The ESG movement continues to grow, but with the growing
pains, there continues to be a push and pull going on, just like it is with
most things today. We are more divided today that at any other time I can
remember. As an example, almost every super-major oil company has embraced a
net zero, or lowering emissions goal. They are committed to decarbonization
with Oxy, ExxonMobil, Chevron, Shell and others leading the way. Yet, Shell was
sued recently for their ESG goals, even with emission reduction goals and
decarbonization in place. Why? Because they continue to have investment in oil
We have already witnessed what happens when you focus
entirely on alternative energy in the form of solar and wind. In Germany, they
faced an energy crisis, as well as other parts of Europe, well before the
Russian invasion of Ukraine. This led to
the European Commission adding natural gas and nuclear to the list of “sustainable”
energy sources. Today, Germany is burning coal in a complete reversal from its position
previously, but honestly, this is more a result of cutting off Russian oil and
gas and not having any other alternatives.
Balance. My point is it’s all about balance. We will
see growth in solar and wind, but it has to make sense, and we can never get to
elimination of oil and gas or we will end up like Germany with unreliable and
terribly expensive energy. There will be a balance, with some energy coming
from wind and solar and the rest likely from natural gas. In fact, for many
years, natural gas was always labeled the transition fuel while we moved to
cleaner energy. Today, natural gas is under attack, but what do people think
will fill the energy void when the wind isn’t blowing, and the sun isn’t
shining? There is still opposition to nuclear, and hydrogen isn’t fully
developed yet. Again, we need a balanced approach. This is why the Shell
lawsuit is so alarming, Shell, more than other majors, has turned away from oil
and gas, selling their stake in the Permian basin and investing in decarbonization
and solar and wind. Yet, a lawsuit is filed. But like I said, there is a push
and pull going on.
And now for the pull. Republicans have launched a new
ESG Working Group, aimed at coordinating ESG proposals, but specifically aimed
at upcoming climate disclosure rules anticipated by the SEC. In fact, SEC chair
Gary Gessner recently announced in an interview that the two hottest topics
under review by the SEC are the 1% rule, where you only report climate impacts
if they exceed 1% of a financial statement line item and the reporting of scope
3 emissions. Expect this working group
to pull away from more reporting or disclosure requirements from the SEC.
In addition, the pushing and pulling is the terrible lack of
transparency that exists. For example, Scope 1 is emissions from your
activities, Scope 2 emissions are from power generation, and Scope 3 emissions
are everything else, like vendors and indirect emissions from the products you
make when they are used.
Let me give you an example. Let’s say that I convert my
entire truck fleet to electric; I just went carbon zero. In reality, the
manufacturing of the electric car has a much bigger carbon footprint, due to the
mined minerals needed for EV batteries, so those are my scope 3 emissions, but
I don’t count them. And the electric car battery is going to need continuous
charging for more emissions, but that’s a Scope 2 emission, and I don’t report
it. So, I can claim carbon zero, but in reality, it’s not.
Currently, we play a shell game of moving emissions around
from Scope 1 to 2 to 3. So, it does seem to make sense to report all Scope 1,2
and 3 emissions, but many private companies don’t calculate all their emissions.
Furthermore, the SEC doesn’t really have jurisdiction over private companies,
and now we have the mess that is the disclosure rules.
We expect a proposal from the SEC later this year to address
the disclosure rules, and we will have to see how this plays out. But, there is
a significant push from the investment community to report Scope 1, 2 and 3
emissions. And, expect there to be more pushing and pulling form both sides. I
just hope we can get to a reasonable common ground. It won’t be easy, when you
have extreme opinions on both sides, ranging from ESG is a hoax to the oil
industry needs to be abolished. The hope is that the extreme opinions get
treated as outliers, and we let science and truth guide us to a more reasonable
outcome. Ok, quit laughing—I can dream, can’t I?
Decarbonization will change our industry and will
proceed. The investments have been made, and significant capacity will be
coming in the next few years. And as we offset the oil and gas industry emissions,
the investment community will come along. Just about every publicly traded
super-major is committed to decarbonization, and the race to net zero is real
and happening. This is an important step for our industry, as a whole. The
winning back of our “social license to operate,” real or imagined, is part of
that goal. With that, I want to talk a little about the decarbonization path we
Based on data from Rystad Energy, the U.S. Carbon Capture
market will exceed 200 million tons per year by 2030, and the global market
will be close to 700 Million tons per year by 2030. There will be significant carbon
capture capacity coming online. The problem is that we cannot create an offset or
tax credit without capture and sequestration. Class 6 Sequestration wells are
lagging, and the EPA predicts permitting will take even longer. We will likely
see capture capacity without sequestration.
Additionally, capture capacity is continuous, and it needs
to be for the economics to work, but a Class 6 sequestration is temporary.
These types of wells are only granted permits for limited lives. We do have
EOR, but EOR is strictly a conventional well practice, and we have been
investing primarily in unconventional wells, where EOR is not currently an
option. EOR doesn’t look to provide the growth opportunity to utilize all of
the captured carbon coming online.
We will cover this important topic in future columns. We
have, ourselves, developed a sequestration technology that can help, but for
the success of decarbonization, we need to ensure there will be sequestration
capacity that will keep up. I will continue to update you on all things ESG,
but decarbonization is such an important aspect of the movement within our
industry that we will keep focused on this topic. WO
MPATTON@HYDROZONIX.COM / MARK PATTON is president of Hydrozonix, an oil and gas-focused water management company.
He is a chemical engineer with more than 25 years of experience developing new technologies for wastewaters and process residuals.