The world’s biggest international oil and gas firms continue to pledge lower-emission operations to supply the world with the hydrocarbons it needs and will need in the future.
Unfortunately for Big Oil, not all basins and areas of production are equal, so companies have focused in recent years on investing in the most prolific operations that yield the most profitable oil with relatively lower emissions than in other locations.
To keep investors in the sector, the largest oil firms continue to tout their progress in reducing emissions. But to create additional value for shareholders via higher returns, companies are prioritizing specific basins and resources they believe will yield the cheapest-to-extract oil and natural gas in their portfolios.
In the era of ESG investment and the energy crisis following the Russian invasion of Ukraine, Big Oil is now juggling the need to keep producing oil and gas with the imperative to cut emissions if they want to continue to have a license to operate.
Despite the surge in renewable energy in recent years, the world still relies on fossil fuels for more than 80% of its energy needs.
“Strike The Right Balance”
Policies and companies need to strike the right balance between energy security and ways to cut emissions from oil and gas, ExxonMobil’s chief executive Darren Woods said at the CERAWeek by S&P Global conference last week.
“It would be a mistake to abandon any one of those objectives,” Woods added.
ExxonMobil targets to grow its Permian production to 1 million barrels per day (bpd) and, at the same time, reach net-zero emissions at its operated unconventional assets in the Permian by 2030.
“One of the points in doing that is to demonstrate to the world that we can do both,” Woods at CERAWeek.
Exxon is also one the least emission-intensive refiners in the world, the executive added.
If Exxon doesn’t make the diesel and gasoline the world needs, someone else – with higher emission intensity operations – will, and there wouldn’t be a net benefit for the world in terms of emissions abatement, Woods noted.
There is a recognition of how urgent the issue is and “how enormous the lift is,” he said. The solutions will vary according to the circumstances around the world, Woods said.
The other U.S. supermajor, Chevron, said on its Investor Day 2023 last month, “We’re making progress toward our upstream CO2 intensity reduction targets. We continue to prioritize the projects expected to return the largest reduction in carbon emissions cost efficiently.”
Chevron looks to advance more than 100 projects this year to lower the carbon intensity of its operations, focusing on energy management, flaring reduction, and methane management, among others.
“Our goal on methane is simple – keep it in the pipe.”
The New Advantaged Resources
Very productive fields and newer basins tend to be less emission-intensive per barrel due to the sheer volumes of production and new designs to make extraction in newer fields less carbon-intensive, by electrifying operations, for example, analysts tell The Wall Street Journal.
In the deepwater U.S. Gulf of Mexico and onshore Saudi Arabia, per-barrel production is among the cheapest and cleanest at the same time because the wells there are very productive, Julie Wilson, research director of global exploration at Wood Mackenzie, told the Journal.
Norway also boasts some of the lowest-emission barrels globally.
Operators offshore Norway have started to replace gas turbines with electricity from onshore – Norway’s electricity comes predominantly from hydropower – bringing down emissions from the newer oilfields.
For example, Phase 2 of the giant Johan Sverdrup oilfield will emit 0.67 kilograms (kg) of CO2 per barrel of produced oil, thanks to power from shore, operator Equinor says. The global average is 15 kg/barrel, according to the Norwegian major.
However, “truly advantaged resources, with low breakeven (resilience to low prices) and emissions (sustainability in scope 1 and 2 terms) are anything but plentiful,” Andrew Latham, Vice President, Energy Research at Wood Mackenzie, said in a recent report.
“The world is far from the end of the hydrocarbon era,” Latham said.
According to WoodMac’s base-case Energy Transition Outlook (ETO), oil demand peaks in 2030, before declining slowly to 94 million barrels per day (bpd) in 2050. Even in the Accelerated Energy Transition (AET) outlook of global net zero by 2050 and achieving the most ambitious targets in the Paris Agreement, oil demand will still be 33 million bpd by 2050.
“As things stand, we see enough to satisfy only about half of our base-case oil and gas demand forecast to 2050,” WoodMac’s Latham says.
“This problem of ‘peak advantage’ looms ever larger and presents a huge and urgent call to action. As recent supply interruptions serve to remind us, we neglect the upstream at our peril. Both oil and, in particular, gas will continue to need huge and sustained investment.”