Many of us need a break from natural gas market mayhem, rolling blackouts, and frozen pipes, so we’re turning to a very different topic — at least for a day. ESG, or more specifically the environmental part of the too-important-to-ignore environment/social/governmental movement. The fact is, for many investors, lenders, and others who give heavy weight to ESG in their decisions, the companies that produce, process, transport, refine, and/or export hydrocarbons are automatically suspect. At the same time, though, it is broadly understood that crude oil, natural gas, and NGLs remain essential commodities, and that it could take decades for economies around the globe to significantly reduce their dependence on them. So, where does that leave hydrocarbon-centric companies in 2021’s ESG-conscious world? Today, we continue our series on ESG issues and how they relate to players in the energy industry.
In Part 1, we said that while the energy industry has been rebounding from a mostly dismal 2020, there is still a genuine hesitation (or worse) among many folks to invest in or lend to oil and gas producers and others of their ilk. It’s not just the industry’s historic volatility that’s spooking investors and lenders, it’s the unique social, political and financial pressures that hydrocarbon producers, oilfield service companies, midstreamers, and refiners face in demonstrating that they are addressing environmental, social, and governance issues. Like it or not (and some don’t), ESG has come to the fore in the U.S., Canada, and elsewhere, and will shape activity in the oil patch this decade and beyond. It’s a topic we’ve been digging into for some time — partly in response to the many inquiries we’ve been receiving from clients and subscribers.
As we said earlier, the E in ESG is of paramount importance to energy companies — they need to show investors, lenders, and regulators that their businesses are prepared to adapt to the changing social, political and marketing landscape, and are sensitive to the growing demands for environmental stewardship. By far, the leading environmental issue facing the energy industry today is greenhouse gas (GHG) emissions. We’ll discuss other environmental issues relating to ESG in a future blog. It should come as no surprise that GHGs are generated at pretty much every step in the production, delivery, processing/refining, and (especially) consumption of fossil fuels. To help in the measuring and tallying, many of the powers that be in the ESG world divide a company’s GHG emissions into three buckets:
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