Permian Project Could Herald Rise of US Energy ESG

A recently announced achievement by one Permian Basin operator could mark the ascendancy of US oil and gas companies in the area of carbon offsets.

Find out why, along with other projections, in this instalment of what to watch this week in oil and gas markets.

Tom McNulty, Houston-based Principal and Energy Practice leader with Valuescope, Inc: We will see more and more leadership from the US Energy Complex on ESG (environmental, social, and corporate governance) initiatives which actually have teeth. Just see what Oxy Low Carbon Ventures, a subsidiary of Occidental Petroleum, did. It delivered two million barrels of “carbon-neutral oil” to Reliance Industries in India.

As far as I can tell, this was the industry’s first substantive petroleum shipment in which greenhouse gas emissions associated with the entire crude lifecycle, from well head to combustion, were offset. They call it “climate-differentiated crude oil,” produced via the capture and sequestration of carbon dioxide (CO₂) using big direct air capture facilities and geological structures.

This oil came from the Permian Basin, and the bank Macquarie Group (did a structured carbon offset supply deal. If the US Environmental Protection Agency (EPA) is right, two million barrels of crude oil is equivalent to about 860,000 metric tons of CO₂ emissions.

Phil Kangas, US Partner-in-Charge, Energy Advisor, Natural Resources and Mining, Grant Thornton LLP: Both refinery earnings and revised EPA guidelines for biofuels will be worth watching in the week(s) ahead. Leading US refineries are expected to show lacklustre results in fourth quarter earnings reports.

The US Energy Information Administration (EIA) estimated that liquid fuels consumption fell by nine million barrels per day in 2020, the largest annual decline since at least 1980. Ongoing COVID-19 restrictions continue to hinder demand, just as crude prices begin to show signs of sustained recovery.

These factors, together with more expensive refining processes based on the need for renewable additives to fuel production, will likely weigh down balance sheets for downstream players.

The federal EPA’s US Renewable Fuel Standard requires refineries to blend biofuels into their fuel mix each year or offset this requirement by purchasing tradable credits or seeking compliance waivers.

Biofuels credits for renewable and biomass additives are currently trading at their highest levels since 2017, driving up costs. During the Trump administration, compliance waiver approvals soared as firms found favourable administration regulators willing to waive compliance.

The Trump administration missed deadlines to revise these guidelines set for November and then again at year-end in 2020. Over the past several weeks, the Biden administration’s transition team has met with biofuels industry groups, who oppose these waivers as they erode the value of biofuels additives. Will be watching how additional policy decisions in Washington on revamping biofuels guidelines and waiver decisions will affect downstream refineries, and further impact the oil and gas market.

Source: Rigzone