Establishing sustainable business practices in the energy transition is essential for investments to flow.
For oil and gas companies, these opportunities go beyond reducing greenhouse gas emissions, but more sustainability is needed to scale up effective decarbonisation.
There are never-ending opportunities for energy companies to establish better practices in the energy transition, said Deanna Zhang, investment banking director for energy tech at Tudor, Pickering, Holt & Co., on Tuesday at the Offshore Technology Conference in Houston.
The focus may be on emissions for now, but then it will be on environmental, social and governance practices, then water use, land use, and other things companies are not even thinking about.
“In my lifetime this will never be over,” added Will Foiles, founder and chief operating officer of Denver start-up Project Canary. “How do you think further down the road, rather than, ‘Hey, what can I do to check the box today?’”
But in focusing on emissions, working with accurate, real-time data and a new approach to carbon offsets can help decarbonise the industry.
Advantages of real-time data
Current emissions data are often calculated from estimates or other unknown methodologies. This can create uncertainty for stakeholders, who have a growing focus on the environmental impact of companies and their products.
“There are some operators and some operations that have lower emissions profiles than it’s currently estimated, and there are some that are far, far higher,” Foiles said.
“It’s in your interest to prove that your emissions are lower if you don’t want to get written off with a lot of other people.”
Tracking emissions data in real time can also help companies better reduce their emissions, given the more accurate data.
This will accelerate the goals of many oil and gas companies to reach net-zero emissions by 2050.
For investment in technology, Zhang said companies that find ways to address Scope 3 emissions are attractive, given the complicated network and tracking of end-use emissions, not to mention that these emissions account for the majority of emissions in the oil and gas industry.
“The most impactful technologies… are the companies that actually are able to address Scope 3 [emissions],” Zhang said.
“Those companies are the ones that can feed data into these ecosystems around buying and selling products, around defining the carbon offsets or the carbon impacts of the products.”
Problems in carbon offsets
While many companies are using carbon offsets such as planting trees or investing in solar energy as a way to claim ‘carbon-neutral’ transactions, these processes do not address the necessary decarbonisation of the oil and gas industry.
“So many of the consumers believe that they’re actually pulling carbon out of the atmosphere, but that’s not the case. And I think it’s a lot of window dressing,” Foiles said.
“The best thing you can do, especially in a world where there’s going to be a price on carbon, is get your own emissions under control.”
Pravin Chandran, director of innovation and enterprise solutions at US consultancy KPMG, warned that some companies find carbon offsets and ‘carbon neutrality’ through projects that would exist without their contributions — for example, a legacy solar farm that is already profitable.
He said this process is not additive, and someday soon investors may begin challenging the method.
“Not today; maybe in two years, maybe in four, we don’t know,” Chandran said. “We’re just watching to see when that shoe will drop.”
An alternative option would be an internal carbon offset market that relies on the decarbonisation of companies.
A June report from private equity firm Kimmeridge suggests a market where companies reduce their greenhouse gas emissions, then are able to sell those reductions as carbon offsets in an established marketplace.
This could provide clear incentives for oil and gas companies to actually decarbonise, rather than use questionable tactics to claim carbon neutrality.
Ultimately, with new generations entering the workforce and new expectations from investors and stakeholders, companies will have to make room for innovation and progressive energy ideas.
“You have to stay ahead of the curve. If you’re not ahead of the curve, then there’s going to be a very painful period waiting ahead of you,” Zhang said.