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What do we do with all of the oil and gas?
A Manhattan project in fossil fuels.
Article by Dominic Falcão, Founding Director at DSV
BlueYard recently ran an event calling for “Manhattan Project” style thinking in our fight to address the climate crisis. We love this perspective: establishing a drive to shift science forward and into the world through massively collaborative, multi-disciplinary, ruthlessly goal-oriented invention.
This article sets out what we believe is a true modern day Manhattan project for clean energy. There is almost no-one looking at this opportunity yet, but it has the potential to change everything.
One of the greatest hurdles to ending and reversing the climate crisis is the tension between the sheer economic value of oil and gas assets and the gargantuan “externalised” cost to society if these assets are used to produce energy (where “externalised” means that those who realise value from these assets do not suffer the costs proportionally).
There are several strategies to combat this, including a) to “internalise” the cost of the climate apocalypse through government intervention (carbon tax) or b) to try to persuade O&G asset owners that they will be destroyed by the climate apocalypse, and therefore that they are forecasting the value of assets themselves wrongly (pressure from financial institutions and rating agencies).
There are multiple issues with strategies a and b. Firstly, any carbon tax requires complete and determined coordination by states in order to be enforceable and effective. However, the reality is that the majority of emissions stem from oil and gas production owned by state interests (12 of the top 20 are partially or majority state owned) [ref]. This conflict of interest is existential for regimes in possession of hydrocarbon assets, as divesting would likely require them to raise taxes, reduce national employment rates and choke economic growth.
Secondly, even if 90% of capital and firms signed up to treaties and regulations, the remaining 10% would likely be groups and organisations that sit beyond the reach of economic or political influence, making this final 10% (likely then responsible for the majority of global emissions) even harder to tackle.
Thirdly, if taxes are applied at the point of emission, rather than at the point of production, hydrocarbon producers will bear only a tiny fraction of the total cost to society of their oil and gas production.
Finally, and most importantly for our argument here, these strategies represent costs replacing profits, especially in cases where O&G majors are expected to diversify away from existing hydrocarbon reserves.
The sheer economic value of oil and gas reserves
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The potential loss of revenue for the O&G industry implied by abandoning reserves is enormous. As of January 1, 2018, there was an estimated 7,124 trillion cubic feet (Tcf) of total world proved reserves of gross natural gas [ref]. At today’s prices, that’s approximately $21tn worth of natural gas [ref], equivalent to 25% of the value of the entire world economy in 2018 [ref]. This is just natural gas and does not touch on coal or oil. This cannot be ignored.
Taxes and tariffs, financial pressure and projected climate threat to profits will only nibble at the sheer commercial value of proven fossil fuel reserves, and our suspicion is that continued exploitation of these reserves will not diminish until diversification is more obviously profitable in the near term. On the plus side, this final point represents a possible strategy c) to make it possible for oil and gas firms to profit from their assets without cost to society. The version of this strategy that has consumed the most attention is carbon capture, and we also believe that this is a viable route, which we will cover in a forthcoming article. In addition to carbon capture, however, we think it is also plausible to explore whether hydrocarbons can be converted into clean sources of energy in the first place.
“Simply insert the refinery into the reservoir”
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From a first principles perspective, oil and gas represent transportable potential energy, stored in rock. There are no comparable resources which are as easily transportable, storable, abundant or energy dense as oil and gas. The only real other examples are fissionable nuclear fuels. Moreover, the infrastructure and technology for accessing and transporting this energy already exists.
There are a number of potential ways to manifest a new strategy towards minimising the externalities of the O&G industry. Imagine a means of extracting the energy itself (in some form) directly from oil and gas without extracting the hydrocarbons from their reservoirs. It should in principle be possible, for instance, to extract a primary energy vector directly from the reservoir, leaving behind the carbon, sulphur and other exotic, corrosive by-products we refine from them. For example, to extract pure electricity, Hydrogen, Ammonia or other carbon-free fractions. If this was possible, we would create a genuine transition pathway for oil and gas majors that would allow them to fully decarbonise, not just their operations, but their products, within a decade or less. This would ameliorate not just carbon emissions, but methane emissions too.
The idea of “down-well refinement” is outlandish. It summons to mind the image of oil refineries inverted and squashed down oil wells. Surely impossible.
Towards down-well refinement
Image taken from http://proton.energy/
However, this is the vision of Proton Energy, a Scottish company specialising in “in situ combustion”, a process which converts viscous oil into hydrogen inside the well.
The idea here is to heat the reservoir so that thick oil “dissociates”, breaking apart into hydrogen and other heavier compounds. Proton subsequently filters the hydrogen out, using technology usually deployed in steam methane reformation (the standard approach to hydrogen production). They leave CO2 and other greenhouse gases under the ground in a one step extraction process. The kicker here is that the cost of producing hydrogen this way is forecasted to be just $0.65 per kilogram, a full 70% cheaper than the $2 to produce hydrogen with “dirty” processes such as steam methane.
There are some drawbacks, besides the obvious general challenge of engineering anything that will work consistently in an oil or gas well, where space is limited, data is poor and everything is hot and corrosive. One challenge, for example, is that the combustion reaction itself also consumes hydrogen, though the team assure me that the amount consumed is not significant. But perhaps the critical challenge is that this solution is unlikely to be deployed as anything other than a last ditch attempt to salvage value from the most mature oil fields. It would be hard to justify the use of Proton’s technology earlier, because the process destroys the value that comes from oil as a raw material for plastics, chemicals, pharmaceuticals and beyond, which would represent a greater opportunity cost than the value of the hydrogen produced.
It should also be noted that hydrogen is regarded by many with scepticism (and by some as “mind-bogglingly stupid”) as a niche fuel that may never necessarily go mainstream. Though, we have other ideas, outlined here.
There’s far more to be done in down-well refinement
Proton Energy’s approach is just one angle on a challenge which deserves far more attention than it is currently receiving. Theoretically, there are many other ways to decarbonise fossil fuels at source. For instance, by extending work on microbially enhanced oil recovery [ref: great review article] to convert crude it into a mix of zero or low carbon fuels and desired, value-add products instead. Another theoretical approach is to turn the reservoir rock into a giant electrolyser, using the fact that the reservoir has a ready supply of water, temperature and pressure to make the process kinetics better.
Another idea, supplied by one of DSV’s Founding Analysts, Gael Gobaille-Shaw, is to employ a “CO2 refinery” at the well. The extracted hydrogen could be reacted with CO2 to form syngas, after which the fischer-tropsch process could be used to produce all of the traditional petrochemicals that we might need. CO2 neutral Fischer-Tropsch.
Another alternative from Gael: CO2 gasification. Traditional gasification uses steam and oxygen to oxidise coal/biomass etc. to make CO, H2, CH4. CO2 can be used as an oxidant instead: it’s weaker than O2, but with catalysts, it can work. Therefore, the gasification of the oil/gas reserve becomes a CO2 utilisation process. One clear challenge to be overcome with this approach is ensuring that the bulk of the carbon stays down in the reservoir, and that just the CO2 that enters leaves as (CO/CH4) and hydrogen.
We have not yet scratched the surface of the potential ways of addressing this opportunity, but are determined to increase the number of companies focusing on this area. If you’re passionate about addressing the climate crisis, and would like the time and impetus to explore challenges like this, DSV has a partnership to hack oil wells to extract clean fuels such as hydrogen or pure electricity from them, jointly funded by the British and Scottish governments. If you co-found a company whilst working with us, there’s up to £500k of investment, and at least £100k in grant funding, plus the further opportunity to carry out 6 figure industrial proof of concept work. Follow this link to join DSV’s manhattan project in Energy.