Exchange operator wants oil prices to reflect emissions performance
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5 min read . Updated: 23 Mar 2022, 06:45 PM IST - New service allows for trading to take account of the carbon footprint of each barrel
Energy companies can now share traceable information about the emissions that were generated when their oil was produced thanks to a new platform provided by exchange operator Xpansiv, which is betting that corporate climate targets will stoke demand for fuel with a smaller carbon footprint.
Scandinavian oil producer Lundin Energy AB said Wednesday it would be the first company to use Xpansiv’s platform to record emissions data for its crude.
Dubbed Digital Crude Oil, the platform ties each barrel of oil to an emissions profile based on data such as the energy consumption of the oil rig it came from. Xpansiv said it is in talks with other oil drillers about signing up, and wants to let them sell certificates based on their products’ environmental performance.
Some energy producers are pitching their own emissions-reductions efforts as a selling point, in some cases even branding their fuel “carbon neutral." Such claims are hard to substantiate. Xpansiv, which operates various markets for sustainability-related financial products such as carbon offsets, says energy companies should be able to charge more if they can prove that their products cause less pollution than those of their peers.
The long-term objective is “to transform the energy sector at scale," said Jeff Cohen, Xpansiv’s director of sustainability.
Emissions from the energy sector mostly occur when fuel is burned, but 15% arise when oil and gas are extracted and shipped, according to the International Energy Agency. Xpansiv isn’t the only player moving to cater to demand for information about those emissions.
Williams Cos., a Tulsa, Okla.-based pipeline operator that handles roughly 30% of America’s natural gas, on Tuesday announced a partnership with Context Labs, whose software platform uses blockchain technology to create a log of emissions data. Williams wants to show gas can be sold “with credible and traceable emissions attributes," said Chad Zamarin, the company’s senior vice president for corporate strategic development.
Xpansiv’s oil product follows a similar service for sharing environmental data about natural gas, which it launched in September. Xpansiv has since registered around 90 metric million British thermal units of gas on its platform.
Xpansiv also lets companies register and sell tradable credits if their gas meets methane-emission standards under a trading system it launched with S&P Global Platts, a unit of S&P Global Inc. The first transaction, struck in October, saw Pacific Canbriam Energy Ltd. transfer certificates to industrial gas customer Skeena Bioenergy Ltd, a manufacturer of wood pellets.
The amount of methane, a potent greenhouse gas, that escapes from wells and pipelines is a key environmental metric for natural-gas producers. The plan is that companies will have an incentive to prevent leaks if they can sell those certificates to companies seeking to offset emissions. On March 21 the price of a certificate was $6.13 per metric ton of carbon dioxide equivalent, according to data from S&P Platts.
Xpansiv wants to introduce certificates for oil, too, but they would use a different performance standard that reflects other factors besides methane, Mr. Cohen said.
The value of these new services hinges on the underlying data. Xpansiv’s setup takes continually monitored data, for instance from satellites and sensors at energy infrastructure, and uses industry estimates to fill gaps. Mr. Cohen said there is room for improvement as estimates don’t capture methane leaks. Xpansiv is working with certification group Intertek Group PLC to audit its data collection.
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It isn’t clear if many energy buyers will pay more for less-emitting oil and gas—and whether that would help the climate. “In a world that is scrambling to find energy supplies to replace those produced in Russia, it is hard to imagine many customers ready to add a further premium to their gas supply," said Lorne Stockman, research director at Oil Change International, a group that advocates for renewable energy.
Mr. Zamarin at Williams said the company sees strong demand for less emissions-intensive fuel from utilities seeking to decrease their emissions profiles and exporters trying to displace more-polluting fuels. But they aren’t paying a premium yet, he said.
Still, Lundin chief executive Nick Walker said the company has won customers thanks to its emissions profile, and is able to charge a small premium for its oil. “The world is trying to decarbonize and people are willing to pay," he said.
Lundin has shrunk its carbon footprint by powering its rigs with renewable electricity, and its methane emissions are minimal because Norway heavily taxes leaks and the burning of excess natural gas, Mr. Walker said. Lundin has spent $50 million on forestry projects to soak up carbon dioxide to offset the emissions it can’t eliminate, Mr. Walker said.
The Xpansiv partnership comes as Lundin prepares to exit oil and gas and focus on renewables. In December it said it would sell its oil operations to Aker BP, a Norwegian energy company nearly 28% owned by BP PLC, for 125 billion Norwegian kroner, equivalent to $14.3 billion.
The deal could help Aker BP meet its own climate targets. Announcing the acquisition, it said Lundin had “one of the lowest carbon intensities of any [exploration and production] company." Lundin says it emits around 2.9 kilograms of carbon-dioxide equivalent for each barrel, compared with the industry average of 18 kilograms. Aker BP’s emissions intensity was 4.5 kilograms per barrel in 2020, below its 5 kilograms target, according to a report filed with environmental disclosure group CDP.
This story has been published from a wire agency feed without modifications to the text
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