COP26 came and went this past November, and the goals are ambitious. On the fifth anniversary of the Paris Climate Agreement, more than 110 countries pledged to achieve carbon neutrality by 2050, which means that every country, city, financial institution, and company must slash emissions by nearly half by an even earlier date: 2030. The clock is ticking, and the pressure is on for every industry to cut emissions, none more so than fossil fuels.

Certainly, there is recognition among the industry of their environmental impact: According to the International Energy Agency (IEA), oil and gas operations are responsible for 15% of total energy sector’s greenhouse-gas (GHG) emissions. Given the heightened visibility of climate and sustainability issues, many oil and gas companies are concerned with surviving an imminent energy transition. None want to become a stranded asset. 

The industry’s history necessitates proactive steps. The issue of worker safety provides a strong parallel. Following multiple high-profile disasters, such as the Shell Baker Platform fire and the Deepwater Horizon oil spill, oil and gas operators were forced to prioritize safety through increased regulation (and fines). This focus helped to elevate worker safety as a central pillar of the industry’s operational risk management. We are seeing the same push with sustainability now—although its applications are more diverse.

Reengineering

Emissions and sustainability have become a topline objective for corporations and investors alike. Operators are increasingly rethinking, and reengineering, their companies to plan for and execute against carbon neutrality goals. Much like worker safety, these considerations cannot be just another risk to manage, but instead must be considered a central pillar for companies' decision-making and strategic vision for their business.

Previously, companies trying to become ‘green’ were limited by economics. Today, the financial script has flipped. Investor focus on ESG, coupled with the improving economics of alternative energy sources, has pushed this cohort to diversify their investments. We are already seeing this trend with the supermajors, who have added large scale renewable energy projects to their business, and are generating positive returns on those projects. Following suit to utilities who are now looking at ways to diversify their energy portfolios, it is possible—and increasingly prudent—for oil and gas companies to evolve to become energy companies. 

Part of that drive is spurred by the realization that ‘peak oil’ has been reached. Companies need to create a glide path to manage that long-term decline, while responding to an increased emphasis on carbon neutrality goals. Some oil and gas players are setting ambitious goals with emissions reduction targets as high as 45% by 2035.

Carbon neutrality can seem a lofty and far-off goal; however, a focus on executing key intermediate steps now can make that goal a reality. Companies need to establish a clear baseline of their emissions performance and deploy a continuous improvement path for measurement and detection, with particular emphasis on methane and fugitive emissions.

This baseline should be used to create an emissions forecast, providing a full emissions profile at peak production, which can be developed by linking asset development plans with specific emissions sources. With this profile, key reduction opportunities can be mapped and prioritized against dual criteria—profit and GHG abatement—while also promoting the development of a power sourcing strategy that is intentional about asset development.

Moreover, the companies that will thrive in this transition are able to move one step further, embedding robust performance, reporting and monitoring processes within their organizational hierarchy to promote GHG reduction accountability across all levels of the organization.

The next step

Oil and gas companies can dramatically reduce their emissions footprint by mapping their emissions drivers, prioritizing key reduction projects, and embedding accountability for emissions reduction performance within their organizational systems. This type of substantive transformation can be challenging, even with a rising sense of philosophical change.

However, the future will be bright for companies bold enough to take action and develop a plan now. Renewable energies continue to decrease in price, and more hedging and related financial instruments are becoming available to reduce risk in these investments.

Emissions reduction is not a passing fad—it is here to stay. Companies that will thrive in the energy transition will address this topic head on, pursue smart reduction projects and embed emissions reduction as a central pillar of their management.

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