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16 July 2020

Oil laggard’s new climate targets must bring age of transparency

A group of the world’s largest oil companies, including the likes of BP, ExxonMobil and Saudi Aramco, have signed their first ever joint pledge to reduce greenhouse gas emissions. The specifics of the target put it far behind any of the net-zero pledges we’ve seen from the more progressive majors, but near term targets for carbon intensity will hope to get the ball rolling for even the most resistant companies through the energy transition, especially if they mandate transparency when reporting emissions.

The target, signed through the Oil and Gas Climate Initiative (OGCI), has seen its 12 members agree to reduce the average carbon intensity of their upstream oil and gas operations from 23 kg of CO2 per barrel of oil, down to between 20 kg and 21 kg by 2025.

Explicitly, the target will cover both CO2 and methane emissions from activities in exploration, production, as well as the associated imports of electricity and steam.

The Oil and Gas Climate Initiative (OGCI) constitutes members: BP, Chevron, CNPC, Eni, Equinor, ExxonMobil, Occidental, Petrobras, Repsol, Aramco, Shell and Total, covering most of the heavy-hitters across the oil sector; together, they account for 30% of the world’s oil and gas production. The bulk of members are also in the top 20 companies, which were exposed last year as accounting for over one-third of global emissions.

Naturally, as this new target is based solely on emission intensity, it does not guarantee that company-specific emissions will fall – as production levels can still theoretically rise. But with oil and gas demand showing signs of long-term decline, total emissions from the oil sector will be driven down by both factors. The OGCI has stated that the range is consistent with the Paris Agreement, and will result in an annual reduction in emissions of up to 52 million tons of CO2e by 2025.

Any target that mandates a reduction in emission drivers is inherently a good thing, but it’s worth noting that the OGCI plan will only account for less than 13% of carbon intensity by 2025, which only accounts for a 2% reduction in lifecycle CO2 for oil and gas. This will also require no additional action from companies that already claim to be operating below the 21 kg per boe mark already, or those have their own targets to undercut this by themselves.

It’s usually hard to compare like-for-like on carbon targets, but several of the oil majors have outlined specific measures for carbon intensity.

Equinor, for example, has aimed to reduce net carbon intensity by at least 50% by 2050 – including scope 1, 2 and 3 emissions – which, it claims, will bring the CO2 intensity of its oil and gas production below 8 kg.

It also claims that the global average is 18 kg of CO2 per boe off the back of an IOGP report in 2018, rather than the 23 kg figure stated by the OGCI. While we can’t validate either statement, both will have been based on different data sets, probably with different definitions of ‘upstream,’ with fuzzy boundaries placed around the terms ‘production’ and ‘operation,’ and with some reporting accounting for methane and other pollutants, while others focus solely on CO2.

This is compounded by the fact that many oil majors already claim to be well below the 20 kg intensity point. Saudi Aramco has reported an upstream intensity of 10.1 kg CO2/boe for 2019, while BP’s figures align it with a figure closer to 14 kg. We imagine that these figures cannot account for the full scope of emissions set out by the new OGCI target.

This discrepancy highlights the need for both transparency and a common reporting practices across the oil sector – something which should now be overseen by the OGCI. Through the new targets, members have reportedly agreed on a common methodology to calculate carbon intensity, which could be extended to other sectors in the future, including LNG and refining, according to Chairman and former BP CEO Bob Dudley. This is almost certainly the most important statement made by the new targets.

The group’s collective carbon intensity data will be reported annually and be reviewed by independent body EY (a branch of Ernst and Young).

While LNG and gas-to-liquids will not be included in the new intensity target, the group has stated that it is working on new initiatives to tackle emissions in these areas. It also claims that work is underway on a range of measures to tackle methane leakage, minimize flaring, electrify operations using renewables, co-generate electricity and useful heat and deploy more effective forms of carbon capture, storage and utilization.