In September 2014, the European Commission (EC) adopted a Zero-waste programme that became the legal framework for development of an EU-wide Circular Economy. The model assumes reuse of resources, minimisation of waste and encourages efficient use of the assets at our disposal. The Commission estimates that a Circular Economy can save EU businesses €600bn per year. Even though in December the EC confirmed it is scrapping plans to introduce the package and will launch a ‘broader and more ambitious’ waste package this year, the Circular Economy Business Model will still be at its core. With the major decommissioning challenge being faced by the North Sea oil and gas sector, does the Circular Economy provide a useful perspective for enhancing value and reducing waste in this major emerging sector?
Circular Economy: The New Business Model
The economic system upon which the developed world has relied since the Industrial Revolution is largely based on the ‘linear’ throughput of materials, essentially operating in a one-way manner: there is currently very little value travelling back to replenish the source and ensure long-term sustainability.
The circular economy, on the other hand, broadly accepts that sustainable economic growth should be based on the model ‘‘resource-product-regenerated resource’’, which incorporates a mechanism of efficient resource use and waste reduction. The circular economy is itself a recycled idea borrowed from the natural eco-systems.
The reduction of resource, energy, and waste streams through the lifecycle of products and the increase in economic output and effectiveness can be achieved simultaneously by improving resource productivity.
The circular economy business model assumes:
- Product life extension; decrease of the need to replace products by its improved quality and prolonged usability.
- Recovery of end-of-life products; restoration of products that are no longer usable into the manufacturing loop.
- Circular supplies; supply of fully renewable or biodegradable materials/products.
- Sharing platforms; use of shared resources such as logistics, equipment and knowledge.
- Reduction of the energy intensity of production; promotion of energy conservation and improved efficiency.
The Circular Economy Will Become the Norm
If the current consumption and population growth trends continue, worldwide use of natural resources in the year 2030 could be as high as 100 billion tonnes, which is almost double that in 2005 (Friends of the Earth, 2011).
The recent increase in input costs indicates that industries may very soon reach a limit where demand begins to accelerate ahead of an ever more constrained supply. With the start of the new millennium the real prices of natural resources began to move upwards, increasing by nearly 150% within first decade of the century. Simultaneously, a much higher price volatility of resources has been observed, which could weaken economic growth by increasing uncertainty.
Altogether, the linear model becomes slowly unaffordable and maintaining it will require increasingly more effort. The circular economy is a smart hedge against rising prices and volatility, but it is also a massive business opportunity. As it has been proven, the circular business model allows us to tap new and bigger profit pools, reduce resource cost, address many industry-level strategic challenges and build a greater, more sustainable energy system.
The good news is that change has already begun, with strong support from governments around the world. China’s latest five-year plan includes efforts to “vigorously develop a circular economy”, while the European Union’s new Resource Efficiency Platform sees a circular economy as a pure economic strategy, floating a new indicator of GDP/Raw Material Consumption.
In 2013 Bradford University School of Management launched the world’s first Circular Economy MBA to make leaders aware of the new business model. In the same year, the first British Circular Economy Business Awards were launched by the Forum of Young Global Leaders and has been attracting increasing numbers of entries every year.
Many multinational businesses have endorsed the Circular Economy approach, although the take-up in the oil and gas sector has been limited.
Re-use and Regeneration
A circular economy seeks to rebuild capital, whether this is financial, manufactured, human, social or natural. This ensures enhanced flows of goods and services. The systems diagram below illustrates the continuous flow of technical and biological materials through the ‘value circle’.
For ‘end-of-life products’ the Circular Economy encourages options including ‘re-use, refurbish, recycle’.
UK Oil and Gas Asset Decommissioning
As the North Sea oil and gas province matures, an increasing number of offshore platforms, subsea facilities and pipelines will need to be decommissioned. These assets represent “end-of-life products”. Linear thinking treats decommissioning as an offshore demolition activity, with waste to be disposed of. The Circular Economy approach seeks to find new uses for assets and their components, consistent with commercial and sustainability objectives. If the industry develops approaches to support ways of putting back components from those assets into a re-use, refurbish, recycle loop, the burden of decommissioning North Sea oil and gas assets would become more attractive. The Circular Economy approach to decommissioning brings a new perspective that considers the re-use and regeneration as critical aspects, to be considered along with other matters from the earliest stages of decommissioning planning. Such thinking needs to be embedded in contracting strategy, decommissioning option development and commercial models. The approach also requires considerable cross asset and cross company development to maximise ideas generation, learning and create new markets for regenerated products.
The Circular Economy approach has the potential to add value to the North Sea decommissioning sector. It will require some new thinking and an open mind at the earliest stages of decommissioning strategy development and planning.