Managing negative public perceptions of the oil industry
Talk of mitigating carbon footprints is growing louder. Regardless of differing views on the carbon issue, many in the oil and gas industry and beyond are beginning to make changes not only to be better stewards of the environment, but to protect business from growing public and investor sentiments against fossil fuels.
“Perception is a complicated challenge for the oil and gas industry,” said Global Oil and Gas Advisory Leader Jeff Williams of Ernst & Young, which released a public perception survey in 2017 that revealed increasing negative opinions of the industry. “The oil and gas industry is not owning the narrative around all the good that comes from the extraction and processing of oil and gas. Too much of the narrative is now owned by people who want to see the oil and gas industry go away forever.”
Public opinion is now infiltrating investor sentiments, Williams said, and the industry needs to adopt significant changes that will keep the public and investors on board.
Although carbon taxes have not yet hit the United States, many countries have already enacted them, and Williams believes the United States will eventually follow suit. Yet, he encourages the industry to budget for mitigating its share of carbon emissions now.
“Perception is a social element that is increasing in velocity toward a lower carbon world,” Williams explained. “And many investors are hardening against investing in carbon-emitting companies. We are now seeing large index funds leaning toward ESG investing, or investing in environmental, social and governance factors.”
As a new decade begins, exploration in the oil and gas industry may turn toward searching for solutions for staying viable in a world where a “no carbon” sentiment is sweeping the public and investors.
Managing Expectations
As the world awaits the day when the majority of energy comes from sustainable sources, one of the most difficult messages to convey is that transformation cannot take place overnight, said AAPG Member Steve Sonnenberg, professor and Charles Boettcher chair in geology at the Colorado School of Mines.
“Switching from one fuel to another takes time. This time element seems to be forgotten by some folks,” said Sonnenberg, who resides in a state where some local municipalities have already banned hydraulic fracturing. “Companies need to inform the public that the industry can use existing and future technology to solve many of the issues that are before us today. Technology is always changing and improving, and we should see great improvements in the future for carbon capture and sequestration and its use in enhanced oil recovery.”
Communicating with the public has not always been the industry’s strong suit, so Williams encourages operators and service companies to begin building carbon offsetting costs into their budgets and to proactively share their efforts with the public.
“Get serious about carbon pricing,” Williams said. “If you understand the energy required to operate over a certain period of time, you can calculate the emissions and provide a holistic view of how a project looks with the price of carbon built in.”
Companies including Ernst & Young are currently building models with the help of scientists and economists for developing carbon strategies. Three main factors of these models include:
- Strategic initiatives, which include carbon pricing, risk of stranded assets and overall value chains
- Tactical elements, which include managing climate liability, decarbonization, greenhouse gas reporting and transparency
- Operations, which includes field maintenance and sensors to help control leaks
“All of these things take money, and it’s money we didn’t used to spend,” Williams said. “Today, when we are operating at $50 or $60 a barrel, adding a carbon plan to the budget could add another 20 to 30 percent to expenditures. This might make shale uneconomical and drilling may slow. But decreased production could drive up the cost of oil and make plays with carbon strategies more economical. You never know.”
Investment Outlook
For Mike Coffin, a former petroleum geologist for BP, if oil and gas companies want to stay fiscally sound, they need to make aggressive changes. Believing that the transformation to sustainable energy can be done faster than many industry experts believe, Coffin joined Carbon Tracker as an analyst last year to help advocate for the independent think tank’s mission to analyze the impact of the energy transition on capital markets and potential investments in carbon-producing fuels.
“Investors are becoming increasingly cautious of investing in companies that produce fossil fuels primarily because they see significant investment risks associated with companies over-estimating future demand for their products through the energy transition,” he said. “Oversupply will lead to reduced long-term commodity prices and lower returns, potentially destroying value for investors.”
He said renewables, which currently account for a small proportion of global energy production, can more than accommodate future demand growth and become a much larger proportion of the overall energy mix before intermittency issues occur.
Coffin recommends that the industry reduce emissions associated with the production and processing of hydrocarbons, but also take into account the fact that the vast majority of emissions from the full lifecycle use of a barrel of oil come from end-use combustion.
“If a company adds renewables to its portfolio and keeps fossil fuel production flat, the carbon intensity of overall energy production decreases, but the absolute emissions that result remain constant,” Coffin explained. “We don’t see a carbon footprint approach alone as being sufficient for a company to be viewed as Paris-aligned.”
Coffin believes that companies likely to maintain investors and public support are those that follow the recently announced “net zero” commitment made by Repsol. In a December 2019 press release, the company stated: “In line with its commitment to sustainability, Repsol aims to achieve net zero emissions by 2050, making it the first oil and gas company in the world to assume this ambitious goal. At the same time, it is setting a decarbonization path with intermediate targets for 2020 to 2040.”
As oil and gas companies move away from hydrocarbon production, Coffin recommends setting interim emission targets related to their upstream production that have an absolute basis rather than an intensity one; cover all life-cycle emissions; and include production from all assets in which they hold an equity share.
IEA’s Methane Tracker
As companies begin to develop plans for tackling the carbon issue, the International Energy Agency launched an online tool last July that tracks oil- and gas-related sources of methane. According to the IEA, the “methane tracker” offers the most comprehensive global picture of methane emissions, covering eight industry areas across more than 70 countries.
“IEA projections suggest that oil, and in particular, natural gas will play important roles in the energy system for years to come, even under strong decarbonization scenarios aligned with international climate goals,” according to the agency. “Reinforcing efforts to minimize methane emissions along the supply chains is an essential complement to the reductions in CO2 that are led by increased efficiency and deployment of clean energy and technologies.”
In a study released alongside the methane tracker, the IEA said an additional 1.2 billion tonnes of carbon dioxide could quickly be abated by switching to gas using existing infrastructure, if prices and regulations are supportive.
“This would be enough to bring global CO2 emissions back down to where they were in 2013,” the agency stated.
In the eyes of Williams, worldwide carbon regulatory measures are coming, and the oil and gas industry, particularly in the United States, would be wise to police itself proactively – not only to produce cleaner energy but to gain investor and public support.
“There needs to be a change in perception of the oil and gas industry,” he said. “Otherwise we are going to get run out of business.”