Oil Operators Deliver a Carbon Neutral Future

In the past four months, a number of firsts were achieved in crude production and trading, offering a preview of a zero-neutral future as the world tackles the all-encompassing issue of climate change. In January, Occidental Petroleum delivered the first major carbon-neutral crude oil shipment to Reliance. And in April, Lundin completed what it calls the first ever fully-certified carbon-neutral crude oil sale from its Edvard Grieg field. Both are notable, especially in the details, in scoping out how carbon-neutral energy will eventually be the norm worldwide, instead of a headlining novelty achievement.

In Occidental’s case, the cargo of 2 million barrels of crude oil was delivered from the US Permian Basin to Reliance’s mammoth 1.45 mmb/d Jamnagar refinery. While the production of the crude itself was not carbon-neutral, Oxy Low Carbon Ventures, the carbon-neutral focused subsidiary of Occidental, matched the greenhouse gas emissions associated with the entire lifecycle of the crude cargo with CCS (Carbon Capture and Storage) offsets. Through a variety of projects verified under various standards, including the Verra Verified Carbon Standard and the International Civil Aviation Organisation’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), the amount of carbon emitted from wellhead to combustion was neutralised by Occidental. It is a first for a major crude oil shipment, though smaller cargoes have been traded and delivered under similar carbon-neutral terms through pilot and experimental trades. Arranged and structured by Australian investment bank Macquarie Group, the delivery also feeds into Mukesh Ambani’s goal to turn his Reliance into a net carbon zero company by 2035 and Occidental’s own ambitions to become carbon-neutral by 2050 (which, by its own admission, is a first of US energy companies). This illustrates how carbon-neutral ambitions of various players – upstream, downstream, midstream, trading and finance – are delicately intertwined, and how all sectors of the industry are galvanising themselves for a carbon-neutral future.

Then, in April, Norway’s Lundin Energy went a step further, delivering 600,000 barrels of carbon-neutral crude to Italian refiner Saras that was certified as such by certification body Intertek. Taking into account the ‘life of field’ emissions from exploration to development to production to transport to delivery, Lundin’s first is an ambitious step towards an even more ambitious target by having all its crude production be carbon-neutral by 2025. Rather than depend entirely on carbon credits, Lundin has invested heavily to turn crude from its Edvard Grief field low-carbon, with emissions of a mere 3.8kg/barrel of oil equivalent, with that lesser amount of GHG offset by certified projects and schemes. This is similar direction that the wider Norwegian upstream industry – powered by state oil firm Equinor – is driving full speed ahead with. The certification process is key distinction here, with independent verifications by specialists such as Intertek being necessary to validate the claims of producers.

Expect to see this replicated across the industry over the next 2 to 3 years. With all corners, from supermajors such as BP and Shell, national oil companies such as Petronas and Petrobras and even technological laggards such as Pertamina, embracing CCS and carbon neutral crude production/delivery, such an achievement will no longer be a headline.

In fact, it isn’t already a headline in the other half of the energy industry: gas. The first recorded carbon-neutral LNG cargo was delivered in June 2019 from Shell to Japan’s Tokyo Gas and GS Energy. Credits used to offset that initial cargo contributed to Shell’s global portfolio of nature projects in Indonesia and Peru. Since then, seven carbon-neutral cargoes were delivered or traded up until November 2020, all to Asian buyers. Total, which is second only to Shell in the global LNG trading business, delivered its first carbon neutral LNG cargo to CNOOC in September 2020, while Shell sent two cargoes to Taiwan’s CPC Corporation over 2020.

That business is only going to grow. In April 2021, Pavilion Energy imported the first carbon neutral LNG cargo into Singapore, following an open tender with strict environmental criteria and carbon footprint requirements that was won by Qatar Petroleum. A month earlier, in March, Shell delivered the first ever carbon neutral LNG cargo into Europe, sourced from the Gazprom Group and sent to the Dragon LNG Terminal in Wales. And only just last week, US LNG giant Cheniere delivered its first carbon-neutral LNG cargo into Shell’s portfolio.

So far, all of these LNG trades have been dominated by the major gas traders, typically on a spot basis and capitalising on the huge global network of Shell and Total. But eventually, this will start filtering down into long-term contracts, with buyers demanding stricter carbon terms for their custom. In an upended LNG world where buyers call the shots now – the idea of a 20-year oil-indexed LNG contract is unfathomable right now – producers will have to respond, including those to which CCS is relatively new, including projects in Indonesia, Papua New Guinea, Mozambique and Angola. In fact, those producers have already responded, and the industry is starting to see the fruits of those carbon capture labours.

The idea of a carbon-neutral oil and gas cargo may still seem fresh and new today, but it won’t be for much longer.  

End of Article 

Market Outlook:

-       Crude price trading range: Brent – US$67-69/b, WTI – US$64-66/b

-       Global crude benchmarks remain rangebound, as the global economic recovery moves ahead unevenly – accelerating in the US, Europe and China – but stalling in South Asia, particularly India, on a deadly resurgence of the Covid-19 virus

-       Crude prices had gotten a bit of a boost following the cyberattack that tuck out the US’ largest oil products pipeline system – highlighting the risk of cyber-terrorism – but this dissipated after services was restarted at the beginning of this week

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