Oil and Gas Climate Initiative (OGCI), a group of volunteering chief executive officers of several energy companies, recently committed to bring down methane emissions. OGCI intends to reduce emissions of methane from last year's 0.32% to 0.25% by 2025, which will be further lowered to 0.20%. It is expected to lead to a reduction in methane emissions by 350,000 tons per annum.
Methane is the primary component of natural gas. It is released during mining and distribution of oil and gas. Its global warming effects are much more severe than that of carbon dioxide (up to 30 times). With rising need for cleaner energy sources, natural gas is expected to see a surge in demand, especially from the growing economies in Asia. Demand for oil is also on the rise. The situation can lead to higher greenhouse gas emissions as well as flaring of natural gas, which is a byproduct of crude oil production. Apart from reducing methane leakage, OGCI’s climate investment strategies include lowering carbon dioxide and recycling it for commercial uses.
The recent target of methane reduction came after a major event where American energy giants such as Exxon Mobil Corporation (XOM - Free Report) , Chevron Corporation (CVX - Free Report) , as well as Occidental Petroleum Corporation (OXY - Free Report) joined the OGCI, taking the member count to 13. These three companies account for 5% of oil and gas production all over the world. Other companies like BP plc (BP - Free Report) , Eni S.p.A. (E - Free Report) , Equinor ASA (EQNR - Free Report) , Royal Dutch Shell plc (RDS.A - Free Report) and TOTAL are also in the group.
The addition of U.S. companies will widen the global reach of OGCI, which currently includes companies from Asia, Europe, Latin America and the Middle East. Notably, of the total global oil and gas production, 30% comes from OGCI member companies. Moreover, it addresses 20% of global primary energy consumption. Hence, any move regarding climate change by this group can have a significant effect.
Other than following the OGCI objectives, the participating companies have their individual environmental goals as well. ExxonMobil, the largest publicly traded energy company, has plans to decrease greenhouse gas emissions related to its operations by 2020. The company wants to reduce flaring buy 25% and methane emission by 15%. The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Norwegian energy giant, Equinor’s carbon intensity in upstream operations is lower than most of its peers, standing at 10 kilograms per barrel of oil equivalent. The company has plans to reduce it to 9 kilograms by 2020 and 8 kilograms by 2030.
Chevron is participating in the Gorgon carbon dioxide injection project and Quest project. The company has already invested around $1.1 billion in them. Once the projects come online, these will likely reduce green house gases by approximately 5 million tons per year.
Italian energy major Eni is planning to reduce methane emissions by 80% and flaring to zero by 2025. The company intends to invest €280 million in research projects on energy transmission, renewables, bio-refining and green chemistry in the 2018-21 time period.
OGCI’s Plan of Action
Through its collective goals, the group will target key emission sources to reduce methane to near zero level in upstream activities, which is also in line with the Paris Agreement, an initiative within the United Nations Framework Convention on Climate Change to mitigate global warming. OGCI intends to work with other major global energy companies to achieve the target.
OGCI also has plans to invest in several research and development projects to come up with better and feasible solutions to tackle emissions. The investment fund of OGCI, with more than $1 billion in its kitty, will back the development of technologies and business models for this purpose. Chevron, in its annual meeting in May, turned down some similar resolutions after winning marginally against the environmental proposals, in shareholders' vote. However, this time, the company has come around to address its investors’ sentiments.
Per the new OGCI objectives, each member company will provide $100 million, over the next 10 years, to the investment fund. In late September, OGCI created a partnership with CNPC of China, which will provide a minimum fund of $100 million, for China. The country currently has high pollution levels. While it possesses immense opportunities for OGCI, it also poses a number of challenges. The initiatives have so far received support from environment activists and investors.
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