O&G Climate Strategy - Paving the way towards a Sustainable Future
Climate risk is increasingly seen as an important factor when assessing future investment risk. Governments, industry players, investors, banks, insurance companies and other stakeholders are becoming more and more focused on all elements of the energy transition and the associated risks – including carbon emissions from different sectors’ value chains.
Read our special insight from Magnus Kjemphol Lohne, SVP and Head of Sustainability at Rystad Energy.
A noteworthy observation:
Leveraging Transparent Data and Granular Analysis for Sustainable Strategies
The oil and gas sector, which accounts for over half of global anthropogenic CO2 emissions, has come under substantial pressure to be more transparent on emissions and to implement measures to reduce its carbon footprint. While the transparency is still low in many regions, the trend is positive – more exploration and production (E&P) companies are reporting emissions data and are committed to cutting emissions through portfolio optimization, operational efficiency gains, carbon capture, utilization and storage (CCUS), and other decarbonization efforts.
Over the past couple of years, E&P companies have stepped up efforts to reshape their strategies for energy transition, including investments into low-carbon segments (diversification), decarbonization commitments, and emission reduction targets. Europe has been in the forefront of this development, followed by North America.
Data transparency and challenges
Over the past 6-12 months, an increasing number of E&P companies has started publishing emission data and decarbonization strategies – and many are also revising their existing plans in a more ambitious direction. Companies are also endorsing/committing to different initiatives at a brisk pace, for instance the World Bank’s zero routine flaring initiative.
This is a positive trend that allows for more transparency on decarbonization efforts. However, there are several challenges with the reported emissions data, chief among them that 1) the data is not sufficiently granular (most companies follow the GHG Protocol with Scope 1-3 emissions reported), and 2) boundary definitions are not uniform. These two issues make it difficult, if not impossible, to fairly compare and contrast emission performance based on pure reported data. Norway’s flagship oil and gas player Equinor has addressed these points implicitly by taking emission transparency to a new level, publishing field-level emission figures for both its operated and equity interest portfolio.
Rystad Energy emissions database
The mounting importance of climate risk means that industry players require tools to analyze the carbon performance of oil and gas companies and portfolios at even more granular levels. This cannot be done without a consistent and complete dataset. Rystad Energy has therefore over the past 10 years developed a global, field-level oil and gas emissions database, including currently producing fields, fields under development, and non-sanctioned discoveries.
The first phase of this database was made commercially available last year and focused on upstream emissions, incorporating all reported data in the industry, including well-level, field-level, company-level and regional-level data. It is continuously updated with the latest figures. In addition, Rystad Energy uses monitoring technology such as satellite images for flaring activity. Our emissions data is used in all key stakeholder segments, including E&P companies, banks, investors, insurance companies, governments, and research institutions.
In the second phase, which will be made commercially available in the second half of 2023, the emissions database will be expanded to include the rest of the oil and gas value chain: transportation, processing, refining, and end-use. This will enable our clients to estimate total carbon intensities from wellhead all the way to the market through unique paths. Full value-chain assessments also yield Scope 3 emissions, which we believe will become even more important in the years ahead. Scope 3 data has much the same challenges as Scope 1 emissions as the definitions and methods used in the industry vary widely, making it hard to fairly compare and contrast companies based on pure reported data. Rystad Energy’s methodology allows our clients to make apples-to-apples comparisons through the whole oil and gas value chain.