Interview - Richard Westney, Director, Planet-Centric PM, R/MW Consulting, Inc.
Q: Could you give us a brief background on your experience in the engineering / construction / project management industry?
A: I've spent my entire career in oil and gas, focused on major capital projects. That began in the ‘70s, when I worked as a project engineer for Exxon and did upstream, midstream, downstream and chemicals projects around the world. In 1978 I started a consulting company, Westney Consulting Group, which was focused on very large projects, strategic planning, risk management and so forth. That company was acquired in 2019 by McKinsey and Company, and since then, my consulting has been focused on the energy transition. I think the energy transition is the most exciting and fundamental change in our industry that has happened in my long career. There are a lot of new challenges, but also a lot of tools available for us to address them.
Q: You recently wrote a book focussed on ESG planning for energy projects, what was your aim when writing the book?
A: Actually, this is my sixth book, and all of them have been aimed at project managers and teams, to provide helpful knowledge and tools to be able to plan and execute projects better. In each book I’ve tried to focus on new issues and questions that people are looking for answers to. And certainly, over the last several years, we've seen this tremendous emphasis on ESG – both positive and negative – but it is without a doubt something that's very important to the owner/operators and contractors in the energy sector. They all report on ESG, they have various types of metrics, and of course, it's a global movement as well. This translates directly to capital projects, and I felt that project managers and project teams are now under much more scrutiny as to what they are doing about ESG – what their project is doing to protect the environment, what they are doing to advance social goals, what kind of governance model they have. So, I decided to write this book – it's actually a workbook that takes teams through a planning process to come up with a project ESG plan.
Q: What role do project managers and engineering teams have in making the industry more sustainable?
A: This is a great question, because I think when you take your focus away just from the specific project that we might be working on and look at the worldwide energy sector, the energy transition and the trillions of additional dollars of new investment that are being made every year in the pursuit of net-zero goals, I believe that as project managers and engineers we have a tremendous opportunity to contribute. I would say the first and most important thing is leadership, I'm a big believer that that we can be the ones who are leading what we do in our industry, using the trillions of dollars to advance environmental and social goals. This is something I think that we can be very proud of, if we do it correctly, and I'm sure that's the direction we are headed in.
Q: What exactly does ESG mean for project managers and teams?
A: It’s an important addition to our performance metrics. Fifty years ago, when I started my career, it was really all about cost and schedule. But over the couple of decades after that, we started to see a real revolution around construction safety. And this took what we had been doing before to a whole new level. It was a complete transformation of the way the industry worked and the way leaders in the industry thought and acted. Along with cost, schedule, quality and operability, safety became the paramount, most important performance metric, and the attention and the financial and human resources that it took to make that happen were definitely in place.
I think that's where we're headed with ESG as well. ESG overlaps a great deal with what we have been doing on projects with safety and environment. It's not that it’s new, but to group those together with new types of metrics, is an important change. Projects are more complex, there are more non-financial stakeholders, you could even argue that everyone on the planet is a non-financial stakeholder for projects that are part of the energy transition. And when you have more stakeholders, you have more criteria for success.
Everything that we've ever done on projects in the energy sector has really been about improving people’s quality of life. ESG is about the quality of life as well, so I think it's a perfect fit. The more we can do to understand it, get out in front of it and show others how we are directing our projects to those goals, I think, the better.
Q: How does a project team translate ESG expectations into specific objectives?
A: Well, that's exactly what my book is about. The ESG expectations are found, first of all, in our own company. Maybe we are part of an engineering firm or a construction company, or maybe we're an oil and gas company or renewable energy developer. Typically, our company will have its own ESG goals and metrics, and our leaders will be aware that the investment community is looking at those metrics. So, you have your corporate expectations, and of course, there are also legal, statutory and regulatory expectations.
The first thing we must do on projects is to understand what those expectations are. It isn't always easy. We have to do a little homework and talk to other people in the company who are directly responsible for the company's work in those areas, such as environmental compliance, protection of wildlife, as well as meeting GHG and net-zero goals. I saw a statistic the other day that the buildings, operation and construction industry accounts for 40% of CO2 emissions globally. So, first we have to understand these external expectations and then set our own project-level goals accordingly.
Q: What is the impact of ESG on a project’s scope of work, cost, and resource requirements?
A: The first thing people say when you talk about implementing ESG on a project is: 'Well, this is great, it’s wonderful, but who's going to pay for it?' That question may not be very idealistic, but it is certainly realistic. There is likely to be an upfront investment, there may be people on a project team whose entire role is around ESG – perhaps some focusing on the E and others focusing on the S and maybe others doing G.
This brings me back once more to the safety example. In the early days, when we were trying to get safety transformed, there was a lot of upfront cost, and the benefit was intangible. What's the value of an accident that did not happen, of a life that was not lost, or an injury that was not sustained? You'll never know, and yet, there has to be a fundamental belief that this is the right thing to do. Of course, over time, the actual differential cost becomes less and less to where it ends with safety becoming a cost reduction, because companies planned better, operated better, were more attractive places to work, etc.
I believe this is much the same with ESG. I think we have to accept that there's going to be some impact on project cost. Projects are just another element of how a huge oil and gas company operates; and just as money is being invested in the operations side, investing in project ESG – for example reducing the carbon footprint – makes sense. So, we need to have a budget item for that, and track its cost and efficacy using our metrics. But if we do that, I think we should have no problem in making these initiatives a part of every project’s plan and budget.
Q: How do you feel the measures of project success are changing (with the increased importance of sustainability, emission reductions etc.)?
A: We've talked about how it actually could look at the project level. But if we take a helicopter view, it's quite interesting to see as in so many things, the pendulum swings all the way in one direction, then eventually it will start to swing back. We're seeing some of that now. For example, I was reading today in the paper about the COP28 conference and how attending the conference were some of the big supermajor’s CEOs. They were saying what they've always said, but now in person: 'We are part of the solution, we have the technology, the ability to fund and manage big projects, and we want this dialogue to happen.' And that's being reciprocated, they are increasingly part of the conversation now.
That helps a lot when you drill down to the project level, with projects more clearly seen as part of the solution. I think we will start to see projects being viewed at the executive level, at the investor level and at the public level in a more enhanced way, by considering how we are advancing ESG, and net-zero goals.
Q: Decarbonisation of industrial facilities in the Gulf Coast is a pressing challenge. What are some of the major opportunities and challenges you see in this transition to lower-carbon plants and projects?
A: Well, I'm sitting here in Houston, where I've been for most of my career, and certainly we are seeing things happen along the Gulf Coast that are quite revolutionary. It's not like this area is new to transformations – the deepwater Gulf of Mexico developments were quite revolutionary years ago, and of course, shale development was very transformative for the industry. Now I think we're seeing a similar transformation, where people aren't just talking about carbon capture, utilisation and storage – CCUS – they're already doing something about it. This is a place where you can make an economic justification for a large scale CCUS-type project. The same thing goes for direct air capture – DAC – just a couple of years ago, DAC was an idea met with a lot of scepticism. Of course, it is a new idea, it is risky and difficult to do at scale. And yet, this is something that's very actively being planned and developed here. Then, of course, you have LNG.
The Gulf Coast is a huge hub for LNG, and I think anybody who's interested in energy recognizes that LNG is a key part of the transition. The conversation has gone from 'Oh, well, natural gas is a bridge fuel, but there's other stuff that’s coming very rapidly', to the growing recognition that these other clean energy solutions are not coming quite as rapidly as we thought.
So, the big challenge is, of course, who pays for all this? If there's going to be an investment in the future for the planet, who exactly makes that investment, who pays for it directly and who pays for it indirectly? This has always been a question, but it's, it's becoming a larger and a more complex question now.
Q: Can you highlight any particular companies or projects which stand out as trail blazers in this endeavour in the Gulf Coast?
A: There's one that I'm very excited about, and that is the Houston Energy Transition Initiative (HETI.) This is interesting because it's an industry group that's gotten together owner/operators, academics, and the community as a whole. It's creating collaboration between these critical players to get all the best ideas and work the issues. They're looking at what we can do here in Houston, which has long been focused on energy and has a mature industry infrastructure with owner/operators, engineering companies, technology, research at universities, and finance. I feel that this is something that is going to make a huge difference and I’m hoping that we see models like this replicated in other similar places.
Q: What are some of the ways in which teams are creating greener construction sites?
A: I've come across a project that I think is a great example: the HS2 project in the UK. I understand it's a government-funded project with the goal of being the most sustainable high-speed rail in the world. HS2 is doing a lot to implement new low-carbon ideas such as green steel and green concrete. They're developing diesel-free construction sites, where, for example, you have electric cranes, and more use of batteries on the site, all of these relying on power from renewable sources.
Q: High capex costs are an issue currently and owners are struggling to find ROI comparable to conventional energy investments. Can project economics or new service models address this issue?
A: This is a great question. We're starting to see a lot of examples of what happens when you can't or don't address this issue. For example, there have been a lot of recent headlines about Orsted – one of the world's leading offshore wind power developers – having to pull out of a big project in New Jersey, because the power purchase agreements could no longer be met because of escalation and supply chain issues. Orsted had to take a huge charge to get out of the contract. And they're not the only ones by any means, this is a pattern. But we're going to continue to do these projects. There's more money, being invested now in renewable sources of energy than in conventional, so that’s a trend that is not going to stop.
But we still need to make these projects more profitable. One of the ideas that is often overlooked is portfolio synergies and economies of scale. We look at projects one at a time. But when you look at the scale of the energy transition around the world, you see that there are tremendous opportunities for economies of scale. For example, much of renewable energy is suitable for standardization – a wind farm or a solar park is very different from a refinery or chemical plant that must be engineered every time.
So, we have a lot of opportunities for synergies here. We have a lot of opportunities at the portfolio level to be able to finance green steel and green concrete manufacturers in a way that's not possible for a single project to do on its own.
I'm hoping at the upcoming conference, that’s one of the things that we can talk about, how can we bring projects together, even within a company or even within an industry sector to look at things at a portfolio level and use that to drive down costs. Portfolio synergies are also a great tool for the S in ESG. Imagine when you look at a portfolio of projects and you say: ‘We are going to set a goal around diversity, we are going to find ways to encourage new businesses or expanding small businesses to grow and operate on a much bigger scale, and in so doing provide opportunities for people who have not had those opportunities up to now’. Again, that's much easier to do on a portfolio basis than to ask a single project to take it up by itself. So, there's a lot to be done here and I'm hoping that we start to place more emphasis on that.
Q: What key advice would you offer to LNG Export plant developers looking to reduce the carbon footprint of their plants?
A: I’m not in a position to make technical recommendations. But I would say, based on my long participation in the industry, that it is great when our leaders get out in front of whatever the issue is and say: 'This is how we view this, this is what we intend to do about it and this is how we're moving forward to address it'. There's so much around LNG now and the events in the last few years have certainly made people see more clearly how LNG benefits the overall energy supply balance around the world.
I certainly don't mean to suggest this is not being done. But I would say that the more we can see our LNG developers being leaders, spokespersons, and visionaries for what our industry is doing, the better. This conference will be a great way to do that.
Richard's Book - the ESG planning guide for energy projects is available to buy here - Amazon