Energy super basins: Where the renewable, CCS, and upstream stars align

The world's need for sustainable energy is set to change the geography of the oil and gas industry, increasingly entwining it with renewables. The upstream industry of the 2030s and beyond, therefore, must focus on where its synergies with new energies are strongest.

Today's oil and gas industry is no longer fully fit for purpose. It has grown over many decades to be resilient through endless price cycles. This long prioritisation of upstream economics and security of supply is writ large in its current form. Production comes mostly from prolific traditional upstream 'super basins', where giant fields and established infrastructure guarantee the lowest cost of supply.

More than 90 per cent of current oil and gas production comes from around 40 of these traditional super basins. The overall footprint today barely reflects new sustainability and carbon goals. Only a fraction of these basins holds the low-carbon advantaged resources we need.

Most companies' immediate sustainability priority is to reduce scope 1 and 2 emissions from owned operations and purchased energy. Such cuts are best enabled using plentiful clean electricity, which is not feasible in many basins. Longer term, the bigger need will be to sequestrate scope 3 emissions. Hub-scale carbon capture and storage (CCS) is the key technology, again not feasible in many basins.

Electrifying operations using a clean, renewable energy source is one of the fastest and best ways to eliminate scope 1 and 2 emissions. It is easiest on new fields, but can be worthwhile retrofitting to some older assets. In most basins, the dominant clean electricity technology of the future is likely to be solar, although a significant minority at higher latitudes are better placed for wind. Only Norway will be primarily hydroelectricity, with few significant new hydro projects expected anywhere else. Geothermal could be a niche wildcard if advanced technologies move forward.

Scope 3 emissions are the elephant in the room. They accounted for more than 90 per cent of oil and gas' emissions of 18.5 Btpa CO2e in 2021, representing over half of the world's total energy-related emissions. Eventually they, too, must be addressed to meet the Paris commitments.

CCS is the most promising sequestration technology. It offers the scale to decarbonise difficult-to-abate consumer sectors and could save 18 per cent (with direct air capture) of annual global emissions by 2050. CCS does not need to be in the same basin as oil and gas production, but in practice is unlikely in locations away from upstream operations.

Today's CCS industry is in its infancy. Project pipelines for CCS have ballooned in the past year. If all announced projects go ahead as planned, CCS capacity will expand seven-fold by 2030. But this is from a very small base. The real scale-up and contribution to emissions reduction will come after 2030.

All existing, planned and hypothetical projects add up to just under 1 Btpa CO2e total capacity. These are concentrated in a handful of countries, largely reflecting the location of commercially feasible CO2 point sources rather than the limited availability of subsurface storage resource.

We expect global CCS capacity to grow to between 2 Btpa (base case) and 6 Btpa (accelerated energy transition scenario) by 2050. Exactly how and where this will happen is unclear. Our assumption is that this growth will come mainly from countries that will have hub-scale emissions sources available close to subsurface storage options. CCS operators will offer sequestration as a service to emitters. Not all the countries where CCS will be most needed are yet developing projects.

For the upstream industry to become more sustainable, it must focus on resources that are co-located with both plentiful clean electricity and CCS potential. These are the energy super basins of the future. The remaining traditional basins are at a disadvantage and face being left behind.

Ranking basins by the availability of clean electricity and CCS potential reveals clear winners. Good examples include the Permian and Gulf Coast in the US, Australia's North Carnarvon and the Rub al Khali in the Middle East. By contrast, basins in Russia, Alaska and Venezuela fall at the wrong end of the spectrum.

None of these rankings are set in stone. Government intervention and/or new technologies could yet make a big difference. The world will need oil and gas for many decades to come. But it is already clear that the upstream industry of the 2030s needs to reset geographically. Companies that shift to energy super basins will be the ones that survive. Their upstream strategies must become ever more entwined with low-carbon businesses.

Companies do not want to be caught out on the wrong side of this momentous transition. Recognising the long-term direction of travel presents an urgent call to action. It will take many years, even decades, to fundamentally realign global upstream portfolios with the new energy super basins. First-mover advantage applies. The sooner the transition starts, the better.

Andrew Latham is senior vice president at Wood Mackenzie.

Find out more by reading Wood Mackenzie's latest report 'Energy super basins: Where the renewable, CCS and upstream stars align'.