Current world events are highlighting an energy transition issue that won’t go away: moving away from carbon-heavy fuels will be a long and pothole-laden road. Even with continued growth of renewables, the world’s overall energy demands are expected to expand at an even faster rate, at least through 2050. 

This is not to mention the billions of dollars to be spent on infrastructure and redesign of vehicles for land, sea and rail. In the meantime all that CO₂ must be tracked, evaluated and managed in hopes of finding ways to reduce it. Hence the movement toward carbon management as a rapidly growing sector of every type of industry, including oil and gas itself.

As recently as 2015, the energy sector saw the rise of two significant subsectors in a symbiotic relationship: water management/treatment, and automation/data management. The rise of ESG has opened the doors for another sector, as carbon management becomes more top of mind for companies and investors alike.

A recent report on the market, released by Mordor Intelligence, sees the carbon management business almost doubling from its 2020 level around the world and across all industries, from $10.9 billion in 2020 to $19.8 billion by 2026.”

In its recent Annual Energy Outlook 2022, the U.S. Energy Information Administration (EIA) projected the nation’s CO₂ emissions would fall in the short term, then begin a slow, steady rise through 2050. Many assumptions are made in a long-term study such as this. 

One sector is expected to continue to outshine the others over the long haul: electric power grid CO₂ is expected to drop precipitously by 2050, due to continued switching from coal to natural gas and renewables for generation. Conversely, transportation emissions are expected to rise slowly in that time frame as a result of the difficulty in replacing liquid fuel’s range and portability compared to alternatives.

Industry and commercial emissions are expected to rise slowly as well, while residential CO₂ drops slightly.

Effective carbon management systems must account for all these sectors, breaking them down even further to computing, power use in buildings and factories and more, said ESG Enterprise President and CEO Alan Lee. Based in Houston, ESG Enterprise is an ESG software, SaaS and data analytics company.

“Carbon management encompasses a bigger picture than how much greenhouse gas is emitted by a particular producer or even a vendor,” Lee said. “It reaches every aspect of the supply chain.” 

That includes the manufacture and shipping of incoming products as well as what happens downstream after the product leaves the company’s site or storage.

For tracking purposes, carbon sources are split into three categories. Scope 1 is direct, or the carbon emitted by the company itself. Scope 2 is indirect, including that from suppliers (upstream) and Scope 3 is also indirect, encompassing downstream activities. For complete carbon management purposes, companies must accumulate data from all three scopes.

In oil and gas, Lee said refineries are leading the charge in carbon management. In the upstream sector, those leading the charge are the majors, who have the most to gain due to rising ESG concerns of investors.

“The majors and the national oil companies have a vested interest in rebranding, or at least attempting to go into energy transition,” as they see sustainability and the energy transition becoming top-level investor concerns, Lee said. As such, carbon management is part of their larger decarbonization strategy.

Additionally, service companies who want to do business with majors must also comply with carbon management strategies. Many majors require their providers to fill out at least an ESG/carbon management questionnaire. This is leading many vendors to create standardized carbon management reports rather than fill out a separate one for each client that requires one.

The goal is not just to know a carbon management score, Lee said, but to learn how to reduce the carbon footprint. 

“You can’t take action if you don’t know what you’re measuring,” he said. “Our software uses AI, historical data and also Cubase logic to analyze each asset and recommend how much greenhouse gas we can reduce if we take certain actions. Those can include using renewable fuels, green computing and more energy-efficient facilities. Some changes may not pay off for five to 10 years.”

Lee notes that it is important for a company to set goals both of time and carbon levels. Do they want to achieve net-zero by a certain year, or simply reduce their greenhouse gas (GHG) footprint by a certain percentage? Those decisions inform both tracking and resulting actions.

The low-hanging fruit—more efficient vehicles, green computing and the like—actually save companies money.

Setting regulations

While oil and gas firms are used to seeing GHG regulations from the EPA and various similarly-tasked state agencies, a recent climate-related rule proposal has come from the Securities and Exchange Commission (SEC).

Recently proposed rules changes would require registered companies—meaning those who file reports under the Securities Act of 1934—to include specified climate-related disclosures in their statements and reports. The disclosure would be required to include information about “climate-related risks that are reasonably likely to have a material impact on their business, results of operations or financial condition, and certain climate-related financial statement metrics in a note to their audited financial results,” according to the SEC statement, dated March 21.

If adopted, those rules changes would require registered companies to address their governance of climate-related risks and how to manage them, how those identified risks are related to its business and financial statements, how climate risks have already affected their business model and planning, and the likely impact on the company of any climate-related events such as severe weather.

Those disclosures will include Scope 1, 2 and 3, those both upstream and downstream of the reporting company. “If that gets passed, it's going to be a big change for everyone,” Lee said.

Role of carbon capture

Citing the likelihood that energy demand—and therefore oil demand—is expected to rise for decades, carbon capture will be vital, said Shane Mullins, vice president, product development (power industry) for Houston-based Industrial Info Resources, a global marketing intelligence provider.

“The reality we face is the world and the U.S. will need to keep responsibly producing oil and gas, as you simply can’t electrify everything to meet your emissions goals without causing massive inflation,” he said. 

Demand growth for fossil fuels “is why carbon capture utilization and storage has to be added to the mix. And while it’s the early days, we do have a number of CCS projects in development in North America already.”

For many factories, transitioning to clean energy can be a challenge, Mullins said. “There are 1,500 or so plants that would qualify for carbon credits that are hard to electrify, producing more than 100,000 tons per year of CO₂.

“The International Energy Agency has admitted that, to effectively have any chance at achieving the goal of reducing GHG emissions in order to reduce global warming by 1.65 degrees, 22% of global CO₂ emissions reductions must come from CCS. The debate on whether we should pursue CCS is over. Now we have moved on to how to proceed. The government has no choice but to get behind making CCS happen.”

To that end, Mullins believes increasing the 45Q tax credit from $50/ton to $85/ton will be necessary to make CCS worthwhile. 45Q covers industrial facilities emitting at least 100,000 metric tons of CO₂ per year, and power plants emitting at least 500,000 metric tons per year.

One option for oil and gas producers to manage their carbon footprint would be to switch sources of CO₂ for EOR. Instead of using CO₂ produced from wells, which adds carbon to the mix, Mullins said, “one big shift we see is from using CO₂ in the ground for EOR to capturing CO₂ from industrial plants to produce carbon-neutral oil. In total IIR has identified over 29 carbon capture projects in various industrial segments.”

Mullins cites Denbury resources as a leader in that category. They capture more CO₂ than they emit in the production process, with plans to offset carbon from all the oil they produce by 2030.

The midstream sector is also getting on board. ONEOK Inc., Talos Energy Inc., Williams Cos. Inc., Enterprise Products Partners LP and Kinder Morgan Icn. have invested capital and are seeking opportunities. Kinder Morgan is a leader in providing in-ground CO₂ for EOR, and has a large CO₂ delivery system in place, transporting approximately 1.3 Bcf/d of CO₂ to eastern New Mexico, West Texas and southwestern Utah.

One major international CCS project in Norway is led by Northern Lights Joint Venture. According to a press release, Northern Lights was established “to develop the world’s first open-source CO₂ transport and storage infrastructure, providing accelerated decarbonization opportunities for European industries, with an ambition to store up to 5 million tonnes of CO₂ per year based on market demand.”

Schlumberger will also be involved, as the North Lights project selected the company’s DELFI cognitive E&P environment to help handle subsurface workflows, along with modeling and surveillance of the sequestration process.

Longship, of which Northern Lights is part, is the largest climate initiative in Norway. A full-scale project, it is scheduled to start operating in 2024, with an expected annual capacity of 1.5 million metric tons of CO₂ per year. It will have the capability of adding 3.5 million metric tons after the beginning phase.

Other carbon footprint options

Exxon Mobil Corp. is advancing its net-zero goals by planning to add a plant to make low-carbon hydrogen—also known as blue hydrogen—at its Baytown, Texas refinery. Plans are for the facility to produce as much as 1 Bcf/d of natural-gas-based hydrogen. Approximately 95% of CO₂ emitted by the process would be captured and stored underground.

DT Midstream is targeting net-zero by 2050, with a goal of reducing emissions by 30% by 2030. The company is applying using CCS applications, while also replacing diesel equipment onsite with electric power and looking into renewable gas connections.

Permian Basin-based upstream companies such as Diamondback Energy Inc. have issued plans for reducing the flaring of stranded natural gas. In the years immediately preceding 2020, insufficient takeaway capacity in the Permian Basin led to much flaring of gas that was otherwise stranded, in order to keep the oil flowing. The pipeline issue has eased since the onset of COVID-19 restrictions in 2020, and producers are finding other ways to use associated gas in onsite power generation for production, bitcoin mining and other options.

Currently, the main companies leaning into carbon management are those who are hearing from investors, whether stockholders or private equity providers, requiring them to adopt ESG-friendly policies. As state and federal regulators get more involved, rules and regulations may force smaller companies to adopt carbon management strategies as well. This appears to be a true growth sector for oil and gas as well as the rest of industry.

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