Carbon-Neutral Fossil Fuels Today?

Chalkboard text reading "Carbon Neutral"

A new trend in global energy trade is emerging: carbon-neutral fuel products. And this trend will change expectations for your company’s role in the short-term energy future.  

Companies are developing these products out of their growing interest in and commitments to carbon-neutral energy. The result? A series of international transactions that have offset the emissions generated throughout the energy’s value chain. Game-changing leaders are on top of this marketplace disruption and — as gamechangers do — figuring out how they will disrupt right back to their advantage.

Both of these things are true:

  • The US is a key exporter of oil and gas to the global energy market.
  • As investors and governments accelerate their net-carbon commitments, oil and gas companies must deliver products that incorporate transparency and accountability of their carbon footprint.

The situation

A series of transactions and agreements around the globe are creating the new wave of carbon-neutral oil and gas delivery. Get up to speed quickly with the highlights below.

  • Carbon-neutral liquified natural gas (LNG). Shell, Total, JERA, Mitsui, Pavilion Energy, and Cheniere have announced transactions or agreements behind carbon-neutral LNG since 2019. Shell announced the first agreement with GS Energy and Tokyo Gas. Most use carbon credits to offset the lifecycle emissions associated with products, generally through consumer end-use.
  • Carbon-neutral oil. Two different approaches to carbon-neutral oil have emerged in 2021. In January, Oxy Low Carbon Ventures announced delivery of two million barrels of carbon-neutral oil to India’s Reliance Industries. The entire lifecycle emissions, including end use, were offset through credits. In April, Sweden’s Lundin Energy announced the sale of the “world’s first ever certified carbon neutrally produced oil” to Saras in Sardinia. Their oilfield was independently certified by Intertek Group for full lifecycle emissions (including exploration, development, and production). Remaining emissions from Lundin’s transaction were offset by credits.
  • Even carbon-neutral condensate and lubricants! This year, Australia’s Woodside announced delivery of their first carbon-offset condensate to trading company Trafigura. Shell announced they will begin offering customers carbon-neutral lubricants across a variety of their brands, and BP’s Castrol outlined plans to expand their carbon-neutral product offerings.

What’s coming next?

  • Japan leads buyers’ signals. Japan is the world’s largest importer of LNG. In 2020 Japan pledged to become carbon neutral by 2050. By March 2021, Tokyo Gas along with 14 other city gas-end users announced the formation of a Carbon Neutral LNG Buyers alliance.
  • Scrutiny in Europe. Between the EU Methane Strategy and their proposed Carbon Border Adjustment Mechanism, Europe is scrutinizing the emissions footprints of imported energy products. These tensions were most dramatically illustrated in late 2020 when Engie backed out of a 20-year LNG contract with US-based NextDecade Corp.
  • A new bar? Cheniere is the largest US exporter of LNG and the second-largest LNG operator globally. In February 2021, the company announced plans to begin using Cargo Emission Tags to quantify estimated GHG emissions of shipments from production to delivery. This data would provide buyers the required information to offset emissions by cargo shipment.

Seize the day

Disruption in the energy marketplace takes new forms as social and investor expectations evolve. While the market for carbon-neutral oil and gas is still nascent, the recent flurry of activity foreshadows an increasing demand for oil and gas products evaluated and distinguished by their carbon footprint. Game-changing companies are getting ahead of this movement by

  • Articulating the place of their products in a decarbonizing energy future;
  • Considering how expectations for their products may change and building this into their decarbonization toolkit strategy;
  • Understanding, measuring, and reducing their emissions;
  • Planning for a world where companies are held accountable by stakeholders and customers for an accurate and transparent emissions footprint; and
  • Exploring innovative opportunities to invest in emissions-reducing and net-negative carbon activities.

Understanding the emerging expectations in the marketplace is a critical step in future-proofing our oil and gas operations. Our team at Adamantine, which recently added Jens Hyberston’s research expertise, is following these developments and happy to schedule a strategic assessment to map your company’s unique risks and opportunities.

Wishing you a powerful and prosperous day,

Tisha

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