The circular economy’s impact on the oil and gas industry

A circular economy for oil and gas can minimize the number of materials by incorporating other methodologies, such as reusing, repairing, refurbishing and recycling.

By Nicolle Portilla December 30, 2022
Courtesy: Steve Rourke, CFE Media

The oil and gas industry has grown by more than 20% in the last five years and is currently valued at $812 billion.

This industry is highly profitable, but it also can be incredibly wasteful. According to the Environmental Protection Agency (EPA), businesses in the United States oil and gas sector produce over 18 billion barrels of waste fluids yearly.

One potential solution that can help the O&G industry combat waste is switching from a linear to a circular economy.

What is a circular economy?

The World Economic Forum defines a circular economy as a “restorative or regenerative” industrial system.

Currently, in the industrial world, linear economies are the norm. Linear economies follow these steps:

  • Produce

  • Sell

  • Use

  • Incinerate/Send to landfill.

A circular economy minimizes the number of materials incinerated or sent to a landfill by incorporating other methodologies, such as reusing, repairing, refurbishing and recycling.

Circular economies are based on the following principles:

  • Eliminating waste and pollution by design: Designing out economic activities that harm human health and the earth’s natural systems, such as releasing greenhouse gases and pollution

  • Keeping products and materials in use: Designing products for durability, reuse, and recycling to keep them circulating

  • Regenerating living systems: Avoiding using fossil fuels and other non-renewable energy sources; Returning valuable nutrients to the soil, supporting regeneration.

Ideally, when industries — including oil and gas — transition to a circular economy, they reduce waste, support the planet’s health, and promote long-term sustainability.

What is the outlook for a circular economy in oil and gas?

The idea of a circular economy sounds promising in theory. How practical is it in the real world, though? What is the outlook in the oil and gas industry, specifically?

Many businesses in the oil and gas industry are currently taking steps to reduce waste and embrace a circular economy.

For many thought leaders in the field, a top priority is reducing hydrocarbons (the chief components in petroleum and natural gas) rather than eliminating them.

Last year, during IP Week — an international event for businesses in the O&G industry — Dr. Adam Sieminski (president of the Saudi Arabian non-profit think tank KAPSARC) explained that companies can still rely on hydrocarbons as they transition toward the goal of becoming carbon-neutral. However, he also encourages incentivizing “carbon capture utilization, storage, recycle, and resume options.”

Sieminski also noted that “‘reduce’ options alone” are insufficient. He called for more advanced technologies to help businesses achieve their goals and support the environment.

How far have we come and how far do we have left to go?

The world — including the oil and gas industry — has made incredible strides when it comes to reducing waste and striving for carbon neutrality.

For example, major mining companies like Fortescue and Rio Tinto have announced investments in solar power and battery technology. The global resources company BHP has also entered into renewable-power purchase agreements (PPAs) to move to 100% renewable energy by the mid-2020s.

Despite these impressive moves, much more progress is still needed.

There’s been an increase in pushes for a circular economy, but the linear economy is still the norm in the oil and gas world. The result of this norm is a high level of waste and pollution.

According to Peter Godfrey, the managing director of the Energy Institute Asia Pacific, energy is currently allocated as follows:

  • Approximately 18% of energy goes to water processing and infrastructure

  • Roughly 15% of water goes to energy production

  • Nearly 70% of water goes to food and agriculture

  • One-third of the food produced gets wasted.

Godfrey also asserts that focusing on a “more localized, more regionalized system” will help to reduce waste and increase efficiency.

Godfrey is not alone in his thinking, either.

Jeroen van Hoof — Global Leader, Energy, Utilities and Resources, PwC Netherlands — says that circularity “goes to the heart” of many challenges the COVID-19 pandemic presented, including the following:

  • The need to rationalize operations

  • The need to construct more localized supply chains

  • The need for resilience.

Van Hoof also states that addressing these issues with an emphasis on circularity will add value and give companies in the oil and gas industry a unique competitive edge.

Is a circular economy financially possible in O&G?

From a financial standpoint, a circular economy is certainly possible in the oil and gas industry. According to Godfrey, though, an essential aspect of economic and commercial viability involves regulation, policy implementation, and changes in value systems.

Godfrey states that a lack of policy can “make or break the new movement.” He encourages companies to create barriers to limit non-renewable materials and encourage or incentivize the production of more environmentally friendly alternatives.

Governments and governing bodies can also hasten the development of circular economies in the oil and gas industry. They can accomplish this by creating financial incentives for innovative companies that develop new business models and prioritize waste reduction.

How can oil and gas companies embrace circularity?

Companies in the oil and gas industry that are looking to embrace a circular economy should take the following steps:

  • Identify circular opportunities: Evaluate the company’s current operational footprint and find opportunities for circularity within internal operations and among suppliers, customers, and stakeholders

  • Clarify strategy and vision: Set specific goals and communicate them to those responsible for delivering on them

  • Plan the transformation: Identify particular steps needed to transition to a circular approach

  • Develop circular collaborations: Foster relationships to create a circular ecosystem and establish a supportive network

  • Measure, review, and communicate progress: Consistently monitor steps and continue refining the circular strategy.

Companies must also keep an eye on competitors. They should make positive changes early to avoid playing catch-up later.

With the threats of climate change growing more dire day after day, more businesses and consumers are looking for legitimate solutions.

Embracing a circular economy in the oil and gas industry is an excellent step in the right direction to reduce waste and make the sector more sustainable.

– Downtown Ecommerce Partners (DEP) is a CFE Media and Technology content partner.

Original content can be found at Oil and Gas Engineering.

Author Bio: Nicolle is Zero Waste’s Social Media Manager, and has been a valued member of the team since July 2018. She is responsible for content creation on all platforms, leveraging creative software, industry trends and research, and social media strategy to build upon the company’s online presence.