Before launching the world’s largest public listing, Saudi Arabian Oil Co. promised potential investors a small piece of a trillion-dollar company with access to unmatched oil reserves. Not only in volume, but also in respect of the climate.
Aramco executives stressed during preparations for an IPO in 2019 that drilling for Saudi oil generates fewer global warming emissions than other producers. “Not because our crude is cleaner than other crudes in the world. It’s because of our standards, ”CEO Amin Nasser said at a roadshow, pledging to do even more to deliver low-carbon oil. “Even though our numbers are great, climate change is critical for the world.”
But Aramco’s accounting for greenhouse gases does not give the complete picture. The Saudi oil giant excludes emissions generated by many of its refineries and petrochemical plants in its overall carbon statements, according to a review of Bloomberg Green public filings. The inclusion of all of these facilities could almost double Aramco’s self-reported carbon footprint, adding up to 55 million metric tonnes of carbon dioxide equivalent to its annual tally – roughly the emissions produced by Portugal.
This missing data is a wake-up call for investors, who “need to be able to put a price on the climate risks they run in their portfolios,” said Nick Stansbury, head of commodities research at Legal and General Investment Management, which owns Aramco leaves at the end of 2020. “This information must be complete, true and correct.”
In response to questions, Aramco said it would begin disclosing direct emissions from all of its global operations this year. “We have a clear and deliberate path to increase the scope and detail of [emissions] disclosure, ”the company said in a statement. He added that the current disclosure “reflects emissions from those assets for which Aramco has the responsibility and the ability to manage and control the emissions.”
Selective accounting helps improve the low-carbon claims made on behalf of Saudi oil, which have become a key part of Aramco’s corporate identity. The company often cites a 2018 study published in the highly regarded journal Science which shows that oil extraction in Saudi Arabia generates the second lowest amount of emissions in the world, behind only Denmark.
But crude isn’t very useful until it’s refined, and distilling black gunk into gasoline, jet fuel, or diesel is emissions-intensive work. Much of this activity has been left out in the company’s disclosures, as Aramco chooses to report only emissions from facilities it 100% owns and which are also located inside the kingdom. In addition, Aramco is expected to double the capacity of its refining network to process up to 10 million barrels per day by 2030; much of these emissions would not have been disclosed according to the company’s previous reporting practices.
Aramco’s accounting maneuver is made possible because many of its refineries are joint ventures or overseas, notably in the United States, South Korea, Japan, China and Malaysia. To calculate these missing emissions, Bloomberg Green relied on estimates from refineries in more than 80 countries compiled in a study published in 2020 in the journal Nature Climate Change. The researchers took into account variations of more than 300 different types of refined crude around the world, with both lower and higher emission estimates.
Adjusting these calculations for Aramco’s foreign facilities and its share of joint ventures shows a range for 2019 emissions between 75 million tonnes and 113 million tonnes. This discrepancy reflects the difficulty of accurately estimating the carbon output of a particular refinery. Aramco declined to provide more specific figures. “We do not comment on shows on an asset-by-asset basis,” the company said in its statement.
The high-end estimate places Aramco’s direct emissions on par with Exxon Mobil Corp., even though the US company extracted a third more oil and refined roughly the same amount in 2019. Aramco’s operations remain cleaner per barrel of oil produced and refined, just not to the extent suggested by the company’s disclosures.
Most oil majors keep detailed records of past and future emissions from individual facilities, often far beyond what is disclosed to investors or regulators. A survey released in December by Bloomberg Green found that Exxon and its joint venture partners, including Aramco, appear to be making detailed forecasts for carbon output from new projects.
Among Aramco’s development plans is the expansion of Samref, a refinery managed in a joint venture with Exxon in Saudi Arabia. This expansion will likely result in 950,000 tonnes of additional annual emissions from 2025, according to internal Exxon documents reviewed by Bloomberg Green. Aramco’s 50% stake in the project would mean adding 475,000 tonnes to its carbon ledger, if the company represented its share of joint projects. (Exxon said projections in its planning documents are preliminary and have changed under pressure from the Covid-19 pandemic; Aramco declined to comment on its future plans.)
In most cases, emissions figures for specific installations are not made public unless required by government regulations. The Aramco-owned Motiva refinery in Port Arthur, Texas, for example, reports its annual emissions to the US Environmental Protection Agency. It has a refining capacity of over 600,000 barrels per day and produced 5.4 million tonnes of emissions in 2019. These figures were not included in the company’s 2019 data because Motiva is located outside of Saudi Arabia.
There are signs of change in the world’s largest oil-producing country. The Saudi Arabian Stock Exchange, where Aramco is listed, previously announced plans to launch an ESG index, which filters companies based on environmental, social and governance parameters. The exchange declined to say whether it would introduce a regulatory requirement for Saudi companies to disclose their issues. Saudi Arabia’s energy ministry asked Aramco questions and declined to comment.
“We engage in regular dialogue with shareholders, particularly around our quarterly earnings announcements, and with our bond investors, where we discuss ESG issues, including climate change,” the company said in a statement. “Aramco started decades ago with investments aimed at minimizing the impact of its operations on the environment.” These include reducing flaring, detecting and repairing methane leaks, and increasing the efficient use of energy.
Global investors are pushing oil companies to step up disclosures to better assess climate risk. After years of resistance, Exxon this month began disclosing Scope 3 emissions produced when customers burn fuel. This leaves Aramco as one of the few major publicly traded oil companies that does not disclose customer emissions, which typically account for more than 80% of total emissions from fossil fuel producers. This missing data presents another challenge for Aramco’s low-carbon claims.
Aramco also invests in chemical manufacturing, which turns oil and gas into everyday products, from laundry to plastics. Converting crude into chemicals is an energy intensive process as is refining which adds to the emissions burden. All petrochemical assets owned by Aramco are joint ventures – so these issues have so far been excluded from disclosure.
In Saudi Arabia, Aramco has three chemical plants built with Total SE, Dow Inc. and Sumitomo Corp. There are also chemical factories supported by Aramco in China and Malaysia. Estimating emissions from these complexes is more difficult than from refineries.
Yet these chemical plants are likely producing millions of metric tonnes of carbon each year that are unrecognized in current Aramco emissions data. The Sadara chemical plant in Saudi Arabia, a joint venture between Aramco and Dow, is exceptional for voluntarily reporting emissions of 6.3 million tonnes in 2019. Aramco’s 65% stake reflects around 4 million tonnes. tonnes missing from Aramco’s carbon footprint.
This number is expected to increase as the latest Aramco acquisition is included. Last year, Aramco bought a 70% stake in petrochemical company Saudi Basic Industries Corp. SABIC’s Scope 1 and 2 emissions were 55 million tonnes in 2019, which is expected to add an additional 39 million tonnes to the carbon footprint of the oil giant for 2020.
Becoming a publicly traded company has opened Aramco to further scrutiny. Even though 98% of the company is still owned by the Saudi government, Aramco is under pressure to keep up with international standards. “The comparability of emissions data between companies is important,” said Andrew Grant, head of climate, energy and industry research at Carbon Tracker. “Investors rely a lot on what companies disclose themselves.”
Oil giants face the future of carbon
–With help from Demetrios Pogkas and Kevin Crowley.