Sizing carbon footprints

The carbon emissions footprint, or CO2 intensity, of E&P companies varies significantly, reports Jon-Erik Remme, Product Manager Emissions Solution, Rystad Energy.

Emissions of CO2 from upstream players have become a key competitive metric in an industry in which capital, investors and, in some regions, a social licence to operate, hang in the balance. Indeed, the environmental ‘E’ in ESG is seen as a leading indicator of the robustness of exploration and production (E&P) companies in the face of the energy transition, and particularly in terms of direct emissions from sources that are owned or controlled by the operator – known as Scope 1 emissions.

Rystad Energy analysed the upstream CO2 footprint from sources that are owned or controlled by each of the E&P companies that published emission reporting for 2019, releasing the findings in November 2020. Their global CO2 intensity average (gross operated CO2 emissions divided by gross operated production) is calculated at about 17 kg/boe, but the estimate for all operators (including those that do not report) is 18–19 kg/boe. However, as shown in Figure 1a, the carbon emissions footprint varies significantly – ranging from less than 5 kg/boe to well above 100 kg/boe, although the vast majority of operators fall in the 10–40 kg/boe range. (Note: only CO2 is addressed, other greenhouse gases are not assessed here.)

Figure 1*: Reported 2019 upstream CO2 intensity by a) operator type (in kg CO2 /boe)

Source: Rystad Energy

Figure 1*: Reported 2019 upstream CO2 intensity by a) operator type (in kg CO2 /boe); b) operator offshore, c) shale operator and d) operator in conventional, onshore and oil sands (b, c and d in kg CO2 /boe on x-axis and % flaring of upstream CO2 emissions on y-axis)

At field level, the variations in CO2 intensity are even higher, and the global transaction market has been rife with mature assets, typically with high carbon intensity.

Figure 1a also illustrates the differences across supply segments. The operators are grouped here by the dominant supply segment share of the company portfolio in 2019, and although this is a somewhat crude metric, some key observations can be made:

• Onshore producers are clustered in the upper half of the chart with higher carbon intensity, on average.

• Offshore producers are scattered, some performing in the low emitter category, others in the highest.

• Shale producers dominate the lower half of the chart, with a lower average CO2 intensity.

• There are numerous outliers in each segment, underlining the need for an operator-byoperator (or even field-by-field) overview and analysis.

The variation across supply segments prompted a further breakdown of each category and analysis of the best-in-class performers. To eliminate smaller, single-asset operators, a cut-off was set, assessing only operators with more than 150,000 boe/d in gross operated production. In Figure 1b–d, the degree of emissions from flaring is shown on the y-axis as a percentage of the total reported emissions. Some operators report this directly, while satellite estimates at field-level has been applied for operators that do not disclose flaring emissions separately.

Figure 1b: Reported 2019 upstream CO2 intensity by operator offshore (in kg CO2 /boe on x-axis and % flaring of upstream CO2 emissions on y-axis)

Source: Rystad Energy

Figure 1c: Reported 2019 upstream CO2 intensity by shale operator (in kg CO2 /boe on x-axis and % flaring of upstream CO2 emissions on y-axis)

Source: Rystad Energy

Figure 1d: Reported 2019 upstream CO2 intensity by operator in conventional, onshore and oil sands (in kg CO2 /boe on x-axis and % flaring of upstream CO2 emissions on y-axis)

Source: Rystad Energy

Offshore focus

In the offshore segment, see Figure 1b, which has an average intensity of approximately 17 kg/boe, the three performers with the lowest CO2 intensity were Neptune Energy, Sakhalin Energy Company and Aker BP.

Neptune has electrified its Gjoa platform off Norway and has an overall gas-heavy portfolio, setting the company well on track to reaching its target of 6 kg of CO2 per boe in 2030. Also on the podium is Norway-based Aker BP, which has low-emission solutions such as electrification as a key focus. The company’s Valhall and Ivar Aasen fields are prime examples, obtaining the necessary operating power with close to zero emissions.

Sakhalin Energy, a Russian consortium consisting of Gazprom, Shell, Mitsui and Mitsubishi, produces oil and gas (roughly one-third liquids) from a challenging subarctic environment off the north-eastern coast of Sakhalin Island. Sakhalin Energy has had a strong focus on emission-sreducing initiatives, including measures to cut equipment downtime and shorten shutdowns, which has led to a dramatic decrease in flared gas. Output from the underlying fields is also close to peak production, which enables the operator to be among the best-in-class offshore.

For offshore operators with production above 1mn boe/d, Equinor is the frontrunner, boasting an average intensity of about 9 kg/boe for all production. The company’s ambition is to reduce the operated intensity to below 8 kg/boe by 2025.

Shale space

In the shale space, shale gas players (marked in light red on Figure 1c) consistently score lower than shale oil players on both flaring and overall emissions. The three best performers are Antero Resources, EQT Corporation and Range Resources – all with a production intensity of around 6 kg/boe.

Emissions from these companies also include estimates for emissions from gathering and boosting, as some may rely on third-party providers. Focusing on the shale oil players, Concho Resources has the lowest intensity, at approximately 9 kg/boe produced.

Onshore operations

Figure 1d focuses on operators with a majority of onshore production. Oil sands are marked in brown, conventional in green.

Saudi Aramco, Lukoil and Vermilion Energy all performed well in terms of CO2 intensity in 2019 and are the three lowest in this overview, with CO2 intensities in the range of 10–15 kg/boe. Saudi Aramco benefits from hosting large field developments with stable production output and low amounts of associated gas, which helps drive down the emission intensity to 10 kg/boe. Vermilion followed, with about 11 kg/boe; and Lukoil with 12 kg/boe.

The oil sands segment has a more energy-intensive extraction process, and as long as this process is fuelled by fossil fuels without carbon capture and storage (CCS), the companies in this segment will be on the higher end of the spectrum. There are variations between in-situ and surface mining in terms of emissions, and also in the vintage of technology applied.

Looking beyond the performance criteria that are driven by differences in extraction method, some observations can be made across supply segments:

• Flaring is a key differentiator between companies, with the best performers tending to have low flaring volumes relative to marketed hydrocarbons.

• Mature assets tend to have higher upstream CO2 intensities, driven by a combination of stable to higher energy consumption on site, lower production output, and older technology applied.

• Fields and companies dominated by gas production tend to have lower upstream CO2 intensities.

Granular risk assessments

Individuals and companies with an interest in the oil and gas industry are continuously being challenged on topics relating to carbon emissions in today’s market. And, as can be observed in the reported figures, the upstream CO2 emission performance varies significantly between companies and fields, yielding a very inhomogeneous risk among the various companies.

To help navigate these risks and adjacent opportunities, Rystad Energy argues that upstream CO2 emissions need to be fundamentally analysed and understood at a more granular level within the oil and gas segment than is typical for other industries.

Sorting operators into geographical segments based on the location of their headquarters, it is apparent that European operators have placed greater emphasis on reporting emissions than have operators from other regions. More than 90% of significant operators in Europe had disclosed their emission statistics for 2019 by November 2020, while the corresponding percentage for North American operators was below 50% and for E&Ps from other parts of the world was below 25%.

We have also observed that while European E&Ps have been more focused on these topics in recent years (as evidenced by the high share of reporting) and are deep into mitigation strategies, US-based companies are generally lagging behind, albeit with several notable exceptions. There was, however, a notable increase from 2018 to 2019 in the number of operators reporting emissions in the US. We believe this trend will continue in the years to come, as investors and the financial community continue to push for more disclosure, more ambitious emission reduction efforts and a more transparent assessment of risks.