer reduces atmospheric carbon uptake in the Southern Ocean and contributes to the increase in ocean acidity.

• These results, which are published online in the journal Geophysical Research Letters, should have a considerable impact on future models of the IPCC , which, for the moment, do not take ozone variations into account.

• By absorbing almost 15% of anthropogenic carbon released every year, the Southern Ocean is one of the main sinks for atmospheric CO2.

• Between 1987 and 2004, around 2.3 billion tons of carbon was not taken up by the oceans.

• This corresponds to a relative reduction of nearly 10% of the global oceanic carbon uptake.

Natural and Nuclear Blasting

Sources : USGS

Repairing the Ozone Hole Proposal

• In view of the above facts, I call on all of you to act upon this proposal.

• The size and geometry of the Ozone hole is a measurable quantity, and the normal levels of O2/O3 are known, therefore the amount of O2/O3 necessary to plug up the hole is a measurable and known quantity.

• The space agencies and air forces, have the technology to produce LOX in sufficient quantities, but they are also capable of transporting LOX safely, not only into the upper atmosphere, but all the way through it, which they have demonstrated on several occasions

• Since Ozone exists in the stratosphere on the basis of specific gravity, there is nothing to stop us from dispersing O2/O3 slightly above the ozone level and letting the gas settle into its natural position, and let nature follow its’ own path.

• Given the known impacts from the studies mentioned, the incentive and motivation for doing the above should be clear for everyone, and the level

of effective healing of the atmosphere, and in general our climate, would be of great significance in our overall objectives.

Repairing the Ozone Hole

Balances CO2 emissions back to a normal level and

restores the correct pH levels in the Oceans !

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• Conclusion:

– Carbon Trading is a step in the right direction, but its’ overall effectiveness and results may not produce the desired level of correction truly required, while investment and effort may be placed in measures which are more directly and physically connected to balancing the CO2 relationships in nature.

– 60/380 ppm = +15% – Repairing the Ozone = -15 %

= CO2 atmospheric balance !!!

Carbon Trading and the Oil & Gas Industry

Acknowledgements

• I would like to thank Mrs. Jane Pearson Chacko from our Information Team at KOC for her help.

• I would like to also thank Dr. Khaireyah Kh. Al- Hamad from our R&T group for the emissions data.

• I would like to also thank Mr. Priya Ranjan Sarkar for the useful discussions we had concerning Society’s Perspectives.

THANK YOU