Following an exceptional year of profits in 2022, oil and gas corporations are gearing up to significantly increase their investments in green energy and innovative technology throughout 2023.
Exxon Mobil Corporation announced its intention to allocate approximately $3.4 billion per year to renewable energy initiatives for the next half-decade, a 15% increase compared to its previous year’s plans. Chevron Corporation, ranking as the second-largest oil company in the nation, has disclosed plans to boost its clean energy expenditure to $2 billion in 2023, more than doubling last year’s investment.
Chevron‘s CEO, Mike Wirth, emphasized in a statement last month that the company’s capital expenditure budget for 2023 aligns with its long-term objectives of achieving increased returns and reducing carbon emissions in a safe and responsible manner. The industry’s plans will get a boost from the Inflation Reduction Act, the massive climate law that includes $369 billion in tax credits and other incentives to promote technologies such as carbon capture and low-emissions sources of fuel and power.
At the same time, the oil industry is being criticized for not spending more of its profits on renewables and low-carbon energy. Both Exxon and Chevron plan to allocate more than 80 percent of their total energy spending to traditional oil and gas, not low-carbon fuels. Exxon plans to spend $20 billion to $25 billion annually on all forms of energy. Chevron’s total capital spending will be $17 billion in 2023, including spending by its affiliates.
That level of investment is inconsistent with the goal of limiting climate change to 1.5 degrees Celsius, and Big Oil’s limited spending on cleaner forms of energy isn’t enough to offset the climate-warming emissions from its oil and gas operations, said Thom Allen, an analyst with the nonprofit group Carbon Tracker Initiative.
“The only way they can really reduce their emissions is to cut production,” he said.
Overall, the industry has locked in plans to spend $58 billion on oil and gas projects globally that will push the global temperature rise past the 1.5-degree-Celsius threshold, according to research by Carbon Tracker.
The oil companies see it differently.
Here are three trends to watch with oil and gas in 2023:
- Renewable and Certified Gas
In recent months, three of the largest global oil and gas producers have acquired companies that generate natural gas from landfills, wastewater treatment plants, and other sources. This gas, known as biomethane or renewable natural gas, is eligible for tax credits under the Inflation Reduction Act and state tax credits in California. The fuel can be used for on-site electricity generation or purified and transported through pipelines like conventional gas.
Shell PLC purchased Nature Energy Biogas A/S, Europe’s largest biogas producer, for $2 billion last month, while BP PLC acquired Archaea Energy Inc. for $4.1 billion, including debt.
Chevron Corp. also bought Beyond6 LLC, a U.S.-based firm operating compressed natural gas fuelling stations, with plans to sell renewable gas as a vehicle fuel. The details of this deal were not disclosed.
Currently, renewable gas constitutes a relatively small portion of the overall gas supply. According to Johannes Escudero, CEO of the Coalition for Renewable Natural Gas, it could potentially fulfil 13% of U.S. gas requirements at full capacity. Some conventional oil and gas producers view renewable gas as a way to supplement their investments in wind and solar power generation.
“The companies weren’t all with us 11 years or five years ago, but they’re coming our way,”Escudero said
The energy industry is also seeking ways to reduce greenhouse gas emissions, primarily methane, resulting from its existing natural gas production. This pressure became evident in 2020 when French utility company Engie SA withdrew from a deal to purchase liquefied gas from a Texas-based exporter due to the associated methane pollution. As a result, producers, pipeline operators, and exporters started employing third-party companies to certify their operations’ emissions levels. Brian Miller, Senior Vice President for Public Policy and Growth at Project Canary, stated that approximately 30% of U.S. production is currently certified in some manner.
Miller estimates that certified gas could constitute 50% of all U.S. natural gas production within a few years, as utility companies and other end users demand more information about the pollution linked to the fuel they purchase. After a state law allowed Virginia Natural Gas, a subsidiary of Southern Co., to recover additional costs from its customers, the company announced in November that up to a third of its customers’ gas would come from low-emission sources. Other utility companies are exploring similar arrangements, according to Miller.
The EPA is set to finalize regulations on methane emissions from oil and gas production, and the Inflation Reduction Act imposes a fee on certain large operations that emit more than 0.2% of their gas production.
These regulations are fostering a market for companies like Project Canary, which employs various monitoring technologies to detect gas leaks and certify an operation’s emissions level. Project Canary provides continuous monitoring of well sites and other facilities, and is developing technology to enable buyers to quantify emissions from individual pad sites their fuel originates from.
Miller said, “If I’m a chief financial officer or a general counsel at an energy producer, and I want to be able to sleep at night, given forthcoming requirements and disclosures, I’m going to want to take a belt-and-suspenders approach with technology” to gather as much information as possible.
- Big Oil and CCS
The Inflation Reduction Act is also anticipated to stimulate growth in carbon capture and storage (CCS) and carbon removal sectors, which several oil companies are relying on to help minimize their emissions. The legislation increased the federal tax credit for carbon capture projects, known as 45Q, from $50 to $85 per metric ton of carbon dioxide securely stored through geological storage and from $35 to $60 per metric ton of CO2 stored via enhanced oil recovery (EOR).
Competitive Power Ventures (CPV), a power generation development company, stated that the climate and energy law made their projects viable. CPV plans to construct a natural gas-fired power plant with CCS technology in Doddridge County, West Virginia.
A database maintained by the Clean Air Task Force reveals that oil and gas companies announced several carbon capture projects in 2022. As the industry evaluates the Inflation Reduction Act, more projects are expected to be revealed in 2023, with others advancing from planning to construction.
For instance, BP is considering CCS retrofits at refineries in Indiana and Washington state, according to company spokesperson Josh Hicks. “We see BP refineries as a key source of demand for CCS because of their intent to decarbonize,” he said. BP is also exploring new CCS opportunities across the United States. In 2022, BP and industrial gas company Linde PLC unveiled plans to capture CO2 from Houston-area hydrogen plants.
John Northington, director of the National Carbon Capture Center, stated in a December webinar organized by the Department of Energy that funding from the bipartisan infrastructure law passed in 2021 could eventually support carbon capture in natural gas power plants.
Occidental Petroleum Corp. has begun site preparation activities and road construction for a direct air capture (DAC) plant called DAC 1 near Odessa, Texas. Will Fitzgerald, an Occidental spokesperson, stated that the company’s plans for 2023 include continued construction, efficiency improvements to reduce DAC costs, and collaboration with organizations seeking decarbonization solutions. The project’s location enables Occidental to inject captured CO2 into a saline aquifer for tax credits or use it to enhance production from aging oil fields in the region, according to CEO Vicki Hollub. She argued that CO2-enhanced oil recovery can produce net-zero emission oil, as the world cannot entirely cut out oil and gas production during the climate transition.
However, inflation has increased the plant’s cost estimate to $1.1 billion, up from the previous range of $800 million to $1 billion. Analysts questioned the impact of inflation and rising interest rates on the DAC project and Occidental’s broader low-carbon venture division. Paul Cheng, an analyst at Scotiabank, commented, “Given the project financing, the economic return may not be as good as before.”
- LNG Outlook for 2023
The coming year may bring clarity to numerous projects proposed for exporting liquefied natural gas (LNG) from the United States.
Currently, seven terminals are operating in the lower 48 states, with five under construction. The Federal Energy Regulatory Commission has approved an additional 11, but not all have secured the necessary financing and gas delivery contracts to proceed with construction.
Some projects may succeed, while others could fail due to factors such as gas supply costs, cost control, and environmental footprint management, according to Charles Riedl, Executive Director of the Center for Liquefied Natural Gas. He added that the market will likely determine the outcomes. New terminals could help supply a world seeking new gas sources following Russia’s invasion of Ukraine.
Environmental groups like Carbon Tracker are concerned that new projects may lock in the gas export trade and associated drilling, creating barriers to reducing overall emissions. Carbon Tracker’s Thom Allen warns of the risk that LNG companies may end up building stranded assets. Although the war in Ukraine has driven up gas prices in the short term, the International Energy Agency predicts that gas demand growth will slow over the next few years as European countries expand their renewable power generation portfolios.
U.S. LNG exports are projected to reach new heights in March, according to the U.S. Energy Information Administration’s most recent short-term energy outlook – if the Freeport LNG facility in Texas resumes operations. The Freeport LNG terminal has been offline since an explosion in June 2022. Operators have delayed the facility’s restart multiple times.
The agency expects LNG exports to reach 12.7 billion cubic feet per day by the end of 2023. However, as of now, Freeport has not filed a request to restart.
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