Ways to Play | Energy Transition Opportunities for Oil & Gas Midstream Participants

Explore how midstream business models align most effectively with emerging energy transition opportunities and gain insights into the optimal pathways for midstream companies to participate in the energy transition. 

Research written by:  

Carson Kearl, Sr. Associate, [email protected]

Morgan Kwan, P.Eng., Director, [email protected]

Ian Nieboer, P.Eng., CFA, Manager Director, [email protected]

This e-book is based off the report published by the Enverus Energy Transition Research team, Ways to Play | energy transition Opportunities for Midstream Participants, published on Sept. 18, 2023. Enverus Intelligence Research clients can view the full report here

Enverus Intelligence® Research, Inc., a subsidiary of Enverus, provides the Enverus Intelligence® | Research (EIR) products.  See additional disclosures.

ebook-laptop-hero-image

Summary

  • The colocation of demand sources with the supply of new energy technologies is a threat to midstream businesses seeking to capitalize on the energy transition. A proactive strategy seeking partnerships and opportunities to accelerate project development is required for midstreamers looking to ET technologies to ensure the longevity of their businesses.  
  • Midstream companies are strategically positioned to bridge the gap between traditional and emerging renewable energy sources. By leveraging their infrastructure, logistics and market knowledge, they can play a pivotal role in the transportation, storage and distribution of renewable energy sources.  
  • Companies quick to define and implement their energy transition strategies stand to benefit immensely. Being an early mover in this space can open doors to unique opportunities, strategic partnerships and even potential mergers. Energy transition issues are highly dynamic, which means the risks are, too.  
  • Some midstream operators are pursuing partnerships to provide exposure to larger value chains, like those pursuing CCUS, while others are expanding capabilities in-house to achieve vertical integration. Others are forming strategic partnerships to ensure their current businesses’ participation in future value chains.

Overview: A Framework to Develop an Energy Transition Strategy

The energy transition is happening. While it may be viewed as a major headwind by some traditional upstream oil and gas operators, Enverus Intelligence® Research (EIR) sees opportunity in the numerous business models that are emerging around transition technologies and the policies implemented to support them.

With the flurry of buzzwords and headline technologies, it is easy to be overwhelmed with what exactly the energy transition entails and how much effort, if any, should be invested toward it. EIR’s holistic approach to analyzing the energy transition space helps facilitate developing a strategy that goes beyond targeting net-zero emissions, to create a strategy that is accretive to your business.

The rise of investor preference toward operators who are participating in the transition presents a unique set of opportunities to diversify revenue streams and gain favor in the public eye. This guide is a framework for operators to create a strategy that suits a scale and scope unique to them.

3 Cs to Build Your Energy Transition Strategy

A midstreamer’s strategy will depend on the unique context of its business, the capability of its skill sets and ultimately its conviction around the energy transition. Each midstream operator will have a unique position in each of these areas and for different transition technologies, and therefore a unique, but necessary, strategy. 

  • Context: Context refers to a company’s existing assets, business model/revenue stream and other geographical and regional characteristics. Without an aligned context between the existing business and transition technology, accretive success will be hard to execute. This is important because of the impact it can have on project feasibility and returns.
 
  • Capabilities: Given the assumed contextual adjacency with an energy transition technology, a company’s current talent and expertise and how adjacent it is to transition technologies. A company’s infrastructure and skill set can offer a competitive advantage with some energy transition technologies.
 
  • Conviction: The degree of commitment your organization demonstrates towards the energy transition will be the key factor in determining the success of your strategy. Just like any corporate strategy, success hinges on unwavering dedication across the entire organization, including the allocation of sufficient capital and resources to support the energy transition strategy.
Absolute conviction in the energy transition in general must be a baseline but ultimately EIR categorizes conviction in the energy transition into three buckets:

  1. Aware
  2. Adaptive
  3. Adoptive

The combination of these considerations combined help determine which energy transition technologies make sense for an effective strategy.  

Alignment of Energy Transition Technology to the Current Upstream Business Model

Midstream companies’ assets and most often geographical location strategically position them to bridge the gap between traditional energy sources and the emerging renewable ones. This unique context leverages their infrastructure, logistics and market knowledge for them to play a pivotal role in the transportation, storage and distribution of renewable energy sources. The capabilities within midstream organizations, like assets for transporting hydrocarbons and fuels and established processes for permitting and rights of way, make some molecule-centered transition technologies a more natural fit.  

Adjacencies in skills and resources can provide a competitive edge, allowing for smoother integration and optimization of innovative technologies. The question for midstream entities then becomes, Does our current capability landscape not only support but also enhance our position in the evolving energy transition space? Scalability and adaptability are paramount; the ability to evolve and grow in this dynamic environment will determine success in the energy transition journey. For each technology, EIR assesses its alignment with a midstream company’s operations.

figure-3

When thinking about adjacency, they’re considering how well an organization’s current assets, business model and expertise align with the energy transition technology in question. Technologies that are fully adjacent, from a technical and business model standpoint, enhance revenue streams by capitalizing on existing infrastructure or tapping into incentive schemes like Inflation Reduction Act credits.  

On the other hand, partially adjacent technologies open new avenues of revenue, grounded in a company’s established infrastructure and expertise, such as facilitating new product transportation, carbon capture and storage (CCS) or produced water for direct lithium extraction (DLE). 

Energy Transition Technologies

Enverus Energy Transition Research (ETR) evaluates many of the technologies that are part of the energy transition, focusing on those that attract the most investor interest and capital flow. Below are details on the various technologies and how a midstream operator can incorporate them in their transition strategy. 

RENEWABLE NATURAL GAS (RNG)

RNG, also known as biomethane or upgraded biogas, is derived from organic materials such as agricultural residues, wastewater sludge, municipal solid waste or livestock manure. RNG can serve as a direct substitute for conventional natural gas because it’s chemically similar, being primarily methane. 
 
RNG offers midstream operators a sustainable alternative to conventional natural gas for transportation and storage. RNG can be integrated into existing midstream infrastructure, providing a greener option for pipelines, storage facilities and distribution networks. 

How RNG Works

Biogas production

Organic waste is decomposed anaerobically (in the absence of oxygen) in digesters or landfills to produce biogas.

Upgrading

The biogas, a mixture of methane, carbon dioxide and impurities, is processed to remove contaminants and CO2 to create high-quality RNG.

Integration

Once cleaned and upgraded, RNG can be injected into existing natural gas infrastructure or utilized for various applications, from electricity generation to transportation fuel.

How Midstream Companies Can Participate
  1. Infrastructure integration: Utilize existing natural gas pipelines and storage facilities for RNG transportation and storage, given its chemical similarities to conventional natural gas. 
  2. Upgrading stations: Invest in or collaborate with RNG production facilities to establish biogas upgrading units close to injection points. 
  3. Transportation: Using their logistic and transportation expertise, midstream companies can efficiently transport RNG from production sites to end users or injection sites. 
  4. Storage solutions: Develop dedicated storage solutions or repurpose existing infrastructure to accommodate RNG. 
  5. Market development: Leverage client networks to market RNG as an alternative to conventional natural gas. 
  6. Regulatory navigation: Engage with regulators to ensure that RNG can be seamlessly integrated into existing infrastructure and markets. 
  7. Joint ventures: Collaborate with RNG producers, technology providers and municipalities to expedite RNG project deployment. 
  8. Carbon trading: Participate in carbon markets, capitalizing on the reduced emissions associated with RNG. 
  9. Research and development: Invest in technological advancements that optimize RNG transportation, storage and utilization.
Carbon Markets

Carbon markets, also known as cap-and-trade systems or emissions trading systems, are market-based approaches used to control greenhouse gas (GHG) emissions by providing economic incentives for businesses to reduce their carbon footprint. 

Midstream companies play a crucial role in the carbon market, as they can reduce emissions from transportation and storage processes. By participating in carbon trading, midstream operators can monetize their emission reduction efforts, turning potential regulatory challenges into economic opportunities.

Overview of Carbon Markets

Cap

Governments or regulatory bodies set a maximum limit or cap on the total amount of GHGs that can be emitted by certain sectors of the economy. This cap is usually reduced over time, aiming to decrease overall emissions.

Allocation

Once the cap is set, emission allowances (often equivalent to one ton of carbon dioxide) are either given away to emitters or auctioned off.

Trading

Companies that emit less than their allocated amount can sell or trade their extra allowances on the carbon market. Conversely, companies that exceed their limits can buy additional allowances from those with excess.

Banking and borrowing

In some systems, companies can bank unused allowances for future use or borrow against future reductions.

Offsets

In addition to trading allowances, some systems allow for carbon offset credits. These are credits earned from projects that reduce, avoid or sequester emissions outside of capped sectors, like afforestation or renewable energy projects.

How Midstream Companies Can Participate
  1. Carbon offset projects: Invest in or develop carbon offset projects such as afforestation, reforestation or methane capture, which generate carbon credits that can be sold in carbon markets.
  2. Carbon capture, utilization and storage: Given their expertise in handling gases and liquids, midstream companies can develop or partner in projects that capture CO2 from emission sources, transport it and either use it for enhanced oil recovery or store it in geological formations. This not only reduces their carbon footprint but can also generate credits for sale in carbon markets.
  3. Trading and brokerage: Leverage financial and market expertise to trade emission allowances and credits, either for hedging purposes or as a profit-generating activity. Establish or collaborate with trading desks specifically focused on carbon markets.
  4. Infrastructure development for carbon trading: Build and manage infrastructure to measure, report and verify emissions – a crucial aspect for carbon market participation. This ensures accurate tracking and validation of emissions reductions.
  5. Regulatory and policy engagement: Engage with regulatory bodies to understand and influence the evolving landscape of carbon pricing and trading. This ensures that companies’ interests are protected and that they can maximize opportunities within the regulatory framework.
  6. Joint ventures: Partner with clean tech firms, NGOs or other stakeholders to jointly develop projects or technologies that reduce emissions, thus generating carbon credits.
  7. Internal carbon pricing: Implement internal carbon pricing as a risk management tool. By setting a shadow price on carbon, midstream companies can anticipate potential costs in a future carbon-constrained world and make more informed investment decisions.
  8. Stakeholder engagement and reporting: Actively communicate with stakeholders about the company’s involvement in carbon markets, showcasing commitment to sustainability and transparency. This can bolster the company’s reputation and garner support from environmentally conscious investors and consumers.
  9. Research and development: Invest in R&D to discover new technologies or methods that reduce emissions more cost-effectively. Such innovations can give the company a competitive advantage in the carbon market.
  10. Market development and expansion: Explore opportunities in emerging carbon markets globally, especially in regions where midstream assets are located and carbon pricing mechanisms are being introduced.  
Carbon Capture Utilization and Storage (CCUS)

A set of technologies and processes that capture CO2 emissions at their source and either utilize them in various applications or permanently store them underground. CCUS plays a vital role in addressing climate change, especially in sectors where decarbonization is challenging. 
 
Midstream operators can transport CO2 from source to sink or integrate CCUS technologies into their infrastructure, capturing emissions from transportation processes. By utilizing or storing captured CO2, midstream companies can reduce their carbon footprint and potentially develop new revenue streams from selling captured carbon.  

Overview of CCUS

Capture

This is the process of capturing CO2 emissions directly from industrial processes or directly from the atmosphere. Various technologies can be used, including post-combustion capture, pre-combustion capture, oxyfuel combustion and direct air capture.

Utilization

Captured CO2 can be used in various applications. Examples include: 

  • Enhanced oil recovery, where CO2 is injected into oil reservoirs to increase extraction rates 
  • Producing chemicals, plastics or fuels 
  • Carbonate mineralization for building materials 

Storage

If not utilized, the captured CO2 can be transported and stored underground in geological formations, such as depleted oil and gas reservoirs or deep saline aquifers.

How Midstream Companies Can Participate
  1. CO2 transportation: Leverage their experience in transporting gases and liquids through pipelines, ships or trucks to move captured CO2 from capture sites to utilization hubs or storage sites.
  2. Storage infrastructure: Develop or repurpose geological storage sites, like depleted oil and gas reservoirs or deep saline formations, to store captured CO2 securely. Their knowledge of subsurface geology can be invaluable here.
  3. Integration with existing assets: Integrate CCUS technologies into existing midstream assets, such as gas processing plants, to capture CO2 emissions directly.
  4. CO2 for enhanced oil recovery (EOR): Utilize captured CO2 for EOR operations, a well-established method that involves injecting carbon dioxide into oil reservoirs to increase oil extraction rates.
  5. Partnerships and joint ventures: Collaborate with technology providers, research institutions and energy companies to co-develop and deploy CCUS projects.
  6. Regulatory engagement: Engage with regulators to understand the evolving CCUS policy landscape, ensuring compliance and advocating for favorable policies and incentives
  7. Carbon markets participation: With the establishment of carbon markets, the CO2 captured and stored can potentially generate carbon credits, leading to additional revenue streams for midstream companies. 
  8. Research and development: Invest in R&D initiatives to advance CCUS technologies, reduce capture costs and find novel uses for captured CO2.
  9. Stakeholder engagement: Communicate companies’ CCUS initiatives to stakeholders, showcasing their commitment to reducing emissions and combating climate change. 
  10. Financial instruments and risk management: Navigate the financial aspects of CCUS, from securing funding for projects to managing the financial risks associated with carbon pricing and market fluctuations.
  11. Utilization opportunities: Explore opportunities where CO2 can be used as a feedstock, such as in the production of fuels, chemicals and building materials, further integrating the carbon economy. 
Direct Lithium Extraction (DLE)

DLE is a term used to describe a range of technologies designed to extract lithium directly from brine sources more rapidly and efficiently than traditional evaporation pond methods. 
 
While DLE primarily impacts upstream operations, midstream companies can benefit by transporting and storing extracted lithium. As demand for lithium (used in batteries) grows, midstream operators can diversify their portfolios by facilitating its distribution.  
 

How Midstream Companies Can Participate
  1. Transportation: Develop dedicated infrastructure for transporting lithium or lithium-derived products from extraction sites to processing facilities or markets. 
  2. Brine management: Leverage expertise in fluid management to efficiently handle brines, which are central to DLE. 
  3. Infrastructure development: Construct and manage evaporation ponds or other necessary structures integral to certain DLE processes. 
  4. Ventures and partnerships: Collaborate with technology providers or existing DLE companies to expedite lithium extraction and production. 
  5. Storage solutions: Develop storage facilities for both the extracted lithium and byproducts of the DLE process. 
  6. Regulatory navigation: Engage with regulatory authorities to ensure compliance and secure permits, especially given the environmental considerations associated with lithium extraction. 
  7. Market development: Given the growing demand for lithium for battery production, midstream companies can help bridge the gap between DLE operations and end users like battery manufacturers.
Blue Hydrogen

Blue hydrogen refers to hydrogen produced from natural gas generally through a process called steam methane reforming, where the CO2 byproduct is captured and stored using CCS technology. This process reduces the carbon emissions typically associated with traditional hydrogen production methods, making the hydrogen “blue.” 

Midstream companies can transport and store blue hydrogen, offering a cleaner energy carrier for distribution. With existing natural gas infrastructure, midstream operators can adapt to the increasing demand for blue hydrogen, especially in regions transitioning to cleaner energy sources. 

How Blue Hydrogen Production Works:

Steam methane reforming

Natural gas (primarily methane, CH4) is reacted with steam to produce hydrogen and CO2. The primary reaction is: CH4+ H2O = CO + 3H2.

Carbon capture and storage

The CO2 produced from steam methane reforming is captured and then transported and stored underground in geological formations to prevent its release into the atmosphere.

How Midstream Companies Can Participate
  1. Infrastructure adaptation: Adapt existing natural gas pipelines and storage infrastructure for hydrogen transportation, given the potential similarities in handling. 
  2. CCS integration: With blue hydrogen production, CO2 is a byproduct. Midstream companies can develop or collaborate on infrastructure for capturing, transporting and storing CO2. 
  3. Production partnerships: Collaborate with producers to establish blue hydrogen production facilities, ensuring efficient transportation and distribution. 
  4. Regulatory engagement: Navigate the regulations related to hydrogen production, transportation and storage, advocating for a favorable midstream environment. 
  5. Research and development: Invest in advancements in pipeline materials and technologies suitable for hydrogen transport. 
  6. Market development: Facilitate the market outreach of blue hydrogen by connecting producers with industrial consumers and other end users.
Green Hydrogen

Green hydrogen is produced using renewable energy sources, primarily through the electrolysis of water. Electrolysis splits water (H2O) into hydrogen (H2) and oxygen (O2) using electricity. When the electricity used for this process comes from renewable sources such as wind, solar or hydro, the resulting hydrogen is termed “green,” since the production process is carbon-free. 
 
Green hydrogen presents midstream operators with opportunities in transportation and storage. As the demand for green hydrogen grows, midstream infrastructure can be adapted or expanded to accommodate this clean energy carrier, tapping into a burgeoning market.

How Green Hydrogen Production Work

Electrolysis

Water is passed through electrolyzer that applies an electric current to split water molecules into hydrogen and oxygen.

Renewable energy integration

For hydrogen to be considered green, the electricity used in electrolysis should come from renewable sources. This ensures that the entire hydrogen production process is carbon neutral.

How Midstream Companies Can Participate
  1. Infrastructure adaptation: Adapt existing natural gas pipelines and storage infrastructure for hydrogen transportation, given the potential similarities in handling. 
  2. CCS integration: With blue hydrogen production, CO2 is a byproduct. Midstream companies can develop or collaborate on infrastructure for capturing, transporting and storing CO2. 
  3. Production partnerships: Collaborate with producers to establish blue hydrogen production facilities, ensuring efficient transportation and distribution. 
  4. Regulatory engagement: Navigate the regulations related to hydrogen production, transportation and storage, advocating for a favorable midstream environment. 
  5. Research and development: Invest in advancements in pipeline materials and technologies suitable for hydrogen transport. 
  6. Market development: Facilitate the market outreach of blue hydrogen by connecting producers with industrial consumers and other end users.
Advanced Nuclear Reactors

Advanced nuclear reactors, often referred to as small modular reactors (SMR), present a compact alternative to traditional nuclear reactors. They can be manufactured at a plant and brought to a site to be fully constructed, allowing for less on-site construction, increased containment efficiency and enhanced safety due to their smaller reactor core. 

While advanced nuclear reactors primarily impact power generation, midstream companies can play a role in transporting and storing nuclear fuel and waste. This offers diversification opportunities for midstream operators looking to expand into the nuclear sector. 

How Advanced Nuclear Reactors Work

Modularity

SMRs are designed to be modular, meaning they can be manufactured in a factory and transported to their intended location. This approach aims to reduce construction times and costs.

Scalability

Their modularity also means multiple advanced reactors can be deployed together to achieve the desired capacity, offering flexibility and scalability in power generation.

Safety features

Advanced reactors often incorporate passive safety features that rely on natural forces like gravity and natural circulation, reducing the need for external power or active cooling systems.

How Midstream Companies Can Participate
  1. Powering operations: Use advanced nuclear reactors to provide reliable power to major midstream facilities, especially in remote areas. 
  2. Infrastructure development: Leverage their expertise in developing and managing infrastructure projects to construct advanced nuclear reactor facilities. 
  3. Regulatory engagement: Navigate the complex regulatory landscape of nuclear energy. 
  4. Joint ventures: Partner with technology providers or established nuclear energy companies for advanced nuclear reactor project deployment.
Geothermal

Geothermal energy harnesses the Earth’s natural heat stored beneath the surface, utilizing it for electricity generation or direct heating. This renewable energy source is consistent, as it does not rely on intermittent factors like sun or wind. 

Geothermal energy, while primarily a power generation source, requires infrastructure for transporting heat in the form of water or steam. Midstream operators can leverage their expertise in pipeline and storage solutions to support the geothermal industry.

How Geothermal Energy Works

Heat extraction

Geothermal systems extract heat from the Earth through deep wells that tap into hot water and steam reservoirs.

Electricity generation

In geothermal power plants, the heat from the Earth’s core is used to heat water or another working fluid to produce steam. This steam drives a turbine connected to a generator, producing electricity.

Direct use applications

Geothermal heat can also be used directly for heating buildings, growing plants in greenhouses, drying crops, heating water at fish farms and several industrial processes such as pasteurizing milk. 

How Midstream Companies Can Participate
  1. Pipeline adaptation: Explore the possibility of adapting existing pipelines for transporting geothermally heated water or steam for direct-use applications. 
  2. Land utilization: Some midstream sites might be suitable for geothermal installations, either for power generation or direct heating. 
  3. Integration with operations: Use geothermal energy to provide heating or cooling for storage facilities or other midstream assets. 
  4. Project financing: Invest in or fund geothermal projects, leveraging their capital and project management skills. 
  5. Partnerships: Collaborate with established geothermal developers or technology providers.
Renewable Generation

Renewable energy generation, specifically solar and wind, has witnessed rapid growth due to increasing demand for sustainable energy, technological advancements and decreasing costs. While solar captures energy from the sun through photovoltaic (PV) cells or concentrating solar power systems, wind energy taps into the kinetic energy from wind to turn turbines and generate electricity.  

As renewable energy generation grows, midstream operators can diversify by transporting and storing renewable energy sources. For instance, storing energy in battery solutions can be a potential avenue for midstream companies to explore.

How Renewable Energy Works

Solar energy

  • Photovoltaic (PV) systems: These convert sunlight directly into electricity using semiconductor materials.
  • Concentrating solar power: This method uses mirrors or lenses to concentrate sunlight onto a small area to produce heat, which then drives a generator to produce electricity.

Wind energy

Wind turbines transform the kinetic energy from the wind into mechanical energy. This mechanical energy is then converted into electrical energy through a generator.

How Midstream Companies Can Participate
  1. Land utilization: Utilize rights of way, unused lands or buffer zones around infrastructure for setting up solar panels or wind turbines. 
  2. Powering operations: Use renewable energy to power pipeline operations, pumping stations and other midstream facilities. 
  3. Energy storage: Invest in energy storage solutions to store excess energy and ensure consistent energy supply to operations. 
  4. Grid integration: Collaborate with utilities to sell excess power to the grid or draw power when needed. 
  5. Joint ventures: Partner with established renewable energy developers to co-develop projects.
  6. Financing: Use their significant financial resources to fund large-scale renewable projects.

Explore Enverus Energy Transition Solutions

Ready to Get Started?

Register Today

Get Energy Transition Research updates straight to your inbox by filling out the form below.

Let’s get started!

We’ll follow up right away to show you a quick product tour.

Let’s get started!

We’ll follow up right away to show you a quick product tour.

Sign Up

Power Your Insights

Connect with an Expert

Access Product Tour

Speak to an Expert