U.S. oil and gas producers have started following their European rivals to set ambitious emission reduction targets in the face of growing investor pressure over climate change.
Pioneer Natural Resources, the Permian Basin’s largest independent oil and gas producer, pledged last week to cut its greenhouse gas emissions intensity by a quarter by the end of the decade.
This follows recent announcements by rivals ConocoPhillips and Occidental Petroleum that they would cut emissions from their operations to net zero by mid-century, marking the first such pledges by major U.S. oil companies.
American producers have lagging behind those in Europe by making climate commitments. But these latest moves suggest that growing pressure from climate-conscious investors is pushing them to follow a similar path.
“I think it’s increasingly important for our investor base – and I think it will be for everyone in the space – to be able to address all aspects of ESG in our business,” said Mark. Berg, executive vice president of Pioneer, referring to the environmental, social and governance concerns that investors are now taking into account.
“Emissions. . . is very high on the list on the “E” side of ESG, so I think you’ll see increased attention on that.
The biggest European energy majors – Shell, BP, Eni, Equinor, Total and Repsol – have already presented their ambitions to reduce emissions to net zero by 2050.
Until recently, much of the pressure from US shareholders came from religious groups, social investors and a handful of pension funds.
“The real change recently has been that the biggest investors in these companies – State Streets, Blackrocks, Wellingtons – are now also affected,” said Andrew Logan, director of oil and gas at Ceres, a non-profit organization. non-profit that coordinates the action of investors on the climate. “And that for me has led to a real shift in the attention companies are giving to these issues.”
In the United States – where the shale slab has developed a bad image of pollution, especially in natural gas flaring – companies are also reflecting a shifting political reality.
Where President Donald Trump focused roll back regulations on the industry, his successor, Joe Biden, vowed to crack down on polluters, which lawyers say could involve stricter regulation of emissions reporting.
While the bulk of the energy sector’s emissions come from the combustion of fossil fuels, upstream oil and gas production also pumps a significant amount of greenhouse gases into the atmosphere. In the United States, the industry produced 133 million tonnes of CO2 in 2018 – the highest amount of any country in the world according to consultancy Rystad Energy. Russia, in second place, produced 116 million tonnes.
The way in which American producers seek to tackle emissions differs from that of their European counterparts, whose commitments generally cover so-called scope 3 emissions – those caused by the combustion of their products – as well as emissions from their own operations. As a result, many European companies have pledged to change their business model to include a growing share of renewable energy and power companies.
On the other hand, Conoco – the first American producer to announce a net zero target at the end of October – has omitted scope 3 emissions from its objectives, indicating that it intends to remain focused on its core business.
Occidental has said it will strive to neutralize Scope 3 emissions by shifting its model towards carbon capture and sequestration services as opposed to renewables. CEO Vicki Hollub told IHS Markit last week that Occidental would eventually become “a carbon management company” with its oil and gas providing “a supporting business unit.”
Analysts said a focus on emissions could help U.S. producers win back investors after years of poor returns.
“In a way, the industry is making a virtue out of necessity,” Logan said. “They don’t have any investors excited about their current approach, so I think there’s plenty of reason to think that what is now a slow pivot will snowball over time.”