ESG in Oil & Gas & The Road Ahead
In the previous blogs in this series, we discussed how environmental issues are a key consideration when investors and lenders evaluate the performance of energy companies in ESG. The leading environmental issue facing the O&G sector today is greenhouse gas (GHG) emissions, which are generated at every step in the production, processing, delivery, refining, and consumption of fossil fuels.
Environmental issues are a key consideration when investors and lenders evaluate the performance of energy companies in ESG. The leading environmental issue facing the O&G sector today is greenhouse gas (GHG) emissions, which are generated at pretty much every step in the production, processing, delivery, refining, and consumption of fossil fuels. In the view of the ESG authorities, if you care about sustainability, you must measure and track your carbon emissions before attempting to reduce your carbon footprint. But you have to look across your entire business, and emissions scopes—often colloquially referred to as “scope emissions” or scope 1, 2, and 3 to help bucket or break down the emissions sources and behaviors.
- Scope 1, which are GHGs directly caused by the facilities and equipment that a company owns or controls;
- Scope 2, which are “indirect” GHGs from the generation of electricity the company buys from others (such as the local utility) to power company operations; and
- Scope 3, which are all other indirect GHG emissions that occur in the company’s entire value chain.
GHG Emissions In Production Plants
Producers and refiners can do very little to reduce GHG emissions from the consumption of their products unless they curtail production. Thus, they are concentrating their efforts on reducing emissions from their operations and the power sources they depend on. Refiners have another option too: investing in facilities that produce renewable fuels, such as renewable diesel, a lower-carbon alternative to one of the refining’s main products, conventional diesel.
Refiners, face the hard, undeniable reality that their facilities consume a lot of energy and the consumption of their products is one of the main generators of carbon dioxide (CO2), the primary GHG. In general, refiners have been taking a multipronged approach to improving their environmental performance and ESG ratings, with a focus on the production of renewable diesel.
Unlike upstream and midstream companies, the refining sector benefits from laws and regulations which provide financial incentives to decarbonize their products. Refiners already have a strong economic incentive to invest in the assets and programs to reduce GHG emissions. Clear economic incentives are fundamental to influence the extent and speed at which transition fuels are developed.
The Road Ahead
Given the worldwide focus on reducing emissions of carbon dioxide (CO2) and other greenhouse gases (GHGs), is clear that those involved in producing, transporting, processing, and refining hydrocarbons need to stay informed of ESG developments.
In the future, we need to explore other aspects of ESG issues and how Low Carbon Fuels Policies are affecting fuel usage in the transportation sector. There is much to discuss, given the increasing number of laws and regulations being implemented in the U.S., Canada, and other parts of the world, aimed at decarbonizing the transportation sector. ESG-related laws and regulations are already changing how our refiner clients do business and are expected to continue significantly impacting the O&G sector going forward.
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The author of this article Ivan Parra is a senior consultant at Trindent Consulting.