COP28 Could Mark a New Beginning for Decarbonizing the Upstream Oil & Gas Market

The COP28 United Nations Climate Change Conference in Dubai in December 2023 included an important milestone in the launch of the Oil & Gas Decarbonization Charter (OGDC), an effort by 50 oil & gas (O&G) companies to proactively reduce greenhouse gas (GHG) emissions from upstream sources. The signatories, which include international oil companies (IOCs) such as ExxonMobil, Shell, and BP, as well as national oil companies (NOCs) such as Saudi Aramco, Equinor, and Petrobras, represent more than 40% of global oil production.

While decarbonization in the O&G industry might sound like an oxymoron, a recent report from Guidehouse Insights details noteworthy emissions reductions that can be attained with relatively low investment costs compared with the profits of most major O&G companies. OGDC members have committed to net-zero operations by 2050 (at the latest) and to near-zero upstream methane emissions and an end to routine flaring by 2030.

Tackling operational emissions in upstream oil & gas, which includes the exploration and production segment, can be accomplished in several ways. The most obvious approach would be to replace demand for fossil-based products—everything from fuel to plastics and chemicals—with lower or zero carbon products, which would reduce the need to produce oil & gas. In addition, improvements in geological surveying and digital technologies can decrease the number of dry holes, which would reduce the amount of energy used in O&G exploration. However, all conservation and efficiency efforts will be met by strong demand for oil & gas, which is expected to peak sometime between the late 2020s and the mid-2030s.

The IOCs and NOCs that have joined the OGDC have also agreed to continue to work toward industry guidelines and standards for emissions reduction as well as pursue specific actions. These include investing in the energy system of the future (e.g., renewables, low carbon fuels, and negative emissions technologies) and being more transparent around the measurement, monitoring, reporting, and independent verification of GHG emissions and company performance and progress in emissions reduction.

The Guidehouse Insights report identifies several plausible options for decarbonizing the upstream O&G market. When associated natural gas is extracted in the pursuit of oil, but the field operator lacks the infrastructure to gather and market the methane, the gas is instead vented or flared. Since methane is a considerably more potent GHG than CO₂, the methane is usually set on fire (flared) to release CO₂, instead of direct methane, into the atmosphere. Venting and flaring unwanted gas is not just harmful to the environment, it is wasteful. Laying pipelines to gather the stranded gas is not always economically viable depending on the volume of gas; however, numerous other cost-effective technologies enable harnessing, using, and possibly selling the otherwise stranded gas instead of venting or flaring it.

Energy use is another noteworthy source of emissions from the oil patch, both onshore and offshore. Exploration and production involve drilling often more than a mile into the earth, cementing and casing the borehole, completing the well, hydraulic fracturing in the case of shale resources, and handling various gases and fluids on the surface. The process requires a lot of energy, most of which comes from diesel or natural gas. Electrification, especially through renewable electricity, would considerably reduce operational emissions.

Guidehouse Insights concludes that while O&G demand will continue to rise in the near term before flattening in the 2030s, efforts to curb flaring and venting could make massive and immediate strides in the meantime. However, longer-term decarbonization efforts will depend on government policies, such as the recent commitment to the OGDC by NOC members.