Climate change policies will continue to be an ever-growing topic of discussion in the oil & gas (O&G) industry over the next five to 10 years.
For example, US companies have already taken positive steps towards achieving a net-zero emissions goal.
Rinaldo Pereira, Business Fundamentals Analyst at GlobalData, commented: “When looking at key themes being discussed by O&G executives, ‘Environment’, ‘Climate Change’, ‘Energy Transition’ and ‘Carbon Emissions’ are all high up on the agenda.”
According to GlobalData’s report, most US independent companies have either acknowledged, implemented, or set specific targets and strategies to combat their emissions output by communicating their plans and initiatives to the public.
Other smaller independents who lack detail of specific targets or strategies tended to keep plans in-house.
Justin Allen, Upstream Analyst at GlobalData, added: “If the US is going to meet its target of net-zero by 2050, it will be crucial for the O&G industry to improve its emissions output over the next 20 to 30 years.
“While most companies have committed to becoming net-zero by at least 2050, issues remain, including flaring of natural gas, equipment malfunctions resulting in large oil spills, or natural gas leaks, and transport accidents,” he said.
Illustrating the problem, Poten & Partners has estimated that a 175,000 cu m LNGC will emit 250,000 tonnes of CO2 throughout its lifecycle.
One element, which is being increasingly mentioned in the LNG space, is carbon neutral cargoes.
Here, Poten estimated that over 1 mill tonnes of LNG had been traded with a carbon offset attached thus far but this is just a fraction of the amount of gas traded annually.
Most are single cargoes linked to long term contracts, as the pricing of the carbon neutral cargo becomes key.
S&P procedure
Currently, much time is being devoted to developing a separate product with a sale & purchase procedure that would satisfy internal approvals, Poten said.
At present, the cost per MMBtu varies, with most of this being shared between buyers and sellers.
For example, cargo offset deals from upstream to tank varies from 6 cents per MMBtu for offsets from renewable power to 13 cents per nature-based offsets.
For carbon neutral deals from upstream to end user, the cost varies between 27 cents per MMBtu to 50 cents for nature-based offsets.
In one transaction recorded by Poten, different shareholders from upstream to mid-stream, offset costs were shared between the upstream, the liquefaction interests and the buyers.
Sellers are trying to cut costs by opting for different de-carbonisation solutions, such as carbon capture and storage (CCS) and/or electric drives using onsite renewables, to reduce their carbon footprint.
Both Qatar Energy’s North Field project and New Fortress Energy (NFE) have CCS built into their operations, among others, while some West African projects are looking at renewable driven electric drives to power plants.
In Asia, buyers prefer supply tenders, while sellers would be competing on the best carbon offset solutions, as part of the future process, such as Pavilion Energy. Suppliers will have to bear the extra costs, especially in Asia/Pacific, Poten said.
One of the main questions is - how can the market evolve from one-off deals to mainstream transactions? At present there is very little transparency in pricing, as monitoring and verification prove difficult.
This could be long term problem, where there are 10-12 different offset solutions being looked at and there is no industry standard in place as yet, Poten warned.
