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Good Thing - High-Grading Crude Oil Production Assets to Reduce GHG Emissions

There’s a growing acknowledgment in the U.S., Europe and elsewhere that crude oil will remain an important part of our energy future for decades to come. At the same time, however, the drive to decarbonize will continue, and as part of that effort, oil producers will be working to ratchet down their greenhouse gas (GHG) emissions. A lot of that will be achieved through the purchase of carbon offsets or the use of carbon capture and sequestration (CCS), but another approach is for producers to “high-grade” their portfolios by divesting production assets that generate inordinately high volumes of carbon dioxide (CO2) and methane during production and investing instead in assets with much lower carbon intensity. In today’s RBN blog, we discuss the push by some producers to shift to “lower-carbon oil.”

In our recent Drill Down Report on the environmental, social and governance (ESG) movement, we said that while the all-out effort to slash GHGs as quickly as possible is being modulated to some degree to ensure energy security and affordability, there’s little doubt that governments, energy companies and others around the world will stick with their long-term plans to decarbonize. Hydrocarbon producers have a particularly tough row to hoe in that their products — crude oil, natural gas and NGLs — generate significant volumes of CO2, methane and other heat-trapping GHGs during their production, transportation, processing and (most of all) consumption. Still, that’s not stopping at least a few energy giants — companies like Shell, BP and Equinor — from committing to “net-zero” Scope 1, Scope 2 and Scope 3 emissions by 2050. Many others have committed to achieving net-zero emissions for at least their Scope 1 and Scope 2 emissions within that same time frame. [As we said in the Drill Down Report, Scope 1 emissions are GHGs directly caused by the facilities and equipment that a company owns or controls; Scope 2 emissions are “indirect” GHGs from the generation of electricity or steam the company buys from others to power their operations; and Scope 3 emissions are indirect GHG emissions that occur in the company’s entire value chain (including consumption).]

Given that crude oil, natural gas and NGLs are hydrocarbons literally composed of carbon (and hydrogen) atoms, substantial portions of energy companies’ GHG-reduction goals are likely to be achieved either by mitigating some of their emissions through the use of “nature-based” carbon offsets (see our A Matter of Trust blog series for more on those) or by capturing and sequestering CO2 in deep, specially designed wells (see our Way Down in the Hole series.)

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