by Anne Carto
Oil and gas companies are responding to the disruptors underway by announcing a rush of net-zero commitments and emission reductions targets. While it can be easy to dismiss “decarbonization” as a buzzword, that would be a mistake. In reality, decarbonization targets are a meaningful component of business strategy for oil and gas companies of all sizes. Every company, no matter how small, can and should narrate its place in the decarbonized energy future that the public expects. Adamantine is here to guide you on this journey through practical, actionable steps.
This essay is the second in a two-part series to help smaller oil and gas companies throughout the value chain understand a) why they should develop ESG and decarbonization strategies, b) what options are available to you, and c) how to get started. You can revisit part 1 here.
Small and privately held companies often assume decarbonization is only relevant to those large companies with the largest share of potential emissions or public companies. However, game-changing oil and gas leaders (no matter their company’s size) know that when it comes to the topic of decarbonization there are many applicable drivers:
- Climate goals are real and depend on us. Global, federal, and state leaders have climate-related goals which cannot be reached without us. According to McKinsey, the oil and gas industry accounts for 9% of all human-made greenhouse gas emissions and produces the fuels that create another 33% of global emissions. By working proactively with game-changing leaders like you, policy leaders can accelerate results while allowing business flexibility in solutions.
- Investors are paying attention. As recently as last month, BlackRock doubled down on its request to portfolio companies to align their business with a net-zero future. Your investors are undoubtedly paying attention.
- Carbon could cost you. Although the timeline and likelihood of carbon pricing is unclear, we know it is on the table. Getting a handle on your present and future carbon footprint now is a must.
- The public wants it. Polling continues to show that the public believes climate change is an issue that needs to be addressed. This is the stakeholder environment in which your company operates.
- Regulations will come. Federal air regulations are looming, and more states are exploring stringent regulations around air quality. A proactive stance regarding your emissions footprint will better position your company to negotiate regulatory flexibility.
Your company — no matter how small — can take small, impactful steps toward a decarbonization strategy that positions it for success:
- Reduce your emissions. Despite the many pathways to the energy transition, every pathway requires solving Scope 1 emissions and demonstrating quantitative improvement. Consider this a priority, make a plan you are accountable to, and take action on the low-hanging fruit now.
- Constructively engage. Industry trade associations often play important roles — but they are too often pushing back on decarbonization rather than co-creating impactful outcomes that build toward a shared energy future. Game-changing leaders will not be afraid to break out from the pack. Take opportunities to constructively engage with policy makers, investors, stakeholders, and eNGOS directly. There are infinite opportunities to innovate solutions and find bespoke technological practices that can work for your business, operating community, and stakeholders.
- Build your decarbonization toolbox. Your company’s decarbonization toolbox can start small and evolve over time. It can include items such as emissions reductions, R&D partnerships and participation in demonstration projects.Build a strategy with a range of options for different timeframes and resources to allow your team flexibility. If resources are limited, narrow your focus to monitoring and mitigating methane for the most impact. Many trades have committees sharing best practices on emissions reduction. There’s no shortage of external guidance; for example, check out the Methane Guiding Principles’ Best Practice Toolkit.
- Explore low-carbon energy integration. Electrification of operations with renewables or fuel-switching drilling operations to natural gas and other low-carbon energy sources can support operations. Have a working group explore your options. Important: Consider this after you have addressed your own emissions. Slapping solar panels on your site won’t fix the problem or convince anyone that you are taking the issue seriously.
- Make a commitment. It will be important for companies of all sizes to start making both aspirational and specific emissions reductions commitments. Aspirational commitments are directional in nature and demonstrate both your interest and willingness to work on decarbonization. Emissions reductions should be specific and actionable. Ultimately, pledges will only get a company so far. Within a year, companies should be able to demonstrate investments in aspirational goals and quantifiable emissions reductions. Support any emission reduction commitments with capital allocation and near-term milestones to ensure action.
- Find partners. Decarbonization is a busy space! Seek partnerships or projects with other parts of the value chain, investors, startups, community organizations, academics, and environmental groups. There is a wealth of coalitions helping companies innovate and navigate decarbonization.
Ways to Get Started:
- Get a handle on your emissions. Get started today on understanding your emissions. This doesn’t require perfect data to get started as long as you commit to continuous improvement in your data collection and analysis. Estimation will suffice for a time, and then measurement will be the long-term goal. Start by striving for more transparency through high-quality data. Answer these questions:
- What steps are we taking to understand our methane emissions?
- What have we learned so far about the most significant sources and causes of emissions in our systems?
- What actions are we taking to continue improving our understanding and reducing our emissions?
- Start with flaring. More and more companies are making flaring reduction a priority. Consider a flaring reduction target that is quantitative and time bound. Consider governance incentives and midstream collaboration to set and meet targets.
- Talk to your investors. As with ESG, understanding your investors’ priorities and expectations can avoid unnecessary work and resource depletion. In addition, when a smaller company approaches their investors, they often find there are other companies in their portfolio facing the same issues. The investor can bring companies together to share best practices and collaborate on decarbonization solutions.
- Talk to your stakeholders. Regulators, employees, and community leaders can help you think of creative solutions that suit your company’s specific footprint.
- Allocate resources. You will have to shift resources to decarbonization to make progress —whether that’s putting them towards building a decarbonization working group; creating and growing an innovation team (like many of our game-changing clients); funding new infrastructure; or investing in innovation.
A decarbonization strategy should account for your company’s unique position and result in meaningful action. In Part 1 of this series, we provided you with the tools and ideas needed to develop an ESG strategy. Combined with a decarbonization strategy, your company will be positioned to navigate our evolving operating environment. If you’re uncertain where to begin, hit reply and let’s talk about how Adamantine can help you build your decarbonization toolbox.