The Making of a Successful Decarbonization Strategy with ARC Advisory

If the world is to come anywhere near global climate goals, bold actions, and concrete efforts to decarbonize are needed from all stakeholders in the oil and gas industry. Specific initiatives to reduce emissions depend on multiple factors, including policies, practices, and asset mix, but it all begins with putting a decarbonization strategy in place.  

“The oil and gas industry is entrenched in every facet of our economy and culture. It is not something we can magically transform overnight. We just need to be realistic about what needs to happen, both in the short term and long term,” says Michael Guilfoyle, Vice President, Energy Transition, and Industrial Sustainability at ARC Advisory Group.  

Michael joins us ahead of his panel at the Decarbonizing Oil & Gas Summit, taking place this September 25-27 in Houston, where he will be talking alongside industry experts on delivering decarbonization in oil and gas. In this interview, Michael Guilfoyle delves into the making of a successful decarbonization strategy, and the complexities oil and gas operators face when executing that strategy.  

His expertise in market analysis and strategy development allows him to share valuable insights on the state of the US oil and gas industry and what the future looks like as the industry moves steadily towards global decarbonization goals.  

Maryam Irfan, Industrial Decarbonization Network: What are the components of a successful decarbonization strategy?  

Michael Guilfoyle: For a successful decarbonization strategy or a comprehensive sustainability strategy, there are eight critical elements that any company must address.  

The first is program transparency, which means that a company's macro-level goals must be clearly linked to specific actions. Focus on detailed science-based targets and metrics, along with defined timelines for their achievement. External auditing is an integral part of this process and should be embedded into the company's practices. 

Secondly, the selection criteria for the auditing entity should be publicly documented to ensure trust in the sources used. The audit data should include more than just compliance reporting; it should include details on corporate social responsibility and other information, presented with transparency for the public to consume. 

Initially, especially with the oil and gas industry, this transparency will be criticized but you have to accept it and move on. There also needs to be real focus placed on prioritizing outcomes over marketing of goals and achievements as this is why many industries are accused of 'greenwashing.’ It is important to disclose budgets for research and development, existing technologies, and planned actions across the organization with a focus on outcomes to build that trust. 

READ: Authentic Decarbonization: Crestwood’s Carbon Management Plan

Thirdly, the oil and gas industry have for so long focused on lean operations to help them battle the volatility of the industry. The challenge is that these operations lack necessary budgets and expertise for sustainability or decarbonization efforts needed with new and increasingly stringent regulations. To bridge this gap, companies should invest in people with the right talent and skill to effectively define and achieve those decarbonization goals.  

The fourth element is fostering a culture of innovation, and this aligns with the digital transformation trend. Companies are realizing that they need to be more innovative and agile in today's data-driven economy, and decarbonization is no exception. It represents a form of innovation for companies heavily reliant on carbon-based revenue sources.   

The fifth component is establishing trust. Trust goes hand in hand with transparency and involves comprehensive measures to address and avoid greenwashing. While historically, transparency has opened companies up to criticism, the way regulations are going and where the global economy is headed, companies must accept the criticism and avoid the perception of greenwashing.  

Next, organizations must develop decarbonization data and technology architecture, capable of tracking and reporting emissions across scopes and down into automation and control layers. Oil and gas companies, particularly larger ones, typically have extensive IT and OT departments and have made substantial digital transformation investment. Now they have to figure out how to put it all into effect all the way down to plants and platforms. Integrating decarbonization into this existing framework is critical for effective reporting, data accuracy, and governance. 

The seventh element, which is relatively new, is value chain participation, where companies view their decarbonization commitment as part of their value chain and collaborate with all partners to ensure their goals are aligned. There is always fear around compromising the company’s intellectual property, but some EU regulations around corporate disclosure now require companies to align with their Tier 1 and Tier 2 suppliers and supply chains on specific goals. 

Lastly, the aim of these efforts is to attract investment. By ensuring these seven key elements, companies can mitigate the risk associated with investing because at the end of the day, sustainability and decarbonization is about money and risk.

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Maryam Irfan, Industrial Decarbonization Network: In your opinion, where is the US oil and gas industry on its decarbonization journey? What progress has been made so far and what challenges remain? 

Michael Guilfoyle: The oil and gas industry is at the forefront of change for several reasons. It is deeply entrenched in every facet of our economy and culture. It is not something we can magically transform overnight. We just need to be realistic about what needs to happen, both in the short term and long term. 

In comparison to Europe, the industry in the US is making progress but is still far behind. There is a growing recognition that everything, particularly offshore operations, needs to transition to electrification powered by verified renewable sources, which will be supported on or near the infrastructure. Many oil and gas companies are exploring options for decarbonizing the energy necessary to run a deepwater offshore platform. They are also making strides in their traditional operations, particularly in reducing flaring and adopting energy innovations. 

They are investing in transportation mobility, for example, and exploring technologies like hydrogen and carbon capture. These offer means to shift revenue away from higher, long-term risk operations into revenue generation.  

However, the challenge lies in the ability to own and scale these new revenue channels. Some technologies, such as certain biofuels, may not pan out. This is going to require a series of investment decisions and considerations around which investments are viable and can be scaled. That invites risk they are averse to but must own.

Maryam Irfan, Industrial Decarbonization Network: How are US operators driving decarbonization compared to operators in other regions?  

Michael Guilfoyle: Because of the global nature of the industry, the super majors have to break down this challenge in manageable pieces based on their global operations and the regulations in each region. 

If you look at infrastructure, such as pipelines and other means of transporting fuel sources, there is some catching up to do. As I mentioned earlier, these companies are traditionally geared to be very lean in their operations, and decarbonization requires additional investment. 

With the new emissions reporting requirements coming from the US government, which were not in place previously, operators in the US will need to assess their next steps, identify where to invest, and determine how to adapt to changing expectations. 

READ: 4 Ways Oil & Gas Companies Are Electrifying Operations to Reduce Emissions

Maryam Irfan, Industrial Decarbonization Network: How can oil and gas companies tackle the complexities associated with implementing decarbonization strategies while balancing financial performance? 

Michael Guilfoyle: That's the magic question! For a company, especially a publicly traded one, it is not feasible to make investments without a clear understanding of the return on investment. It’s a bit of a balancing act, and traditional ideas of ROI and value might need to be rethought, as they have been with digital transformation. Other industries that are also grappling with managing multiple performance indicators, are turning to technology. 

As an example, there is a company employing causal AI, which allows them to consider all relevant factors and assigns them appropriate weight in real-time decision-making processes. This results in well-informed decisions that factor in the multitude of variables and changing conditions. Energy, waste, efficiency, and other sustainability related key performance indicators can now, using the AI, be better and continuously factored into decisions that also incorporate cost, customer need, and competitive pressure.

While there are pathways that can be technology enabled, the challenge lies in the organization's ability to implement those efforts effectively. It is more of an organizational issue, rather than a technological one. So, what companies really need to understand is what the factors are in relevant market conditions, and harness the data associated with those factors to make pragmatic decisions. These decisions need to be made at the speed of machines, without human bias or delays. This is where technology can truly shine.  

Maryam Irfan, Industrial Decarbonization Network: You described this complexity as an organizational issue, rather than a technological one. Why do you think that is? 

Michael Guilfoyle: In today's digital age, there is often this propensity to view technology as the solution rather than as an enabler of that solution. When we look at some of the challenges companies face, there are two things that push people to think of the challenge as a technological solution instead of an organizational one: The speed at which decisions must be made and the volume of data associated with making those decisions correctly. 

When people think about data and speed, they immediately associate it to being a technological difficulty. However, what is required is an understanding of how market conditions are transforming and how a business can adapt to meet those needs.  

This process involves rethinking the way the company operates, identifying necessary skills, determining where those skills are needed within the organization, and then employing technology to facilitate the delivery of these skills. Essentially, it is about galvanizing and organizing the company to work and think differently and using technology as a tool to facilitate that change. It is the same conversation we had around digital transformation seven to eight years ago. 

DOWNLOAD: INSIGHT REPORT: 5 Key Operational Pathways to Accelerate Industrial Decarbonization

Maryam Irfan, Industrial Decarbonization Network: As the industry moves towards decarbonization, how do you envision the future of workforce and digital transformation? 

Michael Guilfoyle: Let me break this down... Firstly, decarbonization, along with any sustainability goal, should be considered an equal player when embarking on a digital transformation initiative. It has to be part of the mix, though its weight in that mix can and should be dynamic, based on the business decision being made and its context within sustainability goals.  

When you evaluate the efficacy of a digital transformation project, you evaluate how it will help with customer performance, competitive differentiation, or some other metric. Similarly, you evaluate how it aligns with your decarbonization and sustainability objectives. To fold this into your performance metrics, decarbonization must be a big consideration. 

In terms of workforce, it is also critical to understand that you require new skill sets, just as you do with digital transformation. These skills needed are specific to the approaches required for decarbonization and vary from companies to industries.  

Additionally, is also critical to unlock the IP that resides within the company and its workforce. This IP drives competitive differentiation, the goal of digital transformation projects. You need to figure out a way to drive this IP across the business in ways you have never done before.  The same can be said for IP related to sustainability.

Since you cannot silo that expertise, technology can help. For example, technology can bridge the skills gap by ensuring workers, including newcomers, have access to the right expertise at the right time throughout their work processes. Traditionally, new hires have a ramp-up period during which they gained experience and became more valuable over time. In the digital world, you can transfer expertise to individuals so that they can make informed decisions at every step of the process. This prevents the default assumption that they lack experience to make the right choices. It is about empowering individuals and leveraging in-house expertise in faster and more efficient ways. 

Maryam Irfan, Industrial Decarbonization Network: What are you most looking forward to at this year's Decarbonizing Oil and Gas Summit? 

Michael Guilfoyle: With opportunities like this when I am able to interact and engage with people, there are two things that I look forward to: what have they learned and what do they still need to learn. While I am privy to my viewpoint, I am also keen to know, in a granular fashion, what specific challenges individuals and companies struggle with. 

Often, companies do not openly share their struggles unless they are in one-on-one conversations where they can say, 'We've made progress here, but we are still working on this aspect. What insights can you offer?'. I am looking forward to those exchanges, especially in a public forum, where I can engage with individuals who are willing to share their learnings.  

Interested in learning more?

Michael Guilfoyle will be speaking at this year's Decarbonizing Oil & Gas Summit, taking place at the Norris Conference Centre, Houston this September 25-27, 2023. Join us and over 200 industry experts to learn more about how the oil and gas industry is approaching (and progressing!) decarbonization roadmaps across geographies and value chains. Download the agenda for more information.