A Matter of Trust, Part 4 - Adding Structure and Credibility to Carbon Offsets

In the recently fervent efforts of oil and gas companies to mitigate their environmental impact and improve their standing with investors and lenders, they are progressively striving to cut their own emissions of greenhouse gases and to offset the GHG emissions that are unavoidable through the use of carbon credits. Cutting emissions from well sites, pipeline operations, refineries, and the like won’t be easy or cheap, but at the least the results are measurable and provable — before, we emitted X, and now we emit X minus Y. The true value of voluntary carbon credits is more difficult to calculate. Sure, each credit is said to equal one metric ton of carbon dioxide or its equivalent, but how do you really measure with any certainty how many metric tons of CO2 will be absorbed by 1,000 acres of preserved forest in Oregon, or how much methane won’t be produced by changing the diet of 1,000 cows in Wisconsin? And how can you be sure that slice of Oregon wouldn’t have been left in place anyway, or that the dairy farmer has actually changed what he’s feeding his herd? In today’s RBN blog, we look at voluntary carbon credits, concerns about their validity, and ongoing efforts to ensure that they actually accomplish the goal of GHG reductions.

Only a few years ago, companies in every part of the oil and gas industry were trying to wrap their heads around the Shale Revolution and what it would mean for them. Producers were grappling with how to fine-tune their drilling and completion techniques to wring more crude oil, natural gas, and NGLs out of their rock. Midstreamers were repurposing existing pipelines and building new ones to accommodate mammoth production growth in the Marcellus/Utica, Bakken, and other fast-growing shale plays. Refiners were looking at crude-slate changes and physical alterations to their facilities to make fuller use of the light sweet crude the U.S. was suddenly producing in abundance.

Now, in addition to coping with the energy-market dislocations associated with COVID-19, these same companies are educating themselves about ESG-related issues and establishing aggressive goals for reducing their GHG emissions — with some even aiming to become entirely “carbon-neutral” by mid-century. As we said in Part 1 and Part 2 of this blog series, a growing number of market players have been dipping their toes in these ESG waters by offering shipments of carbon-neutral LNG, crude oil, and LPG, where every metric ton (MT) of CO2 emitted during production, processing, shipping, and end-use consumption is said to be matched one-for-one with an MT of independently verified, “nature-based” carbon offsets. In Part 3, we discussed efforts by a number of U.S. and Canadian midstream companies to reduce GHG emissions from pipelines by, among other things, switching from gas to electric compressors, developing solar projects to power their operations, funding projects to reducing emissions elsewhere — and acquiring carbon credits.