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The magazine for oil and gas professionals in the energy transition

March 2021 – open access articles The following articles are taken from Petroleum Review magazine’s March 2021 edition for promotional purposes. For full access to the magazine, become a member of the Energy Institute by visiting www.energyinst.org/join


Energy transition

CARBON TRADING

Carbon trading leaps forward

Will participants at COP26 push for expansion of emissions trading systems or stick with those in place? asks Nnamdi Anyadike in a round-up of carbon trading initiatives worldwide.

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ater this year, the major nations are set to lay out the first practical measures to meet targets necessary to cut emissions to net zero, as part of commitments under the Paris Agreement. Binding commitments are expected to be made at the UN Climate Change Conference in Glasgow, COP26, to be hosted by the UK and Italy in November 2021. The big question, however, is whether they will go for an expansion of the various emissions trading systems (ETS) that are already in place or push for more carbon taxes. Since 2005, the European Union (EU) has plumped for reducing emissions through an ETS. This carbon market covers about 22% of global emissions. It is currently the biggest of the World Bank’s estimated 46 national carbon pricing schemes that are either in operation or in the planning stage plus 32 regional systems within countries. The scheme is mandatory for all 27 EU members as well as Iceland, Liechtenstein and Norway. It covers power plants, aviation and energy intensive industries. Frans Timmermans, Head of EU Climate Policy, says that the bloc’s ETS has already proven its efficiency in curbing emissions, by achieving a 35% drop in carbon emissions from participating power plants and factories. 12 Petroleum Review | March 2021

Voluntary carbon markets The argument in favour of carbon markets as a means to curb emissions is supported by many, though not all, in the energy industry. In a recent report, global consulting firm McKinsey outlined the key advantages of voluntary carbon markets to help companies supplement their emissionsreduction efforts and finance climate action. ‘A large, effective voluntary carbon market would help increase the flow of capital to these projects, and thereby play a critical role in reaching net zero and net negative emissions goals,’ it said. Last September, the Institute for International Finance (IIF) established a private-sector Taskforce on Scaling Voluntary Carbon Markets. Its ambition is to create a blueprint for building a voluntary carbon market of unprecedented scale, while ensuring it is transparent, verifiable and robust. Expanding the EU ETS Proposed changes to the EU carbon market this year could involve more sectors, such as building, shipping and road transport, and curbing the free permits given to EU industry. It is also likely to include higher 2030 targets to boost renewables and energy efficiency. In June 2021, the EC plans to propose the draft EU legislation

needed to achieve the 55% target – agreed by EU ministers last December – as part of its European Green Deal strategy to make the EU climate neutral by 2050. A proposed carbon border tax (CBT) aims to reduce the risk of carbon leakage due to higher carbon prices and to shield EU carbon-intensive industries against cheaper imports from countries with laxer climate policies. Options being considered include a new carbon customs duty/tax on certain carbon-intensive products/sectors; a carbon tax at consumption level; purchasing allowances from an import-dedicated pool; or extension of the EU ETS to imports. The CBT would most likely be levied on goods from countries that do not put an equivalent price on carbon and would be linked to pricing in the EU ETS. Essentially, it would need to comply with World Trade Organisation rules and other international obligations of the EU. Steel and building materials, which are also among the highest emitters, would most likely be pilot industries in the implementation phase. UK mulls post-Brexit options Meanwhile, the question of where the UK stands with regards to any potential future alignment with Europe on climate policy, and in particular with the EU’s ETS, currently remains unanswered.

Cutting carbon emissions by extending carbon pricing schemes is a priority for COP26 Source: Getty Images


Energy transition

On 31 December 2020, the UK left the ETS, along with the other EU institutions to which it had been a member. The UK has already started preparations to launch its own ETS, which the government said should be up and running in the second quarter of this year. However, the lack of certainty about an alignment strategy with the EU has raised concerns from within the energy industry. The sector particularly fears the imposition of an emissions tax, arguing that tradable credits are the most efficient way to cut pollution. Last November, the world’s leading energy companies and energy trading associations wrote to Prime Minister Boris Johnson urging him not to implement an emissions tax after the Brexit transition ends. Also unknown is whether the UK will introduce a CBT, similar to the one currently being drawn up at EU level. There are concerns, with Shane Tomlinson, Deputy CEO at E3G, for example, noting that given the country’s ambitious climate target, the UK could be tempted to impose its own carbon border tax on the EU ‘in retaliation’, which would be a worst-case scenario and potentially ‘catastrophic’ to the delivery of climate change objectives.

Yet despite these warnings, UK Chancellor of the Exchequer Rishi Sunak has hinted that he could move in the direction of a swathe of carbon taxes to shore up dwindling tax revenues. The Institute for Fiscal Studies estimates the UK will need to find £40bn/y by the middle of the next decade to stop the debt spiralling. Should the UK’s carbon tax go ahead, it would be broadly calculated on the average EU ETS price in 2021 and 2022. As of end2020, the EU ETS price had risen to above €27/t of CO2, from less than €5/t CO2 emitted in 2017. Canada implementing carbon tax Meanwhile, despite its earlier reticence, Canada now looks likely to implement a carbon tax as part of its climate policy. This follows the plan presented by Prime Minister Justin Trudeau’s government in early December 2020. This would imply a carbon tax of $C170/t CO2 by 2030, equivalent to a tax of 40 Canadian cents/litre of petrol. The current tax is $C30/t CO2, equivalent to a tax of 7 cents/litre of petrol. Prior to the presentation of the plan this had been set to rise to $C50/t CO2 by 2022. The government hopes to soften the blow by ensuring that only the

biggest industry emitters will pay more. The plan is to return a lot of the money to taxpayers, similar to what is already done in provinces such as Alberta and Ontario that have declined to impose their own carbon tax. According to Canada’s Globe and Mail by 2030, a family of four in Ontario ‘can expect to receive $C2,000 in refunds’ while the same family in Alberta ‘could get $C3,200’. Japan to launch carbon pricing system Japan, which is committed to a carbon neutrality goal by 2050, aims to introduce a carbon pricing system before COP26. This follows the unveiling of the government’s strategy outline at the end of last year by Prime Minister Yoshihide Suga, when he also pledged his country to work more closely with the US government’s new administration to cut CO2 emissions. However, neither carbon pricing nor cap and trade were mentioned at the strategy launch, nor were any concrete renewable targets. As Masahiro Sugiyama, Associate Professor at the Institute of Future Initiatives at the University of Tokyo, opined in the East Asia Forum Organisation

Other carbon pricing schemes China: Ever since President Xi Jinping announced in September 2020 that China would become carbon neutral by 2060 there has been expectation that it would launch a national ETS – building on the success of its regional schemes – possibly this year. Pilot schemes were conducted in provinces and cities including Beijing, Chongqing, Guangdong, Hubei, Shanghai, Shenzhen and Tianjin. They cover energy production and various energy-intensive industries. However, a national system, if launched, would become the world’s largest, and is expected to cover several billion tonnes of CO2 from power plants each year. India: At the end of last year, Carbon Pulse reported a senior Indian government official as saying that his country was considering setting up a domestic greenhouse gas (GHG) emissions trading scheme. India’s carbon market is already one of the fastest growing markets in the world and has already generated approximately 30mn carbon credits, the second highest transacted volumes in the world. The big question though that was left unanswered at COP25 in Madrid in 2019 is whether it will have the right to sell these old carbon credits or certified emission reductions (CERs) that it had accrued under the earlier Kyoto Protocol. Australia: Companies are buying up Australian carbon credits at an increasing rate, in what is thought to be a bet on future international regulations. Market Advisory Group Managing Director Raphael Wood says the investment in Australian carbon credits is ‘doubling every year, albeit off a low base’. Russia: Russia is understood to have set ambitious targets for a low carbon future, with Ruslan Edelgeriyev, an adviser to President Vladimir Putin on climate change issues, reported to have said: ‘Russia is ‘actively advocating for the creation of a national greenhouse gas emissions trading system.’ Brazil: In 2020, Brazil launched new private and public policy carbon pricing initiatives. This followed a widespread ETS simulation exercise conducted by 29 companies in 2018. Trading takes place through the Rio de Janeiro Green Stock Exchange (BVRio). Mexico: A three-year pilot ETS scheme was launched in 2020, covering the power, oil and gas, and industrial sectors. New Zealand: New Zealand’s ETS began in 2008 and covers electricity generators and manufacturers’ liquid fossil fuels including petrol and diesel. South Korea: Starting in 2015, South Korea’s ETS covers around 600 of the biggest emitters, collectively responsible for almost 70% of the country’s annual emissions. US: The US does not have a national ETS, but many regions and states use carbon pricing, such as California and states covered by the Regional Greenhouse Gas Initiative (RGGI). President Joe Biden has pledged $2tn to tackle climate change and cut emissions. ● Sources: World Bank Group, International Carbon Action Partnership, Reuters

Petroleum Review | March 2021 13


Energy transition

recently, the lack of detail could present opportunities for stakeholders to provide vitally needed input. Two key issues stand out. First, unlike Europe and North America, there is less potential for a renewable energy mix dominated by wind and solar power. Renewables are less abundant in Japan and more costly than either in the EU or the US. This means that Japan is likely to continue to favour nuclear power as an alternative, which will remain a ‘significant share’ of the mix until at least 2050, he said. Second, Japan’s heavy industry is one of the most difficult sectors to decarbonise. ‘The final energy and CO2 emissions of Japan’s heavy industry sector are significant and render Japan closer to those of the G20 average than the G7 average,’ said Sugiyama. COP26 prospects The ‘holy grail’ for COP26 and beyond is the establishment of a single, global price on carbon. However, this remains a distant prospect according to David Hone, Chief Climate Adviser at Shell, which uses an internal carbon price to help meet its own sustainability goals. The average global carbon price, according to the International

Monetary Fund (IMF), is only $2/t CO2, but the spread is huge. Carbon prices in Asian countries range from about $1/t CO2 in some of the sub-national pilots of ETS in China to $29/t CO2 in the Korea ETS. Meanwhile, the EU ETS endDecember 2020 price of above €27/t CO2 is deemed by many analysts to be still way too low to provide industry with the necessary push toward investing

in emissions-cutting technologies like hydrogen. The IMF suggests a price of $75/t CO2 by 2030. While Mark Lewis, Chief Sustainability Strategist at BNP Paribas, argues that the price would need to be around €90/t CO2 ($107/t CO2) by 2030 to have the desired effect. COP26 will be watched with interest when it comes to the thorny issue of carbon pricing. ●

Figure 1: Carbon market showing positive feedback Source: imatteryouth.org

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Energy transition

CARBON OFFSETTING

Moves to embrace carbon offsetting The oil and gas sector is under growing pressure to reduce carbon intensity. Dan Carter, Global Technical Leader, Oil and Gas Consulting, Wood, examines recent carbon offsetting initiatives.

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hile 2020 will undoubtedly be remembered as the year when COVID-19 turned our world upside down and forced us to adopt drastic changes in how we live and work, it was also a year that saw some encouraging progress made around the climate agenda. The lockdown measures introduced resulted in a 7% year-on-year drop in global carbon emissions, while some of the world’s largest economies, including China, Japan and South Korea, joined the UK and the EU in formally committing to a net zero emissions goal. With the new US President Joe Biden signalling an intent to introduce a similar goal, we are approaching a point where the countries responsible for two-thirds of the world’s total CO2 emissions are now working towards a net zero target. This will have big implications for the oil and gas industry, which is already under growing pressure to reduce the carbon intensity of upstream and downstream activities and the resultant impact of the products they produce. Many operators are stepping forward with their own decarbonisation commitments, particularly around Scope 1 and 2 emissions as they seek to preserve their licence to operate and secure a commercial edge ahead of the expected roll-out of stronger carbon tariffs over the coming years.

Shell is investing $300mn, over three years, on planting more than 5mn trees in the Netherlands and Spain Photos: Shell

Solutions for a net zero world While decarbonisation is clearly a business imperative for the industry, developing a credible roadmap towards net zero is a hugely complex challenge that requires multiple levers to be pulled as part of a blended solution.

process of verifying emission reduction at a project level has proved challenging. Similarly, the methodologies and standards for defining carbon offsets, and the rigour with which these standards are enforced, are not yet set in stone, although they continue to improve each year. Last summer, the Taskforce on At Wood, we are helping clients Scaling Voluntary Carbon Markets across multiple end-markets to (TSVCM) was set up and promptly tackle this very problem using our launched a consultation process proprietary decarbonisation SCORE to assess how the governance of methodology (see Figure 1). In this the market could be improved instance, SCORE is an acronym that and then expanded to meet an refers to the range of options we anticipated surge in demand from find are typically available when it sectors as diverse as aviation, comes to designing a pathway to energy and construction. Recent net zero. analysis by Trove Research forecast that the voluntary carbon market • Substitute: Switch fuel or could increase from $0.4bn/y in feedstocks to renewable or less 2020 to $10–25bn/y in 2030. While carbon intensive sources, eg a study from Vivid Economics on switching electricity provision behalf of the UN PRI (Principles to a renewable source or for Responsible Investment) considering the use of found that revenue from negative renewable and bio feedstocks. emissions or carbon offsets could reach $1.4tn/y by 2050. • Capture: Employ carbon Some of the key elements being capture or emissions control addressed through the TSVCM technologies to substantially consultation include defining the reduce or eliminate harmful principles and processes that will emissions. help improve and standardise • Offset: Consider assets or the environmental integrity of product portfolios on a country carbon offsets. Also included is or company-wide scale and the standardisation of contracts explore opportunities to and information systems that compensate in other areas drive greater transparency, and a for the carbon emissions that solution around how to deal with cannot be easily removed. legacy credits in the market that no longer meet today’s environmental • Reduce: Adopt a holistic approach to asset optimisation, standards. Removing (‘retiring’) carbon credits from offset markets, including energy efficiency, avoiding the potential for multiple digitalisation and smart organisations to purchase the maintenance strategies to same credits, is a crucial element avoid potential emissions at of the process. The UK Woodland source. Carbon Code, for example, offers • Evaluate: Apply a structured the purchase of carbon units via and on-going evaluation the UK Land Carbon Registry. process to drive continuous improvement towards net zero. Typical offsetting approaches While there is still on-going work to build maturity in the system, Offsetting opportunity Offsetting is one part of the SCORE there is already an active market approach and is an area that many in place. In simple terms, carbon offset mechanisms typically fall corporates, including oil and gas into two categories – solutions that operators, are exploring as part remove CO2 from the atmosphere of their overall decarbonisation strategy. While the market for or solutions that reduce CO2 carbon offsets has existed for over emissions. a decade, it is still an evolving One of the most common discipline. options that energy majors are The EU Emissions Trading adopting is reforestation, with Scheme (ETS), for example, companies including Shell, includes mechanisms to generate BP, Total and many others all carbon credits via investment in providing capital and building developing economies. However, partnerships with NGOs to launch the range of projects excludes tree-planting programmes to help agriculture and forestry and the offset their Scope 3 emissions. Petroleum Review | March 2021 15


Energy transition

In the water sector, the use of tree planting to assist water quality and catchment management issues offers wider benefits due to natural carbon sequestration. Infrastructure projects, such as in the power sector, are increasingly seeking biodiversity gains when managing the impact of construction work on local habitats. When carried out effectively, these works can also provide carbon offset benefits.

Figure 1: Wood’s decarbonisation SCORE methodology to build a path to net zero Source: Wood

As an example, over the next three years, Shell will invest $300mn to plant over 5mn trees in the Netherlands and Spain, and support forest regeneration in Australia and future conservation activities in Malaysia. Similarly, Saudi Aramco has pledged to plant 1mn trees in the Kingdom by 2025; Equinor is purchasing 1mn tonnes of CO2 of tropical forest offsets from Emergent; and Eni plans to plant 20mn acres of forest in Africa to serve as a carbon sink. There are other good examples that showcase the breadth of future opportunities that exist within this market. Shell is investing in electric vehicle battery charging stations and a fuel programme that will enable drivers to offset the carbon pollution from their tailpipes; BP has invested $5mn in carbon management company Finite Carbon to generate its own voluntary carbon market for businesses; and several companies are investing in carbon capture and storage (CCS) technologies.

enable both demonstrable carbon reduction, while offering the chance for staff to volunteer their time in support work. In Scotland, brewing company BrewDog is a good example of a brand that has taken a structured and wide-ranging approach to decarbonising its portfolio. As well as switching to more sustainable energy sources to power its production and retail activities (breweries and bars), it also took the bold step of purchasing over 2,000 acres of land in the Scottish Highlands. Some 1,400 acres will be used to create the BrewDog Forest, while the remaining 650 acres will be allocated for peatland restoration. As well as sequestering carbon from the atmosphere, the land will also provide a natural habitat for wildlife and a nature reserve that future generations will be able to access and enjoy. The BrewDog Forest initiative is a key part of the company’s longer-term goal to remove twice as much carbon from the atmosphere as it puts in. Another good example of a Lessons from other industries local initiative is a case study While the carbon offsetting market from the residential construction is still relatively nascent across market where a housebuilder the board, there are some best-inset a goal of creating a carbonclass examples in other industries neutral development. Faced with that showcase how offset the challenge of being unable solutions can be applied to not to address all of the embodied only reduce carbon emissions but carbon that is inherent within the also deliver wider environmental construction of new homes, the and community-related benefits. company took the decision to offset In many cases, organisations are this carbon by retrofitting some of looking for local initiatives that the existing housing stock it owned. 16 Petroleum Review | March 2021

Why the cynicism? Although the oil and gas industry’s use of carbon offset solutions is ultimately helping to reduce CO2 levels, which everyone agrees is urgently needed, it has been met with a degree of cynicism in some quarters. Sceptics voice concerns that offsets are a means by which oil and gas companies can carry on ‘business as usual’ activities rather than accelerating the required shift to cleaner energy solutions. There is also a perceived risk that it could end up offshoring carbon emissions to geographies with less stringent emissions reporting requirements. In our experience, a more nuanced view is required – offsets on their own are not a sustainable solution that will help the world to achieve the goals set out within the Paris Agreement. However, where they are used as the last resort within a hierarchy of measures, then they have an important and valid role to play. Any organisation will have a finite amount of capital in which to support decarbonisation ambitions. As national carbon budget restrictions tighten, and costs of carbon increase, so the need for cost-efficient decarbonisation underpins our ability to deliver affordable power, heat and transport. In this context, offsets offer important flexibility that enables limited market investment to be targeted in areas where alternative solutions are technically and commercially viable and which ultimately help to deliver the greatest levels of CO2 reduction. As we set out on the long and challenging road to net zero, we need every tool at our disposal. We should welcome the maturing of the carbon offset market and view it as an important element of the journey. l


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Energy transition

CARBON EMISSIONS

Sizing carbon footprints The carbon emissions footprint, or CO2 intensity, of E&P companies varies significantly, reports Jon-Erik Remme, Product Manager Emissions Solution, Rystad Energy.

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missions of CO2 from upstream players have become a key competitive metric in an industry in which capital, investors and, in some regions, a social licence to operate, hang in the balance. Indeed, the environmental ‘E’ in ESG is seen as a leading indicator of the robustness of exploration and production (E&P) companies in the face of the energy transition, and particularly in terms of direct emissions from sources that are owned or controlled by the operator – known as Scope 1 emissions. Rystad Energy analysed the upstream CO2 footprint from sources that are owned or controlled

by each of the E&P companies that published emission reporting for 2019, releasing the findings in November 2020. Their global CO2 intensity average (gross operated CO2 emissions divided by gross operated production) is calculated at about 17 kg/boe, but the estimate for all operators (including those that do not report) is 18–19 kg/boe. However, as shown in Figure 1a, the carbon emissions footprint varies significantly – ranging from less than 5 kg/boe to well above 100 kg/boe, although the vast majority of operators fall in the 10–40 kg/boe range. (Note: only CO2 is addressed, other greenhouse gases are not assessed here.) At field level, the variations in CO2 intensity are even higher, and the global transaction market has been rife with mature assets, typically with high carbon intensity. Figure 1a also illustrates the differences across supply segments. The operators are grouped here by

a

b

c

d

the dominant supply segment share of the company portfolio in 2019, and although this is a somewhat crude metric, some key observations can be made: •

Onshore producers are clustered in the upper half of the chart with higher carbon intensity, on average.

Offshore producers are scattered, some performing in the low emitter category, others in the highest.

Shale producers dominate the lower half of the chart, with a lower average CO2 intensity.

There are numerous outliers in each segment, underlining the need for an operator-byoperator (or even field-by-field) overview and analysis.

The variation across supply segments prompted a further

Figure 1*: Reported 2019 upstream CO2 intensity by a) operator type (in kg CO2/boe); b) operator offshore, c) shale operator and d) operator in conventional, onshore and oil sands (b, c and d in kg CO2/boe on x-axis and % flaring of upstream CO2 emissions on y-axis) *Chart only gives overview of operators that have published 2019 emissions number where it is possible to disaggregate upstream performance. Rystad covers 3,200 operators worldwide. Source: Rystad Energy

18 Petroleum Review | March 2021


Energy transition

breakdown of each category and analysis of the best-in-class performers. To eliminate smaller, single-asset operators, a cut-off was set, assessing only operators with more than 150,000 boe/d in gross operated production. In Figure 1b–d, the degree of emissions from flaring is shown on the y-axis as a percentage of the total reported emissions. Some operators report this directly, while satellite estimates at field-level has been applied for operators that do not disclose flaring emissions separately. Offshore focus In the offshore segment, see Figure 1b, which has an average intensity of approximately 17 kg/boe, the three performers with the lowest CO2 intensity were Neptune Energy, Sakhalin Energy Company and Aker BP. Neptune has electrified its Gjoa platform off Norway and has an overall gas-heavy portfolio, setting the company well on track to reaching its target of 6 kg of CO2 per boe in 2030. Also on the podium is Norway-based Aker BP, which has low-emission solutions such as electrification as a key focus. The company’s Valhall and Ivar Aasen fields are prime examples, obtaining the necessary operating power with close to zero emissions. Sakhalin Energy, a Russian consortium consisting of Gazprom, Shell, Mitsui and Mitsubishi, produces oil and gas (roughly onethird liquids) from a challenging subarctic environment off the north-eastern coast of Sakhalin Island. Sakhalin Energy has had a strong focus on emissionsreducing initiatives, including measures to cut equipment downtime and shorten shutdowns, which has led to a dramatic decrease in flared gas. Output from the underlying fields is also close to peak production, which enables the operator to be among the bestin-class offshore. For offshore operators with production above 1mn boe/d, Equinor is the frontrunner, boasting an average intensity of about 9 kg/boe for all production. The company’s ambition is to reduce the operated intensity to below 8 kg/boe by 2025. Shale space In the shale space, shale gas players (marked in light red on Figure 1c) consistently score lower than shale oil players on both flaring and overall emissions. The three best performers are Antero Resources, EQT Corporation and Range Resources – all with a production

intensity of around 6 kg/boe. Emissions from these companies also include estimates for emissions from gathering and boosting, as some may rely on third-party providers. Focusing on the shale oil players, Concho Resources has the lowest intensity, at approximately 9 kg/boe produced. Onshore operations Figure 1d focuses on operators with a majority of onshore production. Oil sands are marked in brown, conventional in green. Saudi Aramco, Lukoil and Vermilion Energy all performed well in terms of CO2 intensity in 2019 and are the three lowest in this overview, with CO2 intensities in the range of 10–15 kg/boe. Saudi Aramco benefits from hosting large field developments with stable production output and low amounts of associated gas, which helps drive down the emission intensity to 10 kg/boe.Vermilion followed, with about 11 kg/boe; and Lukoil with 12 kg/boe. The oil sands segment has a more energy-intensive extraction process, and as long as this process is fuelled by fossil fuels without carbon capture and storage (CCS), the companies in this segment will be on the higher end of the spectrum. There are variations between in-situ and surface mining in terms of emissions, and also in the vintage of technology applied. Looking beyond the performance criteria that are driven by differences in extraction method, some observations can be made across supply segments:

Looking ahead As global hydrocarbon production fell in 2020, a drop of 5–7% in absolute upstream emissions is estimated year-onyear. In terms of intensity, it is a little more complicated. Countries like Russia, the US and Saudi Arabia account for a large amount of the latest OPEC+ production cuts, and their emission intensity is estimated to be lower than the global average, which in turn has the effect of increasing global emission intensity. However, Libya, Iraq, Venezuela, Nigeria and Canada have also had a strong decrease in production, with an average intensity significantly above the global average, which is reversing this effect. To complicate the picture even further, gas production has taken less of a hit than oil production during the coronavirus pandemic. Generally, gas production has lower emission intensity than oil production, indicating a lower overall emission intensity. Taking all these effects into account, our overall estimates so far indicate that CO2 intensity in 2020 is set to go marginally down on a global level. In 2021, it is expected that emissions in absolute terms will rise once again as production levels are forecast to increase, but neither production nor emissions are expected to go back to 2019 levels. ●

Flaring is a key differentiator between companies, with the best performers tending to have low flaring volumes relative to marketed hydrocarbons.

Mature assets tend to have higher upstream CO2 intensities, driven by a combination of stable to higher energy consumption on site, lower production output, and older technology applied.

Fields and companies dominated by gas production tend to have lower upstream CO2 intensities.

Granular risk assessments Individuals and companies with an interest in the oil and gas industry are continuously being challenged on topics relating to carbon emissions in today’s market. And, as can be observed in the reported figures, the upstream CO2 emission performance varies significantly between companies and fields, yielding a very inhomogeneous risk among the various companies. To help navigate these risks and adjacent opportunities, Rystad Energy argues that upstream CO2 emissions need to be fundamentally analysed and understood at a more granular level within the oil and gas segment than is typical for other industries. Sorting operators into geographical segments based on the location of their headquarters, it is apparent that European operators have placed greater emphasis on reporting emissions than have operators from other regions. More than 90% of significant operators in Europe had disclosed their emission statistics for 2019 by November 2020, while the corresponding percentage for North American operators was below 50% and for E&Ps from other parts of the world was below 25%. We have also observed that while European E&Ps have been more focused on these topics in recent years (as evidenced by the high share of reporting) and are deep into mitigation strategies, US-based companies are generally lagging behind, albeit with several notable exceptions. There was, however, a notable increase from 2018 to 2019 in the number of operators reporting emissions in the US. We believe this trend will continue in the years to come, as investors and the financial community continue to push for more disclosure, more ambitious emission reduction efforts and a more transparent assessment of risks. ●

Petroleum Review | March 2021 19