Big Energy Companies’ New Pitch: ‘Carbon-Neutral’ Oil and Gas

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Tying up the barrel with a promise to capture carbon may make companies’ emissions figures look better, but critics say the practice could undermine the case for burning less fossil fuels.

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Royal Dutch Shell plc has been selling carbon-neutral liquefied natural gas for several years, while TotalEnergies SE sold its first shipment last year. Scandinavian offshore driller Lundin Energy AB says the oil it sells is now “carbon neutrally produced”. In the US, Occidental Petroleum Corporation

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Entering the market.

The companies say that combining conventional energy products with voluntary carbon offsets – guarantees that a certain amount of carbon emissions will be diverted or removed from the atmosphere through tree planting or other methods – will at least reduce fuel costs. Some may balance the emissions.

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On paper, products can improve carbon accounting for both buyer and seller. The oil and gas company can address the emissions it generates when customers burn its fuel, which is classified as Scope 3 emissions coming from end users. The buyer can claim that it addresses at least some of its Scope 1 and 2 emissions, or those produced from its own sources and its purchased energy – a boon for pollutants under pressure to decarbonize .

But the climate benefits are hard to confirm. Experts say the amount of carbon that the project stores could be overstated because the market lacks standardization and regulation. Annie Snelson-Powell, a lecturer in management at the University of Bath in the UK who researches corporate sustainability, said helping companies meet climate goals using fossil fuels could weaken the case for emissions cuts. could.

“Marketing fuel by claiming that it is carbon neutral is a risky strategy,” Ms Snelson-Powell said. He added that a “carbon-neutral” pitch carries the risk of reputational damage for companies.

“Investors are savvy and stakeholders are skeptical of large firms’ attempts to take advantage of the ‘green’ agenda, at a time when the negative effects of climate change are all around us,” she said.

The United Nations Scientific Panel on Climate Change has said the world should prioritize emissions reductions, although it acknowledged that offsetting and carbon capture may be needed to meet the goals of the Paris Agreement, a 2015 international agreement. The purpose of which is to limit global warming.

Energy companies that sell offsets say they are helping to develop an essential market for hard-to-decarbonize areas and are providing immediate climate solutions as technologies develop.

“It’s not a panacea and we wouldn’t call it green,” said Mehdi Chenofi, head of liquefied natural gas generation and market development at Shell. He added that offsets should be used only when avenues to reduce or avoid emissions have been exhausted.

The Anglo-Dutch energy giant began selling carbon-neutral liquefied natural gas in 2019, tying the sale to investments in projects that protect and cultivate forests.

Shell said last month that since 2019 it has sold 27 shipments of carbon-neutral LNG across the market, with Shell joining 14. Shell declined to say how much its carbon-neutral LNG costs. Columbia University’s Center on Global Energy Policy reported this year that the “green premium” from offsets adds to the price of LNG by about 6% to 9%.

France’s TotalEnergies first shipped carbon-neutral LNG late last year, investing in forest-conservation in Zimbabwe and a wind-power project in China designed to displace coal power. Britain’s BP plc doesn’t bill its product as carbon neutral, but made the first shipment of LNG bundled with forestry offsets this year.

“Buyers of fuel are often tied to emissions targets and are therefore willing to buy ‘carbon neutral’ oil or gas products to use,” said Tarek Soliman, an equity and climate-change research analyst at HSBC Holdings Plc. Oil and gas companies stand to gain expertise by helping them improve their reputation, differentiate and decarbonize their products, he said.

What offsets cover and how oil and gas companies calculate profits vary. Shell, Total Energy and Occidental said they included enough offsets to cover the life cycle of their fuels, which includes emissions during production, transportation and burning. BP covered production and transportation and Lundin covered production, but neither covered emissions from burning their fuel. Lundin, Shell, TotalEnergies and BP said they used their own analysis to determine how much offset would be needed, while Occidental said financial-services giant Macquarie Group Ltd.

helped with the work.

Shell and Total Energy are among companies working with an international group of liquefied natural gas importers to develop a framework for carbon-neutral LNG, which is expected to be released in November and allows companies to offset emissions and offsets. will encourage sharing of more data.

Scandinavian offshore driller Lundin said this year it was the first to sell certified “carbon-neutrally produced” oil, which was verified by London-based Intertek Group plc under its CarbonZero certification. Intertek says Lundin’s offsets cover emissions generated during oil production, but not when it is transported and burned.

Lundin shipped its first barrel of carbon-neutrally produced oil in April, saying it now represents about 60% of its daily output.

It has paid for reforestation projects in Mexico and Ghana, about 15 euros, equivalent to $17.36, per metric ton of stored carbon dioxide, which costs about 1 to 10 cents a barrel. This was higher than the 2019 average price of $3 per metric ton, according to the Taskforce on Scaling Voluntary Carbon Markets. Lundin says that’s because the company paid for high-quality projects it believes are likely to store the promised amount of carbon.

Lundin chief executive Nick Walker said the offset is a small price compared to the company’s continued effort to convert its offshore drilling rigs to run on renewable energy by 2023, which will reduce the carbon emissions involved in making oil. and it means less offset is needed in future. . He said Lundin expects offset costs to drop further as it is now funding projects directly.

He also said that customers are willing to pay premium for oil with offset and Lundin has secured new customers with its offering. “We know we are over-competitive in the market because of this,” Mr. Walker said.

Earlier this year, Occidental made its first shipment of what’s called a carbon-neutral oil. Macquarie helped calculate that the offsets, which include solar, wind, thermal and energy efficiency projects, cover all emissions spread across the production, transportation and burning of oil.

Anthony Cotton, senior director of the company’s Oxy Low Carbon Ventures unit, said Occidental eventually wants to sell “net-zero oil” going forward, which will involve paying energy customers for machines that suck carbon dioxide from the air. Direct-air-capture technology does not exist on a large scale and thus removing carbon dioxide is currently several times more expensive than in forestry. But it holds the promise of locking the carbon in place more reliably and for a longer period of time.

Mr Cotton said the company’s 1PointFive carbon-capture unit plans to open plants in the US Permian Basin in 2024 that will capture up to one million tonnes of CO2 per year. Occidental is also a shareholder in direct-air-capture startup Carbon Engineering Ltd.

“That’s where we’re headed from a carbon-management standpoint,” said Mr. Cotton, referring to carbon-capture services. “Think of it like a waste management company.”

Dieter Holger at [email protected]

improvement and amplification

Lundin Energy plans to convert its offshore drilling rigs to run on renewable energy by 2023. A previous version of this article incorrectly stated that the plan was to do so by 2025. (corrected October 12)

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