Drivers for Hybrid Renewable Energy Systems for Oil and Gas Industry

As pointed out by Ericson et al. [7], three parallel drivers are increasing the profitability of renewable technology integration in oil and gas operations. These drivers are (a) depletion of higher quality oil reserves leading to an increased energy intensity of petroleum operations; (b) environmental concerns in the O&G industry; and (c) falling costs for renewable generation technologies. The analysis of Erickson et al. [7] for these three drivers is presented below.

Depletion of High-Quality Oil Reserves

The abundant supply of shallow oil and gas reserves with ample reservoir pressure is depleted in recent years. Today’s supply of oil and gas is not easy to reach. Remaining reserves are marked by deeper reservoirs, lower pressures, and lower quality. As an example, Figure 8.1 [7] displays the increase in average water and well depths in the Gulf of Mexico. Deeper water and deeper wells increase both the complexity and the energy intensity of operations. The trend toward production from lower quality reserves may also be seen in terms of the increased exploitation of heavy oil and tar sands and the increased use of EOR techniques—the injection of gas, heat, or liquid to increase field recovery rate.

While sufficient petroleum resources remain to meet demand for the foreseeable future, the shift toward marginal reserves increases the energy intensity of production. A 2017 study of five large petroleum fields concludes that the net energy ratio (NER)—the ratio of energy produced to the energy used to produce it—for each field declined by 46%-88% over the last four decades [10]. An in-depth analysis of conventional natural gas production in Canada shows a similar trend, with the ratio of energy output to energy input falling by roughly half from 1993 to 2009 [11]. A combination of declining field production and increased energy expenditures on enhanced recovery methods contributed to the decline in NER [10].

As pointed out by Ericson et al. [7], power-quality reserves lead to higher energy intensity in production, transportation, and refining of petroleum. This leads to more

FIGURE 8.1 Average water and drilling depth in the Gulf of Mexico over time. (Data from [7,9].

demand for energy in each stage of the petroleum supply chain, which in turn leads to more possibilities for renewable technology integration to reduce energy costs. Along with cost savings, renewable technologies can reduce emissions, which is becoming an increasingly important factor.

Environmental Concerns in the O&G Industry

Industrial oil and gas practices have continued to advance to meet or exceed environmental regulations. Adverse incidents are rare but sometimes of high consequence. Ericson et al. [7] points out that it is well recognized that oil and gas operations emit pollutants, and continuous or episodic activities or incidents may lead to environmental degradation. Improperly drilled or completed wells can lead to oil spills, contaminated water spills, and methane leaks. Machineries such as compressors and diesel generators increase noise and air pollution. Operations can lead to traffic congestion, and drilling processes can contaminate water supplies. Finally, petroleum refining processes emit gases including carbon dioxide, carbon monoxide, methane, organic compounds, nitrogen oxides, sulfur dioxide, and hydrogen sulfide. Meeting environmental regulations can be costly, and a failure to meet requirements may lead to fines and impact a firm’s social license to operate.

Operations occurring in closer proximity to urban centers and suburban developments, as well as a growing awareness of the environmental effects of operations— both local effects such as air pollution and induced seismicity and global effects such as climate change—are further increasing the importance of environmentally sound production practices. Ericson et al. [7] points out that the petroleum industry has already taken some actions. Due to industry action, greenhouse gas emissions from the major private oil companies fell by 13% between 2010 and 2015 [12] and methane emissions from natural gas wells fell by 40% between 1999 and 2012 [13]. Furthermore, many oil companies have set goals for additional emissions reductions. Because of the falling costs, renewable energy technologies could become important tools for the goals of meeting additional energy demands and stricter emission standards while reducing fuel usage and operations costs. Once again hybrid renewable energy system is the possible solution to this dilemma.

Falling Renewable Energy Costs

Ericson et al. [7] points out price declines in the last decade have revolutionized the economics of renewable energy technologies. In 2009, the average levelized cost of electricity from solar photovoltaics (PV) was more than seven times the cost in 2017. Figure 8.2 displays the steep cost decline of electricity produced from wind and solar. Whereas power from wind and solar used to be prohibitively expensive, they are now in some cases the lowest cost source of electricity. If expected continued future cost declines for electricity from wind and solar are realized, generation from these sources will become even more competitive in the coming years. Furthermore, battery storage technology and technology for demand-side management, which can compensate for generation variability, have also seen remarkable cost declines [7].

FIGURE 8.2 Levelized cost of various utility-scale generation technologies. (Data from Lazard [7,14].

Levelized Costs of Energy reports from 2008 to 2017 (bands for wind and solar represent low and high cost estimates). Because high-cost estimates for coal and natural gas incorporate the cost of carbon sequestration, the figure uses low-cost estimates instead of mid-point estimates for these technologies to better capture current production costs. Cost assumptions can be found in Ref. [14].

Ericson et al. [7] points out that the result of renewable energy cost declines is a paradigm shift in how renewable technology integration in oil and gas operations can be viewed. Whereas 10years ago renewable technology was only applicable to cases where diesel or gas turbines could not be readily deployed, going forward renewable technology will, in a growing number of cases, be the lowest-cost solution. An understanding of where renewable generation is applicable and may be integrated can lead to both lower environmental impact and lower operation costs.