Greenhouse gas emissions from the 25 biggest international oil and gas companies are increasing faster than production, and are on track to grow another 17% through 2025, fossil analysts at Wood Mackenzie conclude this week, in a new report on “positioning for the future in a low-carbon world”.
The report suggests the companies will get away with the increase from an investment point of view, since they only stand to lose about 2% of the value of their production assets as a result of a $40-per-tonne carbon price.
The assessment adds sobering context to a Bloomberg New Energy Finance report earlier this week, which concluded that five of the world’s most colossal fossils—ExxonMobil, Chevron, Royal Dutch Shell, BP, and Total—had cut their combined emissions 13% between 2010 and 2015. “BP cut its pollution the most, by 25.5%, while the largest polluter among listed companies—Exxon—reduced its emissions by 14%,” oilprice.com reports.
But the WoodMac data, based on output from 31,000 oil and gas wells, “show that carbon emissions across the upstream segment are rising faster than production,” the company states. “We forecast emissions to increase 17% by 2025 versus 15% growth in production. The faster pace of emissions growth than production can be partly explained because three of the primary industry growth technologies—LNG, oil sands, and heavy oil—have emissions intensities that are two to three times greater than the average across all asset types.”
The report points to liquefied natural gas as the industry’s second-largest emissions source, and the source of the biggest increase over the next eight years.
“Emissions from the liquefaction process are growing more rapidly than all other upstream emissions sources, being set to rise 44%, compared to production rises of 24%,” Wood Mackenzie reports. Yet “in spite of the emissions intensity of these technologies, production and processing operations remain the two largest sources of carbon emissions during the study period, accounting for 60% of upstream-related output.”
The growth in LNG emissions is largely due to the amount of energy the product burns up in the production process, Reuters explains.
“Oil and gas companies such as Exxon Mobil, Royal Dutch Shell, and Total have promoted natural gas as a cleaner fossil fuel that will displace coal to meet growing demand for energy as the world shifts away from fossil fuels in the coming decades,” the news agency notes. “But converting natural gas into LNG by cooling it to -160°C in order to transport it to demand centres is a highly energy-intensive and therefore emission-intensive process.”
Even so, “if we were to look full-cycle at the emissions produced through the consumption of fuels, we would expect LNG to still be more favourable,” said WoodMac analyst Amy Bowe. “Compared to coal, LNG is still much more favourable on a full-cycle basis.”
Wood Mackenzie doesn’t expect its findings to set off alarm bells with fossil investors. “Rapid growth sounds alarming,” the company states. “But we believe that the financial impact will be contained,” partly because it expects government tax regimes to cushion the impact.
The calculation that a $40-per-tonne carbon tax would only draw out 1 to 4% of upstream asset value “assumes that companies could offset the cost against both corporate and production taxes, which we believe will be likely under most fiscal regimes. The analysis also takes into consideration the range of upstream-related carbon policy likely to evolve globally. Though some countries may impose significantly steeper costs or more stringent policy, other governments may impose no direct costs or restrictions on the upstream oil and gas industry.”
That does mean about $45 billion worth of oil and gas projects, representing 2.3% of fossil fuel reserves, “are at risk of not getting the green light by 2025 because of their high carbon emissions,” Reuters notes.