How Major Oil and Gas Companies Are Working Toward Net-Zero Goals

The Top 10 companies with the largest carbon footprints are those participating in the energy sector, specifically those relying on hydrocarbon and coal energy production. This is not a new development but  since the world started measuring carbon footprint, or at least since the Paris Agreement was set, hydrocarbon and coal production has been the most relevant producer of CO2, and that seems unlikely to change in the short term.

Worldwide in 2020, greenhouse gases (GHG) the energy sector (electricity, heat, and transport) has been the largest emitter , totaling 73.2 percent, agriculture, forestry, and land use is next, at 18.4 percent, with direct industrial processes at 5.2 percent and waste at 3.2 percent

According to Mexico’s environmental authority, SEMARNAT, electricity generation  in 2021 accounted for 49 percent of the country’s CO2 emissions  with the hydrocarbon sector at 20 percent, totaling 92.6 million tons yearly. Both sectors account for 69 percent of emissions, which approximates the global record.

Mexico recently committed to reducing its GHG emissions to 22 percent in 2030 with a targeted goal of  35 percent, which represents a significant challenge. In that arena, the Climate Change General Law (LGCC) established that in 2024, Mexico must include at least 35 percent of clean energy in its energy mix. Nevertheless, in the National Electric System Development Program 2021 – 2035 (PRODESEN), SENER estimates Mexico will not meet the annual goal in 2024, with expectations it will fall short of the original plan by  4 percent. Meanwhile, PRODESEN 2022 – 2036 (Annex 2) indicates that in 2021, SENER achieved 29.5 percent of clean energy generation and does not indicate a prediction of fulfillment for 2024.

It is not my intention to add more challenges or to be pessimistic about this struggle. Instead, I want to highlight  the hands-on solutions expressed by major energy companies. Based on the public information of the most relevant energy companies, I would like to outline a path to evaluate what kind of technologies represent an opportunity in Mexico, but before that, I would like to examine what alternatives are available across all sectors.

The International Renewable Energy Agency (IRENA) stated in its report, World Energy Transitions Outlook 2022 – 1.5° Pathway, the achievable reduction of 36.9 gigatons of CO2 in 2050 with six major technologies:

1. Renewables

2. Energy conservation and efficiency

3. Electrification and end-use sectors

4. BECCS: Biocarbon coupled with carbon capture and storage and other removals

5. Hydrogen and its derivatives

6. CCS: Carbon Capture and Storage

Figure 1: Participation of each technology in the targeted 36.9 percent reduction.

A wide variety of actions can be executed by investing in renewable technologies and finding economic benefits, including the circular economy in its current processes, which is the case of energy efficiency and conservation.

What Are the Major Energy Companies Doing?

So far, it has been challenging to decipher the paths followed by major energy companies due to the lack of standardization of ESG reports. Currently, the International Sustainability Standards Board (ISSB) is in the process of issuing the final version of two standards: IFRS S1 "General Requirements for Disclosure of Sustainability-related Financial Information" (IFRS S1) and IFRS S2 "Climate-related Disclosures" (IFRS S2).

There is a period of one or two years to make both standards mandatory. Meanwhile, companies can still report under other frameworks, such as "Sustainability Accounting Standards Board" (SASB), "Task Force on Climate-Related Financial Disclosures" (TCFD), or "Global Reporting Initiative" (GRI).

Two technologies currently implemented by the major energy companies worldwide make sense for consideration for inclusion in the Mexican-based companies' efforts: Carbon capture and storage (CCS) and hydrogen.

Carbon Capture and Storage (CCS)

The CCS applications are among the most promising solutions to change the oil and gas industry’s footprint. CCS is a method to reduce carbon emissions by capturing CO2 from its sources and storing it in geological vaults to prevent them from leaking into the atmosphere. Recently, the acronym has added "U" for "usage," which means an additional source of income for this kind of project.

This technology is only viable on a large scale as with most of the cleantech. Currently, there is a good quantity of projects but not enough for widespread deployment. The Global CCS Institute's webpage shows a dashboard with an extensive list of global projects and their current status (completed, pilot, operational, etc.). According to IRENA, the CCSU facilities only capture 0.04 gigatons per year (Gtpa) and, in a reasonable estimate, should cover 6Gtpa of CO2 by 2040 and over 8Gtpa by 2050 under a 1.5° scenario with an approximated cost of US$2 trillion.

For all major energy companies, CCS technologies are widely considered. In one case, there is a development where the CCS technology is used for mobile transportation, specifically in small vehicles, such as sedans, and enables the capture of up to a quarter of CO2 emissions. This solution could be promising, but if the path to convert vehicles to electric in 2030 succeeds, this solution will not help in the net-zero achievements but could be adapted to other environmental challenges.

Typical CCS projects for oil and gas companies are based mainly on the surface injection of CO2 for enhanced recovery (EOR) and geological storage. The development of commercial solutions can achieve an economic benefit for the use of CO2, including a unique mix for cement manufacturing, production of specific gases, and even chemical fuels.

An alternative solution involves using algae containers for direct air CO2 sequestration. Nevertheless, promoting natural reservoirs in the form of mangroves and forests is environmentally effective and less costly than implementing complex projects.

Hydrogen

The potential of hydrogen as an energy vector aims to be, by 2050, between 5-15 percent of the global energy demand.

There is a discussion about the colors of hydrogen. The combustion of non-renewable sources obtains a gray color; pink comes from nuclear energy sources, blue comes from natural gas as an energy source with CCSU technology, and green comes from renewable energies.

Detractors of blue hydrogen point out that this technology is not entirely aligned with the 1.5° target, considering the burning of a hydrocarbon for its production. Energy companies are looking at blue hydrogen, evaluating natural gas as a transition fuel for its low CO2 compared to other fuels and to take advantage of their current installed infrastructures, which is part of the economic models for their energy transition.

Hydrogen facilities require scale for optimum return on investment (ROI). Part of the challenge is finding an achievable technology for the energy transition and making it possible in terms of costs. In this case, there is a project based in Houston, Texas, which involves the development of a significant hydrogen facility estimated to produce 1 billion cubic feet of blue hydrogen per day in 2050. It is aligned with a CCS plant that, in 2040, is estimated to capture and store up to 100 million of metric tons of CO2 per year.

Another example considers the development of hydrogen projects in the United Kingdom that includes a 1GW blue hydrogen project to be functional in 2027, 

Five Steps To Consider

For the energy transition, possibilities increase when all kinds of clean energy solutions, such as solar, wind, and hydro, are included in the discussion. In all considerations, the escalation of projects is a must in the economic evaluation. Before looking for financing, companies must evaluate the technology's viability to create a possible positive environmental impact and the ROI. With that in mind, the following are the five steps to materialize any project with a positive environmental impact:

1. Establish a reliable measurement system. If it can be measured, it can be improved. Several companies have started with the emission measurement even if they are not required to publish it. It is essential to consider their own emissions (Scope 1) and their supply chain (Scope 3), which is where most companies struggle.

2. Set up an evaluation. It is relevant to evaluate the costs and viability of the proposed technology, whether it is state-of-the-art, and its level of maturity. Some solutions are promising, but they are not in a place where it counts.

3. Promote reporting. All companies are responsible for deciding what information will turn public when IFRS S1 and S2 become mandatory or as local regulations dictate. Nevertheless, internal reporting is essential, as many energy companies are integrated organizations.

4. Set up a clear strategy. Define a process at the organizational level, including regulation, costs, and an achievable commitment. Then, this strategy must be promoted throughout the organization.

5. Finally, be hands-on. The first steps comprise research and development to mature phases, setting up pilots, and finally, going live with selected projects. Results may take time, but it is hard to know if nothing is done.

In 2023, the ESG discussions will take up more space among company boards. Part of the solution lies within energy companies and their energy transition strategies. All actions taken by energy companies will influence most industries and all kinds of supply chains; this is where the scaling  of projects and interest of investments will be: more scalability means less cost, quicker results, and substantially more competitive.