ConocoPhillips has been using a marginal abatement cost curve (MACC) to analyze operational greenhouse gas (GHG) emissions reduction projects since 2008 when we developed our first corporate Climate Change Action Plan. The MACC began to take on an even more important planning role with the development of our 5-year strategy in 2014. The process has been a key component in identifying and prioritizing reduction projects to drive our actions since we set our first public GHG emissions reduction target in 2017. In 2019, we enhanced the process by establishing a discretionary corporate funding mechanism so that projects could be more broadly analyzed through a company-wide lens rather than driven by capital constraints of specific business units (BUs). In 2020, as we set our new energy transition and climate risk strategy, the MACC process gained further importance as a driver for emissions reduction projects across the company.
The purpose of the MACC is to identify projects that decrease GHG intensity and lower long-term climate-related risk for current operating assets, non-operated assets and future designs. The MACC plots a breakeven cost of carbon that considers capital cost, operating costs and potential increased revenue for each project against the cumulative GHG emissions that can be reduced. For example, a project that installs a compressor to move previously flared gas into a sales pipeline will have an upfront cost, increased expenses to operate and maintain, and increased revenue from natural gas sales. Depending on the volume and natural gas price, this could lead to either a positive or negative breakeven cost of carbon associated with executing the project.
The annual process gathers insights into project viability such as planning time, technology readiness and permitting. Detailed economic analysis is performed on candidate projects to determine which might achieve the most emissions reductions at the lowest cost if implemented. Together, this data helps identify projects that might become viable through future research, development and deployment. The result is an inventory of projects that can potentially be developed over the next 10 years, which informs annual budgeting, long-range planning and our technology strategy.
Additionally, the MACC allows us to compare operational emissions reduction projects across the world on a consistent basis, regardless of different local carbon pricing regulations. An internal carbon price is not included in the economic analysis because the MACC provides an overall picture of which projects, and how many projects, would be economic at certain carbon price levels.
Each year the Executive Leadership Team determines which projects to fund to optimize emissions reduction opportunities. Project funding is based on a number of criteria:
- Lowest $/TeCO2 equivalent – project reduces emissions and cost or boosts production with minimal increase in emissions.
- Scalability – project or pilot that can be scaled up to provide meaningful emissions reductions.
- Repeatability – project can be repeated in other business units.
- Strategic implications – project can lead to further future opportunities or reduce future regulatory risks.
- Visibility – project has an impact on reductions important to stakeholders such as flaring, methane emissions and use of renewables.
- Offsets – project generates high quality (real, verifiable, permanent, additional) emissions reductions that are certified to international standards.
- Partner agreement – joint venture partners are willing to participate in funding the project.
Regional teams in North America, Australia, Southeast Asia and Europe use the MACC process to identify further energy efficiency projects through collaboration. By using our global innovation pipeline platform, FUEL, we are increasing innovation and knowledge sharing between business groups for emissions reductions projects. Through this online platform, project ideas are submitted, shared and tracked across the entire company, enabling successes and learnings to be shared with ease and accelerating adoption of new technologies globally. Additionally, teams like our cross-functional GHG technology working group meet monthly to share project details and ideas.
Building a Project Pipeline
The MACC process provides a pipeline of viable projects that we continue to monitor for economic and technological viability. By establishing the corporate funding mechanism, the number of projects included in the 2020 MACC increased substantially. It also drove the inclusion of several studies and pilot projects that had previously been considered as optional since the work to complete them did not compete for capital within individual businesses.
The number of projects has steadily increased, from 11 projects in 2015, to 45 in 2019 and more than 100 in 2020.
Projects below the line are economic and have a negative breakeven cost of carbon. Projects above the line are not economic — the taller the bar, the higher the breakeven cost of carbon. The width of the bar indicates the annual emissions saving that would occur should the project be undertaken — the wider the bar, the greater the emission saving.
Our current MACC projects fall within two areas. Studies and pilot programs are focused on power generation and electrification of oil and gas operations, including the use of renewable energy and oil sands emissions reductions. Projects that are ready for implementation focus on flaring, venting and methane detection along with greenfield projects to utilize electric power generation and equipment.
In Norway, options to further reduce emissions in the Greater Ekofisk areas are being studied as part of the MACC process, including utilizing power from offshore wind turbines. The Greater Ekofisk area currently depends on gas-powered turbines and offshore wind has the potential to deliver large amounts of clean, renewable energy. The first phase of the study was completed in 2020. The concept establishes two wind turbines, in conjunction with gas power generators, providing electricity with the potential to reduce CO2 emissions by approximately 75,000 tonnes per year. The second phase will evaluate optimal wind turbine location, tie-in location and power integration to the Ekofisk complex systems. To complement the ongoing wind study, the BU is also studying electrification with power from shore or larger offshore wind power farms. This could be implemented in two ways: a direct current cable from shore, or from future offshore wind power farms connected by an alternating current cable. These concepts have the potential to provide needed power and further reduce GHG emissions significantly at the Greater Ekofisk area.
Our Indonesia business unit evaluates GHG emissions reduction opportunities through integrated department workshops, operations and business unit innovation channels and collaborative evaluations by an integrated team. Feasibility studies include technical and economic evaluations using the MACC and Indonesia-specific economic models. By the end of 2020, 23 reduction opportunities have been evaluated and seven projects will be implemented with total potential GHG reductions of approximately 320,000 tonnes of CO2e. 2020 implementation included flare valve replacement at Suban, compressor seal gas utilization at Dayung and amine flash gas utilization at Grissak and Suban. The BU works closely with key corporate functions and through the FUEL process to share knowledge and develop new opportunities.
In the U.S., our team in the Bakken is working to implement several MACC projects aimed at reducing routine flaring. This includes removing barriers that limit our ability to process associated gas. Examples include installing vapor recovery units at new facilities so produced gas from 3-phase separators is sold and utilizing mobile recovery units which convert flare gas into CNG. The produced CNG can then be used to power drilling or completion operations. In addition, they are working with a third-party gatherer to debottleneck segments of a gathering system, allowing more gas to be sent to the pipeline and adding equipment to high H2S sites to gather more gas for sales, rather than flaring. These projects have the potential to reduce our flaring by half in the Bakken, the equivalent of removing approximately 100,000 tonnes of CO2e per year.
To gain a greater understanding of the extent of the reduction opportunities we may have, we plan to expand the current MACC to better support our ambition to reach net-zero emissions for our operational scope 1 and scope 2 emissions by 2050. Business units are now being asked to provide a wider range of emissions reduction options that could contribute to achieving net-zero emissions. This net-zero MACC goes beyond projects that are technically possible today to include projects that utilize emerging or not yet commercial technology to reach zero emissions and offset opportunities. This includes feasibility assessments across three themes: carbon capture and utilization, the hydrogen economy and alternative energy technologies that can reduce the emissions intensity of current operations.
The multi-year project to develop a rigorous net-zero MACC will help track our progress on meeting our emissions intensity target and inform future technology development and our energy transition strategy.