David Vaucher: 

00:02  David Vaucher, and I want to thank you so much for joining us here on this latest episode of S&P Global's Upstream in Perspective. I'm coming to you from the S&P Global podcast studio in Houston, which is otherwise known as my kitchen table, and I apologize if you've heard that joke before, but I think we're going to be here a while and you might hear that a couple more times. I do hope, however, having said that, that everyone is safe, healthy, and staying productive. Now, before I jump into what the topic of today's show is going to be, I want to play a little bit of word association. So, what's the first thing you think of when I say bell bottoms. It might be Saturday Night Fever, disco balls, the seventies. What if I said the 1950s, on the other hand. Well, you might start to think dine-in drivers, pink Cadillacs.

I know this is very US centric, but I want to make the point that certain things mark cultural periods in time, and even though technology was highly ingrained in society before COVID, my view is that in 30 or 40 years time, if you say Zoom to someone, anyone that's been alive during COVID will remember exactly what it was that they were feeling and seeing at the time. So, technology plays a huge part in society and it plays, of course, a huge part in upstream oil and gas. That long lead in was to get us to the topic of today's episode, which will be technologies in upstream oil and gas, as they relate to the energy transition. So, I've got two guests with me today. I've got the executive director of Upstream Technology in Oil and Gas, Jud Jacobs.

Jud Jacobs: 

01:34   Thanks, David. It's great to be here.

David Vaucher:   

01:36   Yeah, thanks for coming, and then I've also got our colleague, Carolyn Seto, who's a director in that same group.

Carolyn Seto:

01:42  Thanks, David. I'm glad to be here too, to contribute.

David Vaucher:      

01:45  Yeah, I'm very excited to have you both, and I think just jumping right into it, maybe, Jud, if you could just give us very quickly what your view on what S&P Global's view is on what the definition of the energy transition is, especially as it relates to the operator's point of view.

Jud Jacobs:       

02:00 Yeah. Thanks, David, and I'll just jump in in what it means to our group, but also, I think, S&P Global more broadly, and especially from the oil and gas perspective. I think that's a bit of a different one than maybe more generally, but really there's two interesting avenues, that we think about with the energy transition, and it's really been the focus of a lot of the oil and gas companies. One is, how do you reduce the GHG or carbon intensity of our products that we produce? And then the second is that, very operationally specific, how do you reduce the intensity? But then there's the opportunity side of it as well, is that as the broader society undergoes this energy transition, there will obviously be business opportunities. So, as much as other segments of industry are looking at to what those opportunities are, the oil and gas sector, as the dominant energy providers of the last century, are doing the same. We definitely see that there are some business opportunities that they are pursuing that fall outside of their normal oil and gas operations.

So, for us, energy transition is pretty practical. It's what are companies doing to evolve as well as to manage this energy transition?

David Vaucher:      

03:21  Great, and just to be clear on scope, this is something that, even though this may happen at different speeds all around the world, this is a global trend, correct?

Jud Jacobs:        

03:30  Absolutely. Yeah. There's obviously, I think, if you read the headlines, there are things that are happening within particular company types within particular regions, but I think that, certainly, it is global. Unlike your word association, David, these are very globally applicable.

David Vaucher:  

03:53   Fair enough. Fair enough. So, I guess what I want to do now is, maybe starting with Carolyn, is setting the scene for what's happened leading up to COVID. Clearly the work that you all have been doing has gone back years, right? So, what are some of the things that may be we're picking up speed in the last decade, that you think may have fallen off? What are some things that, before COVID, were looking like, "Hey, these are promising, but now things have changed." What was the scope of things or the layout of things, prior to COVID happening, with regards to energy transition?

Carolyn Seto:        

04:25   Yeah, I think the energy transition had already been in place, but it's interesting that you started off with this word association, and when we think of COVID, we'll think of Zoom, but I think, for the energy industry, the energy transition will probably be top of mind. A lot of these drivers for the energy transition had already been in place, like the lower cost of renewable energy, that's competing for primary energy supply. You have new technologies like digital and new sensors, to be able to integrate these new sources of energy, but also new ways to identify and quantify greenhouse gas emissions. Also, you're having greater climate concerns from stakeholders, like the financial sector or governments, coming in and really pushing the industry, to take a hard look at how they're going to transition their business models to a low carbon future.

I think with the pandemic, all of those pressures and the improvements of technologies to enable you to work more remotely, that, as well as technologies to provide more reliable and resilient power, that's all adding up to accelerate that energy transition, and companies see this as a marker to really make a change in how they're operating things and how they're operating their existing operations, but also how they're going to operate in the future. So, I guess a couple of things that we're seeing is companies are really looking at new ways to manage their methane emissions. Traditionally companies would go out and inspect their equipment for leaks every six months or so. Now with new technologies like satellites and drones and sensors, they have the ability to be able to have these inspections more frequently, and when you have the inspections more frequently, you also have the potential to be able to identify methane releases earlier and remediate them. But there's also the opportunity to maybe be able to quantify how much methane you're actually releasing. This is causing the industry to change how they assess methane in their operations.

Traditionally, methane was calculated by emissions factors. Emissions factors that were generated under stable laboratory conditions. Now, they're actually looking at quantifying the actual methane releases, under conditions of how the equipment and how the field is operated. So, that's one way that companies are looking at managing their greenhouse gases in their operations, but another way that they're doing it, is they're looking at optimizing their facilities. So, they're taking process control technology and operation, to optimize key pieces of equipment that are driving energy use in their operations, like compressors and pumps and turbines. They're also using predictive maintenance and turning that into a way to be able to reduce methane emissions, by keeping operations more smooth, so you don't get process upsets, where you need to [crosstalk 00:08:35] or you need to shut down equipment.

David Vaucher:

08:39  So, it sounds like they're taking some of the things that they've been working on in the last couple of decades, such as automation, and building on top of that, the capability to work within the energy transition. Does that sound right, Jud?

Jud Jacobs:   

08:54 Yeah, so I think there's a set of technologies that have been deployed, and Carolyn mentioned quite a few around digitalization and automation and optimization, and the things that companies have been directing, maybe more towards their core business in the past, being able to recover more oil and gas, do it more efficiently and also accelerate production as well. These same concepts and these same technologies, and in a broader set as well, I don't want to just focus on digitalization, but some of the heavy equipment that's going in as well, these same set of technologies can be equally deployed to reducing the carbon intensity of operations. Companies, as the focus has shifted, companies are doing just that.

But one of the things, and Carolyn and I, we had a chat this morning, but one of the things that we remembered, was a lot of the conversations that we're having with our member companies and with our clients, especially reducing the greenhouse gas intensity of operations, a lot of them are focused on efficiency and cost management, and when we have conversations and we ask folks, "What's the carbon reduction?" Or, "What's the greenhouse gas emissions reduction?" They look at us like we have two heads. It's stupid. We're reducing cost. These same technologies are being deployed for a different purpose, but equally effectively as well.

David Vaucher:    

10:20  So, that's actually a great segue into a question I thought I was going to save until the end, but I guess we can ask it now. Clearly, without naming any names here, but just speaking generally, how much of this really is motivated by company's desire to lower the carbon intensity of their operations or lower emissions, versus strictly, "Really, we're in this for costs, and if we can get some good marketing out of it, then we'll run with that." Really, what's the main motivation here for employing some of these technologies?

Jud Jacobs:

10:50  Carolyn, you want to jump in and I'll follow up?

Carolyn Seto:

10:55  Okay, sure, Jud. So, cost is definitely a motivation for deploying these technologies, but companies are starting to roll in that environmental factor, in how they're optimizing and how they're operating their assets on a more holistic basis, so not just cost, but also looking at bringing in the safety aspect and also looking at bringing in the environmental aspect. Another area that companies are looking at, like fuel logistics optimization. Well, field logistics optimization has a number of benefits on the efficiency of how you're sending your pumpers out to visit the pads. You're saving by optimizing the routes and changing how operators are visiting the routes. Instead of on a schedule based, it's on maybe an exception based pattern, so you have better optimization and better utilization of that resource, and maybe the truck, but you're also reducing the the amount of time that that pumper is out on the road.

So, you're improving the safety, and you're also reducing the number of vehicle miles that pumper is driving. So, you're reducing the emissions associated with the active driving out to the field. So, you have three factors that you're looking at ultimately optimizing and using it to improve the business in general, on a holistic sense, instead of just taking things in silos and only optimizing the production piece or only optimizing the safety piece, but you're actually thinking in a whole unit.

David Vaucher:

13:18  Great points. Jud?

Jud Jacobs:

13:19  I would say that, in some cases, and Carolyn mentioned a couple, there's great alignment between cost and efficiency and the reduction in greenhouse gas emissions, or carbon intensity. In others, there are cases where the industry is clearly working towards a, call it energy transition, call it reducing the carbon intensity of their operations, and I think probably the best example is in North America, where really the focus on reducing emissions is associated with methane. That's really the focus of a lot of companies, and for that, the economics are not driving it, but true, it's very clear to us that there is a lot of effort and a lot of focus that's going in, and it's really exciting for us. There are some of the fundamental things around shifting from pneumatic to other types of control valves and replacing your seals, but there's also a lot of really cool technology that's being developed and deployed as well. There's a lot of these camera and sensor technologies that have been deployed for other industries, that are shifting in oil and gas.

Carolyn and I were having a conversation with one supplier that, back in February, March, this individual and this company was very busy, because their camera technology can also detect human temperatures, so it was being deployed in many different places, as you might imagine, to detect those who might be infected with COVID. We're also beginning to see drone technology. We're beginning to see satellites that are being launched, to be able to detect methane. All of these technologies that are coming together, it's an exciting time, and there's a lot of really exciting technologies that are being developed, outside of oil and gas, that are now finding their way in oil and gas with a specific application. So, that's some of the alignment. The other case, and this one, I think, will be a good transition for us to...

I mentioned there are two elements of the energy transition. So, one of which, and we actually, I'll give a little plug, because we just put a report out on this, but there's the energy efficiency side of it that Carolyn mentioned, but one of the things that's really struck us over the last few years, is that oil companies, and this seems very counterintuitive, but oil companies have been increasingly deploying renewable energy to power their oil and gas operations, and we're seeing, especially on the wind side and especially on the solar side, is that we now count, we have a database now, and we can now count 51 projects through the first half of 2020, where they've done this. This is great.

It's obviously great to reduce the energy intensity. But if you look at some of the announcements, a lot of companies are also touting the greater reliability of these energy sources versus gas turbines and versus diesel generators. You kind of look at this and say, it was very strange to have a solar farm, adjacent to an oil and gas field, but that's exactly what's happening. You begin to see this overlap between the renewables, this intersection between the renewables and the oil and gas sector. It's really exciting to watch and it's something that we're keeping track of.

David Vaucher:                

16:34    No, that's interesting, because I know that I've been aware, without obviously having expertise in the area, I've been aware that hydrocarbons are used as backup for the renewables occasionally, like when there's no sun or where there's no wind, so it's interesting to hear it goes the other way as well. I guess now moving into more of the strategic side, I guess, when you're being approached by clients for these technologies, do you find that they have an idea of what they're trying to measure or do, and then it's up to you to evaluate the range of technologies to apply? Or do you feel like they tell you, "Okay, no. We want this technology and we now want you to study exactly what the cost benefit of that is going to be."

Jud Jacobs:

17:14  I think this probably goes into the innovation models and I think this is really different, and, Carolyn, this is what Carolyn focuses on, so I'm going to let her take this one, but I'm going to redirect it to that way, because I think it's what innovation models are, that are emerging in this space, that might be different from what's in the traditional oil and gas.

David Vaucher:

17:33  Sure.

Carolyn Seto:

17:33  Yeah. Thanks, Jud. So, I think oil and gas producers, they're very technologically savvy organizations, but in the area of renewable energy generation and technologies for the energy transition, so not just renewables, but they're also looking at technologies and new mobility models and in carbon management and energy efficiency, and these organizations, like international oil companies, like your Shells and your Bps, they are very well versed in the technologies and the landscape of the technologIES. So, the suppliers, who are the other players developing these types of technologies, who are the other players on the commercial side that are offering these technologies, and a tool that is really helping companies understand the landscape, are these corporate venture groups. These corporate venture groups were initially started to identify startups and engage with startups that were working on technologies, that they could apply in their existing operations but they're now leveraging this capability to develop technologies externally, for identifying technologies in the clean energy and low carbon space. It's just an extension of looking further outside, further outside the company, further outside the industry, for those new technologies.

So, you have companies, like any investing in next generation nuclear, as well as Chevron recently made an investment in also a next generation fusion startup. You have companies, like Saudi Aramco's venture unit, that made an investment in new manufacturing ways, for more efficiently manufacturing solar cells. So, you have companies that are looking at startups, that are investing in new technologies, but they're also using these corporate venture arms to invest in companies developing new business models for the energy transition. So, there's Equinor's investment in Sunverge, where Sunverge is an integrated solar solution provider. So, you're just seeing a lot of innovation at this early stage. But another way that companies are engaging and broadening their understanding of the new energy space is through partnerships as well. So, you have technology development and commercial partnerships that are being formed. We recently did an analysis of partnerships by oil and gas companies, and we saw that there's been a steady increase in partnership behavior or partnerships being entered, but there's also been a very sharp increase over the last year in oil and gas companies entering partnerships with new energy companies.

So, just in the past year, we've seen probably about 15 new partnerships in really exciting areas, like the circular economy and plastics recycling, but also in carbon capture and storage, in these areas that are very well suited to the capabilities of the oil and gas industry, but they extend those capabilities into new energy. So, things like carbon capture and storage, circular economy, where you have chemical processing.

David Vaucher:

22:09  Yep. So, it's hard to believe we're almost at the end of our 30 minutes, so I have one more question please, to build off of what you just said, Carolyn. So, you mentioned the developers of this technology. We just want to get a sense from you both, as to how much you think these new initiatives are going to come from the existing service companies in upstream oil and gas? We know, obviously, who the big names are, how much are they contributing to this now versus how much will they contribute overall? Is their strategy to start at the bottom? Is their strategy to just wait and see, and then acquire? What's your sense on their role in all of this?

Jud Jacobs:

22:47  I'll start off, and I know Carolyn has a lot of views in this as well, but one of the things, and I think it differs by company type, but I think if we've seen anything, there is a strong inclination on the part of the oil field services and equipment sector, to transition themselves to a low carbon clean-tech technologies. It's not a surprise why they're doing this. In many cases, they're seeing their primary markets getting smaller, and so they're looking to, at the same time, to understand, "Okay, well, how can we take some of our capabilities and make it take advantage of what's happening? I think what's being done, especially, let's say, offshore wind, you're seeing a lot of the traditional engineering companies, they can directly translate their capabilities to the offshore wind environment, whether that's the EPC firms, whether that's some of the heavy lift vessels, that they can do that pretty easily.

And not surprisingly, the oil companies, as they go into these new spaces, they want to bring some of their old friends along. It makes them more comfortable. There's been a lot of partnerships that are going in that direction. I'll turn to Carolyn. So, that's the traditional. That's some of the engineering companies. The traditional oil field services companies is probably a bit of a different one and, Carolyn, you've got a good view on that, I know.

Carolyn Seto:

24:08  Yeah, so the traditional oil field services companies, they are looking at transitioning their business lines as well. So, you have companies, like the traditional drilling companies, like the Schlumbergers and the Halliburtons, one area that they see as an opportunity is in the geothermal energy space. You still need to drill wells to tap that sub-surface geothermal energy though, under the hot, dry rock. You also need to have ways to manage the fluids that are being injected in the subsurface. So, you need the ability to be able to model, as well as to be able to identify areas of the heat resource in the subsurface. So, that's one area that we see the traditional oil field services moving and supporting this low carbon future. But definitely, one of the really exciting spaces, as Jud mentioned, is in this offshore wind, and also offshore renewable resources don't end at wind, but they're also looking at supporting new offshore solar models and solar development technology.

A lot of that existing equipment, like the heavy lift vessels and the cranes, that the EPC companies have for the off shore market, that can also be used for constructing offshore renewable resource developments as well. Then you also have the supporting capabilities for managing offshore resources, like inspection of the footings of offshore wind farms, or inspection of those cables, to be able to transmit the power that's generated off shore, back on shore. So, there is a lot of technology and a lot of capabilities that exists in the service sector, that can be leveraged for the energy transition. Those players are also looking at transitioning their offerings and their business models for the [crosstalk 00:26:50] future.

David Vaucher:

26:51  I think, hopefully, I'm just going to make a comment here, but so for the audience's benefit, Carolyn is very involved every year in helping select basically a suite of startups, with regards to energy technology for Zero Week, and it always strikes me that this is a very dynamic space. So, Carolyn, would you agree that certainly from the startup side, there is equal dynamism, as there is on the large company side, but maybe just obviously on a different scale? Would that be correct?

Carolyn Seto: 

27:21  Actually, I think there's a lot of activity, but maybe the scale might not be so large. But startups are increasingly being leveraged for partnerships, instead of just small minority investments, but they're entering into true technology development partnerships, with service companies, with oil and gas companies or oil and gas producers, and I think it shows the maturity, not just the dynamicism, but the maturity of startups, to be able to work with these really established companies and help transition them into this new energy space, through their technologies.

David Vaucher:

28:12  Yep. Yep. Great. Well, we are already at the end of our show. I want to thank Judd very much and Carolyn very much for joining us. Clearly, there's hours we could spend more talking about this, and so on that point, for the audience, if you do have questions or comments you'd like to pose to Jud or Carolyn, we should be able to put some contact information down in the comments section. Please do feel free to reach out. I just want to recap what we've talked about today. So, the energy transition is here, and rather than being the beginning of the end for operating companies, it absolutely presents a new set of opportunities for them. There's no mutual exclusivity between costs and green tech necessarily. One can definitely lead to the other. On the service provider side, as well, this doesn't have to be the beginning of the end. There's also some opportunities there, to work alongside some of these newer startups that are going to hopefully come into and fill some of the competencies that the larger players may be lacking.

So, with that, I just want to thank everyone for taking the time to listen to this episode of the S&P Global Upstream in Perspective podcast. I want to wish you all a safe and a healthy time, as we work through this, and we very much look forward to having you join us here on the next episode. Thank you so much.

Jud Jacobs:

29:33  Thanks, David.

Carolyn Seto:

29:33 Thanks, David.