Concerns have been raised recently that surging oil, gas and power prices, together with the European Union (EU)’s goal of becoming less dependent on Russian supplies in the wake of the war in Ukraine, could derail the global energy transition. Just as troubling for the environmental lobby is that some oil and gas companies which claim to be acting in an environmentally responsible manner are instead said to be engaging in little more than what can loosely be described as ‘greenwashing’.

Although there is no clear consensus on the meaning of the term, it is generally recognised to refer to branding or claims that project an image of sustainability, minus the efforts stated or implied by those claims. The continued growth of sustainable investment under the banner of environmental, social and governance (ESG) commitments has arguably made greenwashing an increasingly attractive strategy for energy companies to capitalise on the demand for sustainable companies and portfolios.

An old example was BP’s high profile rebrand to ‘Beyond Petroleum’ in 2000. This was followed by the implementation of solar panels at its filling stations and claims that the company would shift its focus towards low carbon products. However, this was eventually somewhat discredited in the public eye after environmental organisation ClientEarth exposed that BP had directed over 96% of its annual spend towards oil and gas in 2019. 

The following year, and 20 years after its ill-fated Beyond Petroleum initiative, BP then launched a seemingly better-grounded ambition to become net zero by 2050, if not sooner. Along with this is a strategy for pivoting from ‘an international oil company focused on producing resources to an integrated energy company focused on delivering solutions for customers’.

Within 10 years, BP anticipates a 10-fold increase in its annual low carbon investment to around $5bn/y. This investment is expected to encompass a variety of low carbon technologies.

Beyond greenwashing

Yet, despite concerns about greenwashing, the latest data reported by Rystad Energy suggests that spending in green energies will grow faster than in the fossil fuel sector within a total 2022 global energy spend of $2.1tn. Upstream oil and gas spending is projected to grow 16%, equivalent to $142bn this year, compared to 2021, as oil and gas producers around the world up their investment budgets to increase output. 

By comparison, green energy global spending capacity based on the current pipeline of projects will grow by 24%, or $125bn, over the same period. ‘The year 2014 was the last time we saw similar numbers. One can see a major shift in the amount of spending on green energy, which has increased, with a drop in expenditure on oil and gas,’ says Audun Martinsen, Head of Energy Service Research at Rystad Energy.

Solar, carbon capture and storage (CCS), hydrogen and geothermal are growing the most, with between 40% and 60% growth. ‘However, it is mainly utility-scale solar and wind that add significant additional capacity of around 140 GW and 110 GW, respectively,’ says Rystad Energy. 

Despite concerns about greenwashing, the latest data reported by Rystad Energy suggests that spending in green energies will grow faster than in the fossil fuel sector.

There is some cautious optimism with regards to carbon flaring emissions. In 2021, gas flaring activity in the global upstream sector sunk to its lowest level in 10 years. This was due to improved productivity and increased environmental awareness, as well as lower fuel demand caused by COVID-19 lockdowns and travel restrictions.

European companies top the rankings

But the picture going forward is less certain. A rebound in flaring activity is likely this year as global fossil fuel demand increases with the relaxation of COVID-19 restrictions. Supply also remains tight due to sanctions on Russian fuel over its invasion of Ukraine in late February. 

Rystad Energy Analyst Dzenana Tiganj says: ‘Flaring represents about 30% of the total CO₂ emissions produced by the oil and gas industry, and the practice has come under increased scrutiny over its environmental impact in recent years. Even with the backdrop of the pandemic and supply decline, there are still signs that the latest improvements could be partially sustained.’ 

US shale producers have hitherto been in the vanguard of cutting emissions. However, the latest rankings in BloombergNEF’s low carbon shift Oil & Gas Transition league table, released in April, show American players dropping out of the top 10 to be replaced by European oil and gas majors. Shell again topped a chart of 41 oil and gas companies compiled by the research group. TotalEnergies, Repsol, Galp and BP made up the rest of the top five, in which European groups took eight of the top 10 places. 

It is little surprise that Shell tops the rankings. In April, Shell published its first Energy Transition Progress Report to help investors and wider society gain a better understanding of its energy transition strategy. The report details its efforts to decarbonise transport and industry, including the use of hydrogen, charging and natural gas for light and heavy-duty transport. Shell’s strategy is to decarbonise its portfolio by offering more low carbon alternatives such as biofuels, hydrogen and charging for electric vehicles (EVs). 

In Germany, the company is part of the H₂ Mobility joint venture to develop a nationwide network of hydrogen refuelling stations for passenger cars. Shell also offers carbon credits to passenger car drivers who want to offset the life-cycle emissions of the fuel they buy. In 2021, around 49mn litres of fuel sales were offset. 

This year, Shell started construction of its bio-LNG liquefaction plant in Rheinland, Germany. The plant will provide bio-LNG to 4,000–5,000 LNG trucks by 2023. The company also started offering bio-LNG blended with regular LNG in the Netherlands.

US shale producers have until recently been in the vanguard of cutting emissions

Photo: Shell

Power and utilities lead the surge

Meanwhile, TotalEnergies is further expanding its presence in the US renewable energy industry by acquiring Austin-based Core Solar. Its portfolio includes more than 4 GW of utility-scale solar and energy storage projects at various stages of development across several US states and power markets. TotalEnergies now has a portfolio of more than 10 GW gross capacity of renewables projects in operation, in construction and in development. 

Vincent Stoquart, Senior Vice President Renewables at TotalEnergies says: ‘The US is a key region for achieving our global target of 100 GW of renewables projects in operation by 2030.’

Thus far, the transition to a low carbon economy has been led largely by the power and utilities (including renewables) sector. The result, according to an analysis commissioned by the World Economic Forum, has been a dramatic fall in global emissions from leading power and utilities companies since 2015. The reductions are likely due to a combination of factors, including:

• Green policies, such as carbon pricing schemes and renewable portfolio standards. 
• An abundance of low-cost, cleaner-burning natural gas. 
• Supportive incentives to invest in renewables and bring down the price of technology.
• Commitments from large commercial and industrial customers to source 100% of their power from renewable sources. 

Indeed, some power and utilities companies are now raising the bar without further external prompting from regulators. ‘For instance,’ says Deloitte in its The 2030 decarbonisation challenge report, ‘the Italian multinational energy corporation, Enel, set a carbon-neutral ambition for 2030, well before the 2050 goal of many companies. To attain this goal, the company is pursuing an ambitious global investment plan to expand its renewables generation portfolio.’

Companies in the oil, gas and chemicals sectors, whose core business models are based on producing and processing hydrocarbons, have generally been much slower to change than companies in the power and utilities sector – so far. That is now changing, though, with several oil, gas and chemicals companies seizing upon the transition to a low carbon economy as a means to transform not only how they operate, but also what they offer. 

Shell, Repsol, Equinor, Total, and BP have all developed initial investment plans to diversify their businesses and have set long-term energy intensity targets to reduce emissions.

Scope 3 emissions start to be tackled

But, while it is relatively easy to reduce Scope 1 and 2 emissions, which are produced during operations and are largely under the control of the oil and gas companies, reducing Scope 3 emissions that are created by assets not owned or controlled by the reporting organisations is considerably trickier. 

One path, according to Deloitte, is to turn CO₂ into a valuable raw material and not just a waste product that must be controlled. ‘Trillion-dollar markets have been predicted for the use of CO₂ as a feedstock for a variety of building materials, chemicals and fuels. The value of CO₂ has already been demonstrated in enhanced oil recovery processes,’ says Deloitte. 

Some uses for CO₂ are cutting edge in the extreme. C2CNT, a Canadian company, is using ‘molten electrolysis’ to transform CO₂ directly into carbon nanotubes, which are stronger than steel and highly conductive. 

Carbon capture technologies have been rapidly evolving on a parallel track. Engineers at the Massachusetts Institute of Technology recently developed a new way to remove CO₂ from the air. ‘Unlike traditional carbon capture technologies, this system can remove any concentration of CO₂, from the high levels in power-plant emissions to the relatively low ones in open air,’ says Deloitte.

Although they may not yet be commercially viable, breakthroughs of this kind could gain traction. If they do, there could be a race to capture carbon emissions and sell them as a valuable commodity. As they transform their business models, many oil and gas companies are simultaneously considering decarbonisation pathways for their existing upstream and downstream businesses, often proactively working with ecosystem partners to accelerate that process. 

‘Regardless of the strategy, an overarching trend is emerging. Many oil and gas companies are shifting their business models so that more value is created through downstream customers, rather than upstream assets,’ concludes Deloitte.