Industry Market Trends

Oil and Gas Industries Lead the Way in CO2 Reduction

Oct 03, 2013

ID-100109114U.S. carbon dioxide emissions are at their lowest levels in 20 years -- thanks to the oil and gas industry.

"Oil and natural gas companies are America's top investors in zero- and low-greenhouse gas emissions (GHG) technologies," according to a new study released by API (American Petroleum Institute).

"America's oil and natural gas companies have invested more to reduce greenhouse gas emissions than the federal government and almost as much as all other industries combined," API Vice President for Policy and Economic Analysis Kyle Isakower said recently in The Maritime Executive

Oil And Gas: Half Of All Investment.

The study was conducted by T2 and Associates, and looked at investment in GHG mitigation technology from 2000 through 2012. "During that period, the U.S. oil and natural gas industry directly invested approximately $81 billion in GHG mitigation technologies," The Maritime Executive reported. "Other U.S. industries invested an estimated $91.2 billion, and the federal government invested an estimated $79.7 billion."

If you include shale investments, the amount credited to the oil and natural gas industry expenditures on GHG mitigation balloons to $165.4 billion, which is half of the total invested by all industries and the federal government over that time.

Emissions of CO2 in the U.S. have been slowing for years. The Energy Information Administration (EIA) reported last August that "energy-related greenhouse gas emissions in the United States declined in 2011 by 2.9 percent compared to 2010 and an additional 2.1 percent in 2012 compared to 2010." Last year, emissions were 705 million metric tons below the 2005 level, or 13 percent less, and in fact, "energy-related carbon dioxide emissions have declined in the United States in four out of the last six years."

And the API suggests that the greenhouse gas reductions achieved by the oil and gas industry are probably understated. "The emission reduction estimates for 2008-2012 presented herein were compiled strictly from company reports," the institute notes, adding that "there are indications that this summary of reported reductions is an underestimate of actual reductions."

But The News Is Better Than That.

In other words, the news is almost certainly better than reported because "not all companies reported emission reductions, so the reductions compiled here are likely conservative," the API said. Reductions in methane emissions reported in EPA's Natural Gas STAR program "are substantially greater than the total reported here," and "emissions reductions from substituting natural gas for coal are not included in reported emission reductions by oil and gas companies, but are significant in reducing overall emissions."

In other words, what was counted is impressive, but there are certainly other reductions that have not been tallied. It's interesting to note some of the reasons given for declines -- and upticks -- in CO2 emissions. For instance, America's GDP grew by 3.0 percent last year, while "emissions increased by 3.9 percent," which the API attributed to increased use of coal-fired power to do the things that gradually improving economies do. There was a decrease in the nation's GHG emissions in 2011, "primarily from mild weather and a declining price of natural gas that caused fuel switching away from coal to natural gas in the electric power sector," as well as federal EPA regulations forcing many to switch from coal to gas to generate electricity.

Reduced Emissions? A Happy Byproduct.

The interesting thing is that reduced emissions aren't always the result of investments targeted specifically for that purpose. Most of the investments made by the approximately 650 companies involved in the API study "provide benefits in addition to any ability to reduce greenhouse gas emissions, and were made for multiple reasons including to increase or diversify energy supplies, or to improve efficiency."

Case in point: Of all the investments made by the oil and gas industry which reduced emissions, by far the largest one, $109 billion worth, accounting for 66 percent of the total invested, was in fuel substitution -- specifically, expanding shale gas development. Shale gas emits less CO2 than other fuels, but it's also a lot cheaper.

What Does The Future Hold?

Energy generation is up. Economic activity is picking up. Greenhouse gas emissions, notably CO2, are dropping. Will things stay this way?

Power generation will continue to increase, barring any unforeseen development. The API study reports that the EIA thinks energy consumption in the United States will go up by about 10 percent from 2011 to 2040, ticking along at a 0.3 percent annual growth, "after accounting for a predicted improvement in energy intensity (energy usage per real dollar of GDP)."

Hard to dispute that the demand for energy will increase, or that demand will be met. The EIA recognizes that, again barring a incredible technological breakthrough not currently on anyone's horizon, that crude oil and natural gas and their derivatives "will remain the mainstay of the U.S. energy sector at least over the next several decades. The market share of oil, natural gas, and coal is projected to be approximately 81 percent in 2040, little changed from 83 percent in 2011."

But The Rest Of The World...

When it comes to the rest of the world, growth is expected to be more accellerated. According to EIA, which might have a tougher time tracking foreign growth than domestic, "global energy consumption is projected to rise by approximately 56 percent over the 2010 to 2040 period, a roughly 1.9 percent annual increase."

Most of that will no doubt come from emerging markets such as India and China as they industrialize and expand their economies. And of course right now that's expected to be met via hydrocarbons -- probably with significantly more coal than will be used in the U.S. in coming years.

The outlook for American CO2 emissions is optimistic. The EIA assumes that with "improved efficiency of energy use and a shift away from the most carbon-intensive fuels, U.S. energy-related carbon dioxide emissions will remain more than 5 percent below the 2005 level, even through 2040," the API report states.

And that will be due in large part to fracking. "Shale gas is an important source of expanded supply of natural gas in the U.S.," the report notes, adding that as a good greenhouse gas emission reduction technology, shale gas "increases the supply of natural gas to the North American market that may substitute for coal, and to a lesser extent for petroleum-based liquid fuels...  Several recent studies demonstrate the greenhouse gas emission reductions are associated with substituting shale gas for coal and other higher GHG intensity fuels."