Point of View

How can Logistics Solutions Help Energy Companies improve ESG Performance?.


How can logistics and supply chain reduce emissions or enable de-carbonization and achieve net-zero goals?The future of energy industry depends on its ability to reduce carbon emissions. Cost-efficient low-carbon energy production, logistics and consumption are pivotal for energy companies to shape the sustainable future of energy industry and accelerate Environmental, Social and Governance (ESG) performance. Logistics & supply chain has a critical role to play in advancing the low-carbon future of energy operations and achieving net-zero goals.

As the whole world is striving to turn green and move towards renewable sources, we are all curious to understand how energy companies plan to achieve their net-zero goals, and how logistics and supply chain technology solutions can make a difference for the energy companies.

Ajith Vijayakumar, Account Manager, Energy and Resources Logistics, at IBS Software, shares his views.

Do you think sustainability & net-zero goals of energy companies is simply greenwashing or are they serious about it?

Many companies are making great efforts, thanks to investors who drive them to achieve the net-zero goals. Many top companies have been successful in achieving decarbonization goals through continuous technology improvements. However, a lot depends on the market direction and the industry's ability to think long-term and not sacrifice long-term value for short-term results.

The need for affordable, cleaner and reliable energy is going to stay.Most companies will focus on energy transition, but oil & gas production will continue to remain a part of the portfolio.

The OGCI (Oil and Gas Climate Initiative - a consortium of big oil & gas companies) has assessed that for every barrel of oil produced, 19.5 kilograms of carbon dioxide equivalent (CO2e) is generated from Scope 1 and 2 emissions. They are trying to bring that number down to 17 kilograms by 2025. While there is a huge disconnect in what the industry has achieved so far compared to the strategic directions, all evidence suggests that they are serious about reducing their carbon footprint.

How do you see the future of the oil and gas industry in the global energy transition context?

Oil & gas resources, especially cleaner gas, will still have a major role in the net-zero world energy system. Today oil & gas contributes about 56% of the global energy mix. This could potentially drop to about 30% in the net-zero world, which could be 30-40 years from now.

Currently, renewable energy (wind, hydrogen, solar, biofuels, ammonia, geothermal, etc.) fulfills about 6% of our global energy needs and this could potentially grow exponentially to about 35% in the net zero world.

The focus will be on clean oil & gas that produces less carbon, like natural gas. Clean oil & gas fuels may even survive for more than 100 years. The renewable sector will also continue to grow concurrently. Major companies are already making portfolio restructuring to support renewable sectors and move into that space. Small businesses and new start-ups on low carbon technologies will also have a significant role in the future of low carbon energy industry.

How can logistics and supply chain reduce emissions or enable de-carbonization and achieve net-zero goals?

Oil & gas drilling and production operations are the biggest sources of scope-1 emissions. However, it is not just the production sites that contribute to flaring and emissions, but the helicopters, boats, aircraft and trucks that move the supply chain also consume fuel and end up releasing greenhouse gases into the atmosphere.

Sustainable procurement and sustainable supply chain is the way forward. From an energy supply chain standpoint, we must think of means to optimize the logistics assets. We also have to think about making the stakeholders aware of how their choices impact the organization's overall carbon footprint and ESG performance. Companies will have to come up with strategies to optimize the logistics network, promote supplier collaboration, reduce the number of trips, leverage on route optimization technologies, use alternative modes of transportation to reduce fuel burn, improve energy efficiency, reduce food wastage at workforce camps, pursue electrification of logistics assets, promote usage of Sustainable Aviation Fuels (SAF), and implement carbon emission assessments and offsetting standards

For example, a large crew boat will be able to transport more people while consuming less fuel than a helicopter that carries only five people. Therefore, it is more feasible to use a boat than a helicopter. However, factors like weather conditions could influence these decisions. We recently worked with a major Canadian energy operator to optimize their workforce supply chain through mathematical optimization of airport network hubs, aircraft and busing fleet and fly-in fly-out (FIFO) rotation schedule and helped achieve 27% reduction in scope-1 supply chain emissions while reducing costs by 40%. This proves that ESG efficiencies can be achieved without additional spending. Reducing carbon footprint helps reduce your costs as well.

Be it improving the efficiency of logistics assets or optimizing the supply chain network, technology advancements will play a critical role.

What can the renewable energy industry learn from the oil and gas industry on optimizing the supply chain?

The renewable sector, especially offshore wind, hydrogen and geothermal operations, is similar to the oil and gas industry in many ways, as far as logistics and supply chain are concerned. The sector can adopt a lot from the oil and gas industry. 

For instance, the oil and gas industry has been building mega structures and transporting them across the globe for a very long time. This has allowed them to optimize their logistics assets and supply chains, sometimes by sharing their resources with other players in the industry. Besides these, the oil and gas industry has perfected the art of ensuring the safety of delivering people and cargo to the remotest parts of the world. They have been undertaking such projects for a very long time and have bulletproof safety protocols, which is another thing that the renewable energy sector can learn.

How has the COVID-19 pandemic changed the future of energy and resource logistics?

For oil and gas professionals, COVID-19 has been one of the biggest challenges faced by the industry, and it has brought about a few noticeable changes:

Covid Agility: The pandemic has reset the age-old notion that any transformational change needs years to implement. The speed at which logistics managers were able to sustain essential field operations with the help of agile cross-functional teams and continued the flow of critical workforce & cargo supplies to work sites amid global restrictions was unprecedented.

  1. Digitization has picked up pace to improve supply chain resilience in the industry. The traditionally risk-averse and tech-averse oil and gas companies embraced technology with open arms during the pandemic, especially the touchless and self-service technologies.
  2. Companies have started to take decarbonization initiatives more seriously. This is perhaps because we all saw how nature healed because of reduced human activity during global lockdowns. That is probably why the investors of oil and gas logistics technology companies have started thinking about ways to go greener.
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