石油、天然气和综合能源公司科学碳目标设定指南草案（英）VIP专享VIP免费

下载本文档

阅读 364
格式 pdf
大小 2.21 MB
约67页
2023-04-18
收藏
点赞(0)
海报
举报

Consultation version of 10th of August 2020

Guidance on setting science-based targets for

Oil, Gas and Integrated Energy companies

This document is a work-in-progress representing the views of its authors and perspectives conveyed by

the Technical Working Group of this project. It is not meant to represent a definite position of the Science

Based Targets initiative, nor the official position of any of the SBTi partner organisations. Because this

document is a work-in-progress, it may still change, perhaps profoundly.

Consultation version of 10th of August 2020

Acknowledgements

The coordinator and main author of this guidance is Pedro Faria (CDP). Several others have

contributed to it in multiple ways, namely Paul Griffin (CDP) on describing the SDA methods

(Chapter 4); Andres Chang (CDP) provided early materials on scenarios for energy sector;

Andrew Grant, Mike Coffin and Robert Schuwerk from the Carbon Tracker Initiative (CTI) are the

authors of the Least Cost methodology, presented in Annex F; Krista Halttunen (Imperial College)

has co-written Chapter 7; Paulina Tarrant has written Chapter 5 and has coordinated TWG

sessions and public consultation; José Eduardo Barroso has written Annex A and B and provided

input and feedback throughout the process on multiple questions; Alex Cantlay, Shantanu

Chaterjee and Mark Downes (Shell), provided the powerpoint with the basis for some of the

figures in Annex D. Tauseef Chowdhury as revised some (but not all, yet) of the chapters for

English grammar and structure.

This guidance also benefited early on from the work developed for the ACT – Assessing Low-

Carbon Transition initiative, namely the TWG discussions and in particular the work developed

by the team from iCare who led and wrote the ACT Oil&Gas methodology. Last, but not the least,

this guidance also reflects multiple conversations one to one with all the members of the TWG as

well as the TWG discussions and the written feedback to discussion papers on several of the

topics this guidance addresses.

Consultation version of 10th of August 2020

Table of Contents

Acknowledgements ........................................................................................................... 2

Executive Summary ........................................................................................................... 6

Section 1: ............................................................................................................................. 7

Setting GHG Science-Based Targets in the Oil & Gas Sector ..................................... 7

Chapter 1: Scope and Boundaries ................................................................................... 8

Proposed Scope ................................................................................................................................ 8

Proposed Boundaries ..................................................................................................................... 10

Organizational boundaries ................................................................................................................................. 11

Operational boundary ........................................................................................................................................ 11

Scope 3 volume counting for Integrated Oil and Gas companies: Net Value Chain approach .......................... 12

Exclusions to the methodology .......................................................................................................................... 14

Chapter 2: Criteria and recommendation for target setting ...................................... 16

Integrated Companies .................................................................................................................... 17

Upstream Companies ..................................................................................................................... 17

Midstream Companies ................................................................................................................... 18

Downstream Companies – Petrol Stations ...................................................................................... 18

Downstream companies – Gas distribution and/or retail ................................................................ 18

Other requirements ....................................................................................................................... 19

Chapter 3: Scenarios for Oil & Gas SBT setting ......................................................... 20

Oil, Gas and integrated energy companies SBT reference scenario set ............................................ 20

Key questions related to the use of scenarios ................................................................................. 22

Gross and Net emissions .................................................................................................................................... 22

Scope 3 accounting ............................................................................................................................................ 22

Direct and Indirect Removals accounting .......................................................................................................... 23

Electricity consumption scenarios for Oil and Gas activities .............................................................................. 23

Chapter 4: Methodologies ............................................................................................... 25

Integrated Well-to-wheel method .................................................................................................. 26

Indicator ............................................................................................................................................................. 26

Products and their emissions ............................................................................................................................. 26

Products and their energy content .................................................................................................................... 28

Construction of the scenario pathway ............................................................................................................... 28

Application ......................................................................................................................................................... 29

Least-cost methodology ................................................................................................................. 31

Indicator ............................................................................................................................................................. 31

Scenarios ............................................................................................................................................................ 31

/67

下载本文档

文本预览下载提示常见问题

Consultationversionof10thofAugust20201Guidanceonsettingscience-basedtargetsforOil,GasandIntegratedEnergycompaniesThisdocumentisawork-in-progressrepresentingtheviewsofitsauthorsandperspectivesconveyedbytheTechnicalWorkingGroupofthisproject.ItisnotmeanttorepresentadefinitepositionoftheScienceBasedTargetsinitiative,northeofficialpositionofanyoftheSBTipartnerorganisations.Becausethisdocumentisawork-in-progress,itmaystillchange,perhapsprofoundly.Consultationversionof10thofAugust20202AcknowledgementsThecoordinatorandmainauthorofthisguidanceisPedroFaria(CDP).Severalothershavecontributedtoitinmultipleways,namelyPaulGriffin(CDP)ondescribingtheSDAmethods(Chapter4);AndresChang(CDP)providedearlymaterialsonscenariosforenergysector;AndrewGrant,MikeCoffinandRobertSchuwerkfromtheCarbonTrackerInitiative(CTI)aretheauthorsoftheLeastCostmethodology,presentedinAnnexF;KristaHalttunen(ImperialCollege)hasco-writtenChapter7;PaulinaTarranthaswrittenChapter5andhascoordinatedTWGsessionsandpublicconsultation;JoséEduardoBarrosohaswrittenAnnexAandBandprovidedinputandfeedbackthroughouttheprocessonmultiplequestions;AlexCantlay,ShantanuChaterjeeandMarkDownes(Shell),providedthepowerpointwiththebasisforsomeofthefiguresinAnnexD.TauseefChowdhuryasrevisedsome(butnotall,yet)ofthechaptersforEnglishgrammarandstructure.ThisguidancealsobenefitedearlyonfromtheworkdevelopedfortheACT–AssessingLow-CarbonTransitioninitiative,namelytheTWGdiscussionsandinparticulartheworkdevelopedbytheteamfromiCarewholedandwrotetheACTOil&Gasmethodology.Last,butnottheleast,thisguidancealsoreflectsmultipleconversationsonetoonewithallthemembersoftheTWGaswellastheTWGdiscussionsandthewrittenfeedbacktodiscussionpapersonseveralofthetopicsthisguidanceaddresses.Consultationversionof10thofAugust20203TableofContentsAcknowledgements...........................................................................................................2ExecutiveSummary...........................................................................................................6Section1:.............................................................................................................................7SettingGHGScience-BasedTargetsintheOil&GasSector.....................................7Chapter1:ScopeandBoundaries...................................................................................8ProposedScope................................................................................................................................8ProposedBoundaries.....................................................................................................................10Organizationalboundaries.................................................................................................................................11Operationalboundary........................................................................................................................................11Scope3volumecountingforIntegratedOilandGascompanies:NetValueChainapproach..........................12Exclusionstothemethodology..........................................................................................................................14Chapter2:Criteriaandrecommendationfortargetsetting......................................16IntegratedCompanies....................................................................................................................17UpstreamCompanies.....................................................................................................................17MidstreamCompanies...................................................................................................................18DownstreamCompanies–PetrolStations......................................................................................18Downstreamcompanies–Gasdistributionand/orretail................................................................18Otherrequirements.......................................................................................................................19Chapter3:ScenariosforOil&GasSBTsetting.........................................................20Oil,GasandintegratedenergycompaniesSBTreferencescenarioset............................................20Keyquestionsrelatedtotheuseofscenarios.................................................................................22GrossandNetemissions....................................................................................................................................22Scope3accounting............................................................................................................................................22DirectandIndirectRemovalsaccounting..........................................................................................................23ElectricityconsumptionscenariosforOilandGasactivities..............................................................................23Chapter4:Methodologies...............................................................................................25IntegratedWell-to-wheelmethod..................................................................................................26Indicator.............................................................................................................................................................26Productsandtheiremissions.............................................................................................................................26Productsandtheirenergycontent....................................................................................................................28Constructionofthescenariopathway...............................................................................................................28Application.........................................................................................................................................................29Least-costmethodology.................................................................................................................31Indicator.............................................................................................................................................................31Scenarios............................................................................................................................................................31Consultationversionof10thofAugust20204Application.........................................................................................................................................................32Upstream:Scope3,USP(SDA,convergence)..................................................................................32Indicator.............................................................................................................................................................32Productsandtheiremissions.............................................................................................................................33Productsandtheirenergycontent....................................................................................................................33Constructionofthescenariopathway...............................................................................................................33Application.........................................................................................................................................................35Upstream:Direct(Scope1)Methaneemissions(SDA,convergence)..............................................39Indicator.............................................................................................................................................................39Constructionofthescenariopathway...............................................................................................................40Application.........................................................................................................................................................41Alternative1(CH4Contraction)..........................................................................................................................42Alternative2(Upstream+midstream;Midstream)............................................................................................43Upstream:Direct(Scope1)CO2emissions(SDAconvergence)........................................................43Indicator.............................................................................................................................................................43Constructionofthescenariopathway...............................................................................................................43Upstream:Direct(Scope1)CO2emissions(SDAcontraction)..........................................................43Indicator.............................................................................................................................................................43Constructionofthescenariopathway...............................................................................................................43Application.........................................................................................................................................................44Scope2(SDA,Convergence)...........................................................................................................44Indicator.............................................................................................................................................................44Constructionofscenariopathways....................................................................................................................44Application.........................................................................................................................................................45Section2:ContextandBackground.............................................................................46Chapter5:Context...........................................................................................................47GuidanceObjective........................................................................................................................47MethodologyDevelopmentProcess...............................................................................................47TechnicalWorkingGroup...................................................................................................................................48TheScienceBasedTargetsInitiative...............................................................................................48Chapter6:OverviewofO&Gindustry..........................................................................49Chapter7:Challengesoftransitioningtoanet-zeroeconomy................................50Literaturereview............................................................................................................................52Transitionmodes...........................................................................................................................53Energycompany.................................................................................................................................................54Carboncompany(circulareconomy).................................................................................................................56Manageddecline................................................................................................................................................58Newdirection.....................................................................................................................................................60Conclusions........................................................................................................................................................62Chapter8:Resourcesandextramaterials...................................................................63Consultationversionof10thofAugust20205References........................................................................................................................64Glossary.............................................................................................................................67Consultationversionof10thofAugust20206ExecutiveSummary7Section1:SettingGHGScience-BasedTargetsintheOil&GasSector8Chapter1:ScopeandBoundariesThischapterpresentsanddefinesthescopeandboundariesconsideredindevelopingmethodologiesforscience-basedtargets(SBT)settingofOil,GasandIntegratedenergycompanies.Forthepurposeofthisguidancewehaveconsideredan“IntegratedEnergysector”,composedofOilandGas(O&G)companies,aswellasEnergycompanieswithoilandgasactivities–butarenolongerstrictlyjustOilandGasandsocanbeconsideredascompaniesthatarealreadyintransition1.OilandGasenergycompaniesvarywidelyintheircoreactivities((Tordo,2011)and(Meltonetal.,2015)).However,theindustryisusuallydividedintothreemainsegments(IPIECA,2014):1.Upstream:comprisingexploration,drilling,production,andO&Gfieldservices;2.Midstream:comprisingpipelines,terminals,marinetransportation,storage,andmidstreamservices;3.Downstream:comprisingrefineries,retailoutlets,naturalgasdistribution,andpetrochemicals.Figure1-ActivitiesintheO&GvaluechainProposedScopeByscope,wemeanthepartsofthevaluechainaddressedinmethodologydevelopment,aswellasthetypesofcompaniesthatcanapplythemethodologiesforGHGtarget-settingpurposes.Wellsoftenproducebothoilandgas,butforclaritywedifferentiatetheirvaluechains.Theproposedscopereliesonthefollowingagreedassumptions:1)OilandGascompaniesmaychoosetoaddressthechallengesoftheenergytransitionbypursuingthefollowingstrategicoptions1:a)Widerenergyprovision(insteadofoilandgasprovision),whichencompassesawidervarietyofenergyproductsandservices,includingtheelectricityvaluechain,thebiomass,hydrogenandammoniavaluechains,energyefficiencyservices,etc.b)Movingintoacircularcarboncompany,withtheprovisionofcarboncapture,usageandstorageservicesorproductsrelatedwithcarbon;c)Continuetofocusonoilandgasproductionwhilemanagingitsdecline.d)Completelyreinventitsbusinessmodel,operatinginanothersector(notaddressedhere).2)Thefocusisonenergyproducts.Whilewerecognizethatnon-energyusesprovidepathwayswithlimitedassociatedemissionsforfossilhydrocarbons,thisisadifferentsectortotheO&GsectorthatwillseeseparatemethodologicaldevelopmentsundertheScienceBasedTargetsinitiative(SBTi).Accountingforhydrocarbonflowstonon-energyuseswillbedealtwithlaterinthisdocumentwhenaddressingoperationalboundaries.SomeactivitiesthatoccurinthisexpandedOilandvaluechain(seepoint1above,whatwearedesignatingasOil,GasandIntegratedenergyvaluechain)werenotconsideredsufficientlydistinctorsignificantintermsofcarbonemissionstobeprioritizedfortheirownSBTmethodologyatthisstage:1Pleaseseechapter7fordetailsofthedifferenttransitionmodesconsidered.91.O&Gservicesandlogistics:althoughtheseplayershaveacriticalroleindiscoveringresources,theyarenottheultimatedecision-makersontheinvestmentsneededtoconvertresourcesintoreserves.TheyarenotahighpriorityforanSBTmethodology;2.O&Gtransportationandstorage:pureplayersofpipelines,vessels,orstoragefacilitiesareexcluded.Theconsiderablelock-ineffectandcontinuouseffortsforexpandingthetransportationinfrastructuremakeitanunlikelycandidateforanSBT.Furthermore,thisstageisalsoresponsibleforasmallpercentageofoverallemissionsfromtheO&Gsector(~1%2)andisalowpriorityfortheSBTi3;3.Trading:isnotseenasastrongleverforchangeamongplayersinOil,GasandIntegratedEnergysector;4.O&Gandelectricityequipmentmanufacturing:theseactivitiesareexcludedastheyfallwithinadifferentsector(manufacturing)andconsideredtooupstreamfromenergysupplyactivities.Figure2andFigure3showtheactivitiesintheO&Gvaluechainsconsideredforcoveragebythemethodologiesandthoseactivitiesthatwereexcluded.Figure2–Activitiesintheoilvaluechainandexclusionstoscope(redboxes)Figure3–Activitiesinthegasvaluechainandexclusionstoscope(redboxes)2Accordingtodatafromhttps://oci.carnegieendowment.org/.3TheSBTialsoconsidersthattheenablingroleoftheO&Gtransportationinfrastructureandthecontinuingtrendinconstructionofthistypeofinfrastructurearerelevant,however,atthisstageitisnotseenhowanSBTmethodfocusedonemissionscanhelpwiththischallenge.10Gasdistributionandretailarebothwithinscope.Gasdistributionisthefinalstepindeliveringnaturalgastoconsumers.Whilelargeindustrialorcommercialcustomerscanreceivenaturalgasdirectlyfromthetransmissionnetwork,mostotherusersreceivenaturalgasfromtheirlocaldistributioncompanythatoperatesandmanageslow-pressuredistributionnetworks.ThefollowingcommontypesofcompaniesintheO&GvaluechainarecoveredbythisGuidanceasshowninFigure4.Figure4–CompaniesintheO&GvaluechaincoveredbytheSBTO&GguidanceProposedBoundariesThissectiondefineswhatorganizationalandoperationalboundariesshallbeconsideredbythecompaniesthatfallinscope(asdefinedintheprevioussection).Byboundaries,wemeanthesetofactivitiesthatcompaniesshallconsiderinsettingSBT.11OrganizationalboundariesTheSBTiexpectscompaniestofollowtheGHGProtocolandconsolidatetheiremissionsaccordingtooneofthethreeapproachesitdefines(operationalcontrol,financialcontrolorequityshare)4.TheO&Gsectorisknownforitscomplexownershiparrangementsforoperatingassets-forexample,jointventuresinwhichmultiplecompanieshaveanequityshareinanassetarecommonwithinthesector.Thismaybeoverlaidbycontracts/sub-contractsforathirdpartytooperatetheasset.Forpracticalreasons,theapproachtakendifferentiatesorganizationalboundaryrequirementsinthesettingofSBT’sinthefollowingmanner:1.companiesshallfollowanequityshareapproachinconsolidatingScope3emissions,namelyPurchasedGoodsandServicesandUseofSoldProductscategories;2.companiesshouldfollowanequityshareapproachinconsolidatingScope1&2emissionsbutmayfollowanoperationalcontrolapproach.OperationalboundaryOperationalboundaryrequirementssetwhichGHGemissionsources(andsinks)shouldbeconsideredforSBTsettingpurposes.Thesearesetforkeysegmentsbelow.Table1-Upstream(production&gasprocessing)ScopeSourcesEmissionsConsolidationapproach1Mobileandstationary,includingflaringShallaccountforDirectemissions:CO2fromcombustionMayaccountforDirectemissions:N2OandCH4fromcombustionShouldconsolidateonEquitysharebasisMayconsolidateonoperationalcontrolbasisVenting,flaring,andfugitivesShallaccountforDirectemissions:CH4MayaccountforDirectemissions:CO22Electricity,heatandsteamShallaccountforIndirectemissions:CO2MayaccountforIndirectemissions:N2OandCH4fromcombustion3Useofsoldproducts(crudeoil,naturalgas)ShallaccountforIndirectemissions:CO2MayaccountforIndirectemissions:N2OandCH4fromcombustionShallconsolidateonEquitysharebasisPurchasegoodsandservices(crudeoil,naturalgas)ShallaccountforIndirectemissions:CO2andCH4(non-combustion)MayaccountforIndirectemissions:N2OandCH4fromcombustionTheScope3,Useofsoldproductscategorywillrefertooilandgas(andassociatedproducts)productionbythecompanyandshallbeconsolidatedonanEquitybasisasusuallyfoundinfinancialreports.Emissionsrelatedtotheuseofcrudeoilandgasinnon-energyproductsarenotincludedwithintheScope3,UseofSoldProductscategory.SeeAnnexAfordetails.Table2-Oilmidstream(Refinery)ScopeSourcesEmissionsConsolidationapproach1Mobileandstationary,includingflaringShallaccountforDirectemissions:CO2fromcombustionMayaccountforDirectemissions:N2OandCH4fromcombustionShouldconsolidateonEquitysharebasisMayconsolidateonoperationalcontrolbasisVenting,flaring,andfugitivesShallaccountforDirectemissions:CH4MayaccountforDirectemissions:CO22Electricity,heatandsteamShallaccountforIndirectemissions:CO2MayaccountforIndirectemissions:N2OandCH4fromcombustion4Ofthe96O&Gcompaniesthatreportedtheirorganizationalboundariesin2019toCDP,85reportedusingoperationalcontrol,ninefinancialcontrolandtwoequityshare.123Useofsoldproducts(crudeoil,naturalgas)ShallaccountforIndirectemissions:CO2MayaccountforIndirectemissions:N2OandCH4fromcombustionShallconsolidateonEquitysharebasisPurchasegoodsandservices(crudeoil,naturalgas)ShallaccountforIndirectemissions:CO2andCH4(non-combustion)MayaccountforIndirectemissions:N2OandCH4fromcombustionScope3,Useofsoldproductscategorywillrefertovolumesoffinishedoilandgasproducts,readytobecommercializedorinjectintotransmissiongridsandthatthecompanyeffectivelysellstootherforfurtherdistribution(physicalsales).Emissionsrelatedtotheuseofrefinednon-energyproducts(lubricants,waxes,etc)soldarenotincludedwithintheScope3,UseofSoldProductscategory.SeeAnnexAfordetails.Table3-Oildownstream(servicestationsandoildistributors)ScopeSourcesEmissionsConsolidationapproach2Electricity,heatandsteamShallaccountforIndirectemissions:CO2MayaccountforIndirectemissions:N2OandCH4fromcombustionShallconsolidateonEquitysharebasis1RoadtransportationShallaccountforIndirectemissionsCO2MayaccountforDirectemissions:N2OandCH43Useofsoldproducts(Refinedproducts)ShallaccountforIndirectemissionsCO2MayaccountforDirectemissions:N2OandCH4Scope3,Useofsoldproductscategorywillrefertovolumesofenergyproductsreadytobeusedbyafinalconsumerandthatthecompanyeffectivelysellstoafinaluserthroughitsretailandpetroldistributionstations.Emissionsrelatedtotheuseofrefinednon-energyproducts(lubricants,waxes,etc)soldarenotincludedwithintheScope3,UseofSoldProductscategory.SeeAnnexAfordetails.Table4-Gasdownstream(gasdistributionandgasretail)ScopeSourcesEmissionsConsolidationapproach1FugitiveemissionsShallaccountforDirectemissionsCH4ShallconsolidateonEquitysharebasisMobileandstationarycombustionShallaccountforDirectemissionsCO2MayaccountforDirectemissions:N2OandCH42Electricity,heatandsteamShallaccountforIndirectemissionsCO2MayaccountforIndirectemissions:N2OandCH4fromcombustion3Useofsoldproducts(Gasproducts)ShallaccountforIndirectemissionsCO2MayaccountforIndirectemissions:N2OandCH4fromcombustionScope3,Useofsoldproductscategorywillrefertovolumesofgasproductssoldtoafinalconsumer,householdorindustrial.Scope3volumecountingforIntegratedOilandGascompanies:NetValueChainapproachOil,GasandIntegratedenergycompaniestradeenergyproductsatmultiplepointsoftheirvaluechains.Thegoalistoassessallenergyproductssoldbyacompany,whichincludesmaterialproducedandprocessedbythecompanyandmaterialsproducedandprocessedbyothers.Thisapproachconsidersthesumofallvolumesmanagedateachstepofthevaluechainforeachproduct,consideringimportsandexportsandnettinginternalexchangesofproductstoavoiddoublecounting.Asperabove,thecompanyshallfollowanequityshareapproachtotheconsolidationoftheseflows.ANetValueChainmethodtoaccountforproductsdestinedforenergyuse5isdefinedinEquation1.5Thismeans,aspertheScopeandBoundarychapter,thatatproductionstagediscountfactorscanbeappliedforproductsdestinedfornon-energyuse,suchaspetrochemicalfeedstock,lubricants,etc.13Equation1-NetValueChainvolumes!"#%&'(")ℎ&+,=max!"#%&'(%2'(3"+,4#&5"+),where1=production;2=refiningand3=marketingThreeexamplesareprovidedinFigure1toFigure3whereflowsateachstageofthevaluechain–upstream,midstreamanddownstream-areexemplified,includingbothflowsproducedbycompanyandthoseimportedfromexternalentitiesandexported(sold)tothirdparties.TheexamplesareprovidedforOilbutcanbegeneralizedforotherenergyproducts.TheanalysisonNetValueChainvolumesshouldbedoneatgloballevelbutmayalsobedoneatregionallevel.Figure1–MainlyE&PFigure2–Mainlyrefining14Figure3–MainlymarketingExclusionstothemethodologyIntegratedenergycompanieswillhaveactivitiesconsidered“out-of-scope”ofthismethodologyandcompaniesshouldfollowtheapproachesheredefinedfortwonotablecases:1.Scope1&2emissionsfrompetrochemicalfeedstockfluxes,namelyemissionsfromtheFluidCatalyticCracker(FCC)inrefineries.Petrochemicalactivitiesoftenco-existwithactivitiesrelatedwiththeenergyvaluechaininhighlyintegratedindustrialprocesses,notablyinrefineriesandpetro-chemicalcomplexes.Forthismethodology,FCCemissionsshouldbeconsidered(defaultoption)butcompaniesmaydecidetoexclude100%oftheFCCemissionsiftheyfindthatismainlyservingpetrochemicalfeedstockpurposes.TheboundarybetweenenergyandpetrochemicalissetattherefineryFluidCatalyticCrackerandso,necessarily,thisconstitutesanareawhereflexibilityisprovided,butexclusionsofFCCemissionsaspartoftheOilandGasactivities–withinclusionaspetro-chemicalactivities-shallbenotedandjustified.AnnexBpresentsdataandabriefexplanationontherationaleforthisapproach.2.Scope3emissions:asspecifiedabove,thereshouldbenoconsiderationofnon-energyproducts(asphalt,lubricants,waxes,white-spiritsandotherdistillates,olefins,petrochemicalfeedstock)forScope3purposes;Companiesmightalsohavesmallerauxiliaryprocesses(e.g.linkedtothenon-energypurposes),whichrepresentdeminimissourcesofemissions.CompaniesshouldcontinuetoreporttheGHGemissionsfromtheseactivities,butmay:15A.Excludetheseemissions,providedtheyfallbelowa5%thresholdoftotalscope1+2+(3,UseofSoldproducts);Useasimplified,non-sectorspecificmethodology(e.g.absolutecontractionorGHGemissionsperunitofvalueadded)tosetanSBTforthosesources.16Chapter2:CriteriaandrecommendationfortargetsettingInthissectiontherequirementsforOil,GasandIntegratedenergycompaniestosettargetsandfortheirvalidationbytheSBTinitiativearedefined,consideringthefollowingaspects:1.Typeofcompany,e.g.integrated,upstream,midstreamordownstreamcompany;2.Ambitionlevel;3.EmissionScopes,e.g.1,2or3;4.Timehorizon,e.g.short,midandlong-termtargetsetting;5.Targettype,e.g.absoluteorintensitytargets;6.Baseyear.Oil,GasandIntegratedenergycompanieswishingtosetascience-basedtargetandvalidateditbytheSBTishouldalsoreadthegeneric“SBTiCriteriaandrecommendation”(atthetimeofwritinginitsversion4.1ofApril2020).WherethisOil,GasandIntegratedenergycompanyguidancedeviatesfromthegeneralSBTicriteriainitscurrentversion,thisguidancetakesprecedence.TheSBTiwillcontinuetoupdateitsrequirementsandrecommendationsandmightrefineormodifyitinthefuture,includingthespecificcriteriaandrecommendationsapplicabletoOil,GasandIntegratedenergycompanies.Someofthebasicrequirementsforscience-basedtargetsettingtobevalidatedbytheSBTiare:•Baseyear:ForOil,GasandIntegratedenergycompanies,theSBTirequirestargetstobesetwithabaseyearwithinthe5previousyearswhenthetargetisbeingset,orasanaverageofthepast5-years.Thereasonsforagivenchoiceofabase-yearshallbegiven.TheSBTirecommendschoosingthemostrecentyearforwhichdataareavailableasthetargetbaseyear6.•Targetyear:Specifictargetyearrequirementsaresetbelowpertargetandcompanytype,butgenericallytargetsthatcovermorethan15yearsfromthedateofsubmissionareconsideredlong-termtargets.Companiesareencouragedtodevelopsuchlong-termtargetsupto2050.•LevelofAmbition:Ataminimum,targetsmustbeconsistentwiththelevelofdecarbonizationrequiredtokeepglobaltemperatureincreasetowell-below2°Ccomparedtopre-industrialtemperatures,thoughcompaniesareencouragedtopursuegreatereffortstowardsa1.5°Ctrajectory.Boththetargettimeframeambition(baseyeartotargetyear)andtheforward-lookingambition(mostrecentyeartotargetyear)mustmeetthisambitioncriteria.ThecriteriaassociatedwithaclassificationofWB2Cor1.5CaresetinTable1.Table1–ConditionsassociatedwithaWB2Cand1.5Cscenario,usingtheSBTicriteriaTemperature(ºC)OvershootLikelihoodWB2C~1.8Low>66%1.5C1.5Low>66%6Acommonconcernformcompaniesinsettingoldbaseyearsisthattheywanttoseetheirearlyactionrecognized.Thetargetsettingmethodologyrecognizesthestartingpointofeachcompany–namelyifitisaboveorbelowthesectoraverage–andadjustthepathwaysandtargetsonthatbasis.17IntegratedCompaniesIntegratedcompaniesoperateacrossmorethanonesegmentofthevaluechain.Integratedcompaniesshallhavetargetsthat:A.Reflectchangesinthedemand,eitheronanabsoluteorintensitybasis;B.Reflectchangesinsupply,includinglimitationsoncontinuinginvestmentinfossilfuelproduction;C.Explicitlyaddressupstreamandmidstreammethaneemissions.Thefollowingtableillustratesthecriteria(“shall”requirements),recommendations(“should”requirements)andoptions(“may”requirements)forthesetargets.Allrequirementsare“shall”exceptwhereexplicitlyindicated.Repeatedlinesintablerepresentoptionsforsamerequirements.Thecolumn“segment”reflectsnotarequirement,butthesegment(pointinthevaluechain)whichthetargetmainlyappliesto.TargettypeTimeframeConsolidationMethodologySegmentAS1+2+3orS3(USP).IntensityorAbsolute5yearsto15yearsMay:long-term;interim;net-zeroEquityshareMay:WTW,SDAS3,SDAS1,SDAS2MarketingBShould:Absolute5to15yearsMay:3-5yearsEquityshareShould:Least-cost;SDAS3UpstreamMay:Commitmenttoonlysanctionprojectswithhighlikelihoodofbeingcompetitivein1.5orWB2CbudgetMinimumnext15yearsEquityshareMay:Least-costUpstreamCAbsolute5to15yearsMay:long-termShould:equityshareMay:OperationalcontrolSDACH4Upstream&MidstreamWTW–Well-to-wheel;SDA–SectoralDecarbonizationApproachUpstreamCompaniesUpstreamcompaniesoperateprimarilyintheinitialproductionstages(e.g.extractionfromnaturalenvironments)ofenergyproducts.Thesecompaniesshallhavetargetsthat:A.Reflectchangesinsupply,reflectinglimitationsoncontinuinginvestmentinfossilfuelproduction;B.Addressupstreammethaneemissions.Upstreamcompaniesmayhavetargetsthat:C.Reflectchangesindemand,eitheronanabsoluteorintensitybasis;D.AddressS1&2upstreamemissions,eitheronanabsoluteorintensitytargets7.Thefollowingtableillustratesthecriteriaforthesetargets.Allrequirementsare“shall”exceptwhereexplicitlyindicated.Repeatedlinesintablerepresentoptionsforsamerequirements.TargettypeTimeframeConsolidationMethodologyAS1+2+3orS3(USP),Absolute5to15yearsMay:3-5yearsEquityshareMay:Least-cost,SDAS3,WTWMay:Commitmenttoonlysanctionprojectswithhighlikelihoodofbeingcompetitivein1.5orWB2CbudgetMinimumnext15yearsEquityshareLeast-costBS1CH4,Absolute5to15yearsShould:equityshareSDACH47Itmightseemstrangethatthisisa“May”requirement.Thereasonforthisisthat,tothisdate,ithasnotbeenpossibletodetermineanauthoritativeSBTmethodforupstreamCO2emissions.CompaniescansetaS1&2targetbysettingaS1+2+3targetusingamethodliketheWTW(thiswouldsatisfybothrequirementsCandD);orsettheirownS1&2targetsusingsomeothermethods,whichtheymightwanttodevelop,butwillneedtobeapprovedbytheSBTi.18May:long-termMay:OperationalcontrolCMay:S1+2+3;Intensity5to15yearsMay:long-termShould:equityshareWTWDMay:S1and/orS2;Absoluteorintensity5to15yearsMay:long-termShould:equityshareMay:OperationalcontrolSDAS28MidstreamCompaniesMidstreamcompaniesshallhavetargetsthat:A.Reflectchangesinthedemand,eitheronabsoluteorintensitybasis;B.Addressdirectmethaneemissions.Midstreamcompaniesmayhavetargetsthat:C.AddressS1&2upstreamemissions,eitheronanabsoluteorintensitytargets.Thefollowingtableillustratesthecriteriaforthesetargets.Allrequirementsare“shall”exceptwhereexplicitlyindicated.Repeatedlinesintablerepresentoptionsforsamerequirements.TargettypeTimeframeConsolidationMethodologyAS1+2+3orS3(USP),Absoluteorintensity5to15yearsMay:long-termShould:equityshareMay:WTW,SDAS3BCH4Absoluteorintensity5to15yearsMay:long-termShould:equityshareMay:OperationalcontrolSDACH4BMay:S1and/orS2;Absoluteorintensity5to15yearsMay:long-termShould:equityshareMay:OperationalcontrolSDAS29DownstreamCompanies–PetrolStationsDownstreamFuelDistribution/Petrolstationcompaniesshallhavetargetsthat:A.Reflectchangesindemand,eitherinabsoluteorintensitybasis;B.AddressScope1&2ofoperations.Thefollowingtableillustratesthecriteriaforthesetargets.Allrequirementsare“shall”exceptwhereexplicitlyindicated.Repeatedlinesintablerepresentoptionsforsamerequirements.TargettypeTimeframeConsolidationMethodologyAAbsoluteorIntensity5to15yearsMay:3yearsEquityshareSDAS3,WTWBAbsoluteorIntensity5to15yearsMay:3yearsEquityshareOperationalcontrolScope1:SDATransportBAbsolute5to15yearsMay:long-termEquityshareOperationalcontrolScope2:SDADownstreamcompanies–Gasdistributionand/orretailDownstreamGasDistributionand/orGasretailstationcompaniesshallhavetargetsthat:A.Reflectchangesinthedemand,eitherinabsoluteorintensitybasis;B.AddressScope1(CO2transport),Scope1methane(leakage)&Scope2ofoperations.8PleasenotethatitwasnotpossibletodevelopedsofaraScope1SBTimethodologyforupstreamcompanies.9PleasenotethatitwasnotpossibletodevelopedsofaraScope1SBTimethodologyformidstreamcompanies.19Thefollowingtableillustratesthecriteriaforthesetargets.Allrequirementsare“shall”exceptwhereexplicitlyindicated.Repeatedlinesintablerepresentoptionsforsamerequirements.TargettypeTimeframeConsolidationMethodologyAAbsoluteorIntensity5to15yearsMay:3yearsEquityshareSDAS3,WTWBAbsoluteorIntensity5to15yearsMay:3yearsEquityshareOperationalcontrolScope1:SDATransportBAbsolute5to15yearsMay:long-termEquityshareOperationalcontrolScope2:SDAOtherrequirementsOtherrequirementsaresetinrelationtodatainputs,calculationmethodsandotherfeaturesspecifictotheapplicationofSBTmethodsandarepresentedintherespectivesectionsexplainingthosemethods.ThefollowingrequirementsarealsoapplicableforcompanieswishingtohavetheirtargetvalidatedbytheSBTi:A.Companiesshallpublishandmakepubliclyavailabletheirmethodologies,baseyeardata,reasonsforselectingabaseyearandjustifyanddocumentwithdetailanydeviationfromthisguidance.ThesematerialsmaybeusedbytheSBTitovalidatetheirtargets.B.Inthesamedocument,companiesshallexplain,withdetail,howtheindicatorusedatcompanyleveltomeasureprogresstowardsascience-basedtargetisalignedwiththescenarioindicatorusedtodefinethesectorpathwayalignedwithWB2Cor1.5C,andexplainwithdetailanydeviationandanestimateofitsimpact.TheSBTialsostronglyrecommendsthatcompaniespublishonayearlybasis-intheirfinancialorsustainabilityreports,aswellasintheirdisclosurestoCDP-theirprogresstowardstheirtargetsandforthedata,calculationsandfinalfiguresusedinthedemonstrationofprogresstowardstargetstobeexternallyverified/auditedbyathirdparty.Companiesarealsowelcometocomplementtheirintensitytargetswithabsolutetargetsorcommitmentstostayingwithincertaincarbonbudgets.20Chapter3:ScenariosforOil&GasSBTsettingGHGmitigationscenariosareakeyparameterintargetsettingmethodologiesandinfluencetheoutcomesofatargetsettingexerciseaswellasthevalidationofthosetargets.Thissectionpresentskeychoicesontheuseofscenariosforscience-basedtargetsetting;providescriteriaonscenarioselectionfortargetsetting,bothfor1.5ºCandWB2C10;andguidanceonhowtousescenariosforsettingSBT’stoOil,GasandIntegratedEnergycompanies.ThefollowingprinciplesweretakenintoconsiderationwhenanalysingwhichscenariosshouldbeusedforSBTsetting:•Precautionaryapproach11:asperwheretherearethreatsofseriousorirreversibledamage,lackoffullscientificcertaintyshallnotbeusedasareasonforpostponingcost-effectivemeasurestopreventenvironmentaldegradation.•Sharedresponsibility12:wherebyboththesuppliersandconsumersrecognizethattheyshareresponsibilityforactionstoaddresstheemissionsresultingfromtheuseofoilandgasproducts.•Stewardship13:acknowledgesthattheenergysystemwillneedtotransitioninordertobesustainableandallagentswithinthatsystemhavearoleinthattransition.TheseprinciplesapplytochallengesthatemergeinSBTsettingfortheOilandGassector,namely:1)roleandvolumeofCarbonCaptureandStorage(CCS)andcarbondioxideremovals(CDR)inthetransitionscenarios;2)roleofOilandGasplayersinCCSandCDRvs.othersectorsandplayers;3)earlyactionvs.delayedactioninacontextofuncertaintechnologydevelopments.Oil,GasandintegratedenergycompaniesSBTreferencescenariosetGiventhesetofscenarioscurrentlyavailable14,therecommendationistouse:theIEAWEOSDS2019asareferencescenariotoassessifatargetisaWB2Ctarget15;A.theAIM/CGE2.0-SSP1-19asreferencescenariotoassessifatargetisa1.5ºCtarget16.10WB2Cwillbeusedtorefertothewell-bellow2ºCtemperatureobjective,referringtoscenarioshaveatleasta66%likelihoodofstayingunder2ºC,noovershoot,or50%likelihood1.7ºClimitedovershoot(SBTi,2019).11AsstatedintheRioDeclaration(1992),seeforexamplehttps://www.cbd.int/marine/precautionary.shtml12Concretedefinitionsof“sharedresponsibility”arescarce.Wehavenotattemptedtodefineit,ratherthisisbasedontheworkofAndréNollkaemperandDovJacobs(2013).Pleasenotethat“shared”responsibility,whilestillindividualandinformingmoralresponsibilityjudgements,doesnotequatewithaccountabilityorwithcivil,criminalorothertypesoflegalresponsibilityinthisdiscussion.13SeeChapinetal.,2009,page6,whoalsoquotes(Leopold,1949).Thestewardshipprinciplerecognizestheintervenientsinasystemasanintegralcomponentofthatsystemandimpliesasenseofresponsibilityforthestateofthesystemofwhichwearepart.14ForthisworkonlythescenariosfromHupmanetal.,IAMC1.5°CScenarioExplorerandDatahostedbyIIASAaswellasscenariosfromtheIEA(WEOandETP)wereanalysed.15Thisrecommendationisbasedonthefactthatitisawell-knownandwell-recognizedscenariobythemarketplace,andwithgoodgranularityindescribingtheenergysystemtransition.16ThereisaverylimitednumberofscenariosthatcomplywiththeSBTicriteriaandmeeting1.5ºCtemperaturetarget.TheSSP1-19hasaclearerstoryline(Rihaietal.,2017)aligningwiththeaimsoftheSBTionsustainabilityanditisalsousedtoillustrateasustainability-orientedscenario,orP2scenarioarchetype(IPCC,2018).21However,companiesmaychooseotherscenariosbesidesthetwolistedabove,providedthey(shall)meetthefollowingcriteria:1)Scenariosthatcomplywiththe“FoundationsofScience-basedTargetSetting”document(SBTi,2019),whichappliesafour-stepfilteringprocess17todefineSBTiscenariosets,namely:a)scenarioswithnoovershootandlowovershoot:i)thisis1.5˚Cscenarioswithatleasta50%probabilityoflimitingwarmingin2100to1.5˚C,aswellasa50%chanceoflimitingpeakwarmingto1.5˚C;ii)andWB2Cscenarioswithatleasta50%probabilityoflimitingwarmingin2100to~1.7˚Cwherewarmingcannottemporarilyovershoot2˚C(i.e.pathwayclassLower2˚C).b)removingscenariosthatpredictedapeakearlierthan2020;c)removingscenariosthathaveanannuallinearreduction(2020-2035)thatislessambitiousthanthe20thpercentileofthescenarioset.Thisfilterdetectspathwayscharacterizedbydelayedactionorunlikelyhistoricandnear-termemissions.2)physicalcriteriarelatedto:a)bioenergylimit:alimitationintheprovisionofbioenergyof~135EJ/yearby2050andinsecondhalfofthecentury.Forreference,analysiswasconductedontheIntegratedAssessmentModellingConsortium(IAMC)database18andIEAWEO2019andETP2017scenarios19.ThescenariosmeetingthecriteriaabovearetheonesinTable2.Table2–Keyfeaturesofscenariosmeetingthecriteriaforscenarioselectionfromthescenariosetanalysed.ScenariorunCarbonbudgetCCSBECCSLUCDRBECCSBioenergy(Gt)(Gt)Gt/yearEJ/year2020-20502020-21002020-2050(by2050)(by2050)WB2CPOLESEMF33_EMF33_Med2C_limbio74011366331-4.1112REMIND-MAgPIE1.7-3.0_EMF33_WB2C_none560677370-0134REMIND-MAgPIE1.7-3.0_EMF33_WB2C_limbio69570813771-5.8118REMIND-MAgPIE1.7-3.0_PEP_2C_red_eff6055958536773.7106REMIND-MAgPIE1.7-3.0_PEP_2C_red_netzero7145928234584.4111IEAWEOSDS2019625NA404NA0.25~801.5CAIM/CGE2.0-SSP1-194683086712291.367.1POLESEMF33-EMF33_1.5C_limbio279421913-1.8105REMIND-MAgPIE1.7-3.0-PEP_1p5C_red_eff302-4149981376.0117EnergyemissionsonlyForfurtherinformationonscenarioselectionplease“FoundationsofScience-basedTargetSetting”paperandAnnexC.17Asaresultofthisfilteringprocess,fromaninitialsetof177scenariosusedasinputto25models,theSBTiidentifiedafinalsetoftwenty(20)1.5˚Cscenariorunsandtwenty-eight(28)WB2Cscenarioruns.18Hupmanetal.,IAMC1.5°CScenarioExplorerandDatahostedbyIIASA19TheforthcomingIEAETP2020publicationmightalsocontainscenariosthatfitthesecriteriaandwehopetoanalysethemaspotentialadditionalcandidatesforthescenarioset.22KeyquestionsrelatedtotheuseofscenariosGrossandNetemissionsAcommonoutputofscenariorunsisnetCO2emissionsanddataontheprimaryenergysuppliedbykeyfuels.VeryfewscenariosprovidedataonnetCO2emissionsbyfuelandnoscenarioprovidesgrossemissionsbyfuel.ThekeydeterminantbetweennetandgrossemissionsoffuelsaretheamountsofCarbonCaptureandStorageoffossilCO2deployedperfuel.Likewise,theamountofnetemissionsisdeterminedbythepaceofdeploymentofcarbonfreeenergyandhowmuchNegativeEmissionTechnologies(NETs)aredeployedinthescenario.ThemainNETsinthescenariosareAfforestation/Reforestation(linkedtoLandUseChangesector,adistinctsectorfromenergy,withitsownsetofrequirementsintermsofmitigation)andBECCS–attheinterfaceofLandUseandenergysectors.SettinganSBTwithreferencetogrossemissionswouldreflectalltheextractablecarbonallowedinscenarios–butnotitsdependenceonfuture(anduncertain)CCSandNETs.Thiseffectismitigatedbythescenarioselectioncriteria,whichminimizesbothCCSandNETs(BECCS).Grossemissionscenarioswouldhavetobederivedfromfuelemissionfactors,intheabsenceofquantitiescapturedandstoredpermanentlyperfossilfuel.Netemissionsscenariosbyfuel,ontheotherhand,alreadyaccountforallCCSallocatedbythemodeltothatfuel–evenifthosequantitiesarenotmadeexplicit.CCSisakeyactivityintheemergingextendedvaluechainofanewIntegratedEnergysectororasaCarbonmanagementsector,inwhichOilandGascompaniesarelikelytoplayanimportantrole.ThisembeddedCCSisreflectedintheoverallcarbonintensityofenergyprovidedderivedfromscenariosusingnetemissionfigures.Whensettingandmonitoringtheirtargets,Oil,GasandIntegratedEnergycompaniesshouldbeallowedtocountforit–evenifatthemoment,thewaysofdoingthataccountingarenotclear.Ontheotherhand,land-basedactivitieslikeafforestationandre-forestation,arelesslikelytobeanextensionoftheactivityofIntegratedEnergycompanies.Mostimportant,land-basedremovalscompensateforhighernetemissions(andthus,overshoot),butisuncleartowhatsectorthesenegativeemissionsshouldbeattributedto.Unlessland-useremovalsareexplicitlyallocatedtotheEnergysector-whichdoesnotoccurinanyscenario,infactseveralscenariosfocusexclusivelyontheenergyandindustrialemissionssectors-landremovals,namelyfromafforestationandreforestationactivities,shouldnotbeaccountedforanOil,GasandIntegratedenergycompanymeetingitsSBT.Inallcases,theonerequirementtobemetisthatthereshallbeconsistencybetweenscenariovariablesandvariablesusedintheindicatortosetSBTatcompanylevel.Scope3accountingCompaniesmayaccountforcarbontransfersintheirvalue-chain,relatedtotheuseofcarboncaptureandstorageattheirclientside.TodateScope3,UseofSoldProductsaccountingisdonebyaccountingforthecarboncontentinfuelsanditstransformationintoCO2-relatingtogrossemissionpathways.ThecurrentpracticeonScope3calculationhasnoconsiderationofCCSappliedtocoal,gasoroil,whilescenariosusuallyprovidenetemissionpathwaysthatconsiderit.So,thereisapotentialinconsistencybetween23scenariosandcompanylevelindicator.Forthisreason,atermcalled“Carbontransfers”hasbeenintroducedtorefertocarbonoffossiloriginthatiscapturedandpermanentlystoredandthatcanbeaccountedforina“DownstreamIndirectEmissions”categorybycompanies.Thisproposalhastheadvantageofgivingfullvisibilityofamountscapturedbyclientsandthatmightbeclaimedbyfossilfuelprovidershastheir“Scope3,Useofsoldproducts”emissionreductions.Howtheserelationshipsbetweenenergyprovidersandtheirclientsistonotyetfullyestablishedandisamatterforfuturedevelopmentoftheaccountingframeworks.Namely,thisissuemightbeaddressedbytheon-goingworkonRemovalsaccountingbeingdonebytheGHGProtocolteamatWRI.TheapproachonScope3isdistinctoftheScope1emissions,wheretheScope1figureistobealreadyanetfigure,thisis,consideringtheamountsofCO2thathavebeencapturedandstoredpermanently20.DirectandIndirectRemovalsaccountingDirectCO2removalsfromatmospherethatoccurwithinenergysectoractivitiesmaybeaccounted,whileindirectremovalsofCO2shallnotbeaccounted.BesidesCCS,removalsareanotherareawhichneedstobeexplicitlyaddressedinthecoherencebetweenscenarioandcompanylevelindicator.HowremovalsshouldtranslateintocorporateGHGaccountingisanissuecurrentlyunderdiscussionanditisnotclearwhoshouldbecreditedfortheremoval,namely:1)ifitshouldbethecompanythatoperatestheassetwithremovalequipment;2)orthecompanyoperating/owning/financingremovalequipment;3)orthecompanythateffectivelystores,monitorsandholdstheliabilityforlong-termstorageofCO2;4)allthethreeoptions,butclearlydistinguishingbetweendirectandindirectremovalsbetweenparticipantsintheremovalandstoragevaluechain.Thus,evenifparticipationoftheOilandGascompaniesinaCCSsector-whichcanalsodeliverremovalswhendoneonsustainablysourcedbiomass-seemsonelikelytransitionmodeforcompanies,itisnotpossibleatthemomenttoclearlyattributethecreditforremovalsalongthisvaluechain.However,BECCSoccurswithintheenergysectorandwithintheOilandGasvaluechain(e.g.BECCSaspartofabiorefineryprocess)andthescenarioselectionprocessalreadyminimizestheuseofBECCS.Becauseofthis,BECCSdoesnotplayasignificantroleindecreasingthecarbonintensityofenergyinthosescenariosandevenlessinthefirstdecades.TheexpectedcontributionofBECCStoreducethecarbonintensityofenergyissmallinthescenarios(duetothelimitsimposedtobioenergy)andisexpectedtobealsosmallintherealeconomyinnextdecade.However,itisimportanttorecognizeandgivecreditforearlyeffortandforthesereasonsitisproposedthatDirectRemovalsmaybetakenintoconsiderationinacompanyenergycarbonintensityindicator.ElectricityconsumptionscenariosforOilandGasactivitiesCompaniesshallprovidetheirownscenariosforelectricityconsumption,whensettingScope2targets.Scope2emissionsrepresentthesmallestfractionofallemissionsintheOilandGasvaluechain.However,theycanbesignificantforcertainpartsofthevaluechain(e.g.retail)andrepresentlargevolumes(orderofmillionsoftCO2).20NoteonEOR24Scope2emissionswilltypicallybedominatedbythegriddecarbonization.However,aspectsrelatedwithincreasesofactivityarealsorelevant,namely:1)electrificationofdrillrigsandotherupstreamequipmentcanreduceemissions,noise,andcostsandcanbepoweredthroughconnectiontothegridormini-gridswithrenewablepower,and2)thattheutilizationofrenewablepoweredelectricmotorstopowernaturalgascompressorstationscanbeaneffectivemeanstoincreaserenewableintegrationinmidstreamtransportation,and3)electrificationmightalsoplayaroleinthedecarbonizationofrefineries,namelyinintegrationofCCS.Althoughelectrificationcanleadtooverallreductionofemissions,itwillleadtoincreasedelectricityconsumptionandcanleadtoincreasesofScope2emissions.Wehavenoknownelectricityconsumptionscenariosforupstreamormidstreamactivities.Forthisreason,itisproposedthatcompaniesshallprovidetheirownscenariosintermsofelectricityconsumptionincreaseswhiledecarbonizingproduction.Scope2emissionsareusuallydominatedbytherateofdecarbonizationofthegrid.25Chapter4:MethodologiesTheallocationmethod,ormechanism,isthemeansbywhichtheemissionsbudgetofanenvironmentalscenarioisdividedupandallocatedtocompanies.Theallocationmethodfunctionsindependentlyofthescenario,butnotallscenariosmaybesuitableforusewithanallocationmethod.Theemissionsbudgetisthesumofannualabsoluteemissionsoveraspecifiednumberofyears.AtargetmaybecertifiedasaScienceBasedTargetonlyifitleadstoanoutcomeinwhichtheallocatedemissionsbudgetisnotexceeded.Thisdescribesthefirstofthreeguidingprinciplesthatinformthedesignandapprovalofallocationmethodsforoilandgascompanies:1.Thebudgetaggregationprinciple:Thesumofallocatedemissionsbudgetsfromallcompaniesmakingupasectorisequaltothescenario’semissionsbudgetforthesector.2.Thesectoralboundaryprinciple:Onlyemissionsfrominsidethesectoranditsvaluechainareincludedintheconstructionofemissionpathways.EmissionreductionsorremovalsoccurringoutsideofthespecifiedsectorboundarycannotbeconsideredforsettinganSBT.3.Theattributionprinciple:Onlyemissionsdirectlyattributabletothecompany’sdefinedoperationalscopeofresponsibilityarerelevant.Thisexcludesavoidedemissions(Scope4)derivedfromconsequentialaccountingmethods.AllocationmethodsavailablefortheoilandgassectorarelistedinTable3.Themethodavailabledependsoftheindicatorthatcanbebuiltforeachemissionscopeandtheavailabilityofscenariosthatarecompatiblewiththatindicator.Table3.Allocationmethodsforeachoperationalboundaryalongdifferentsegmentsoftheoil,gasandintegratedenergyvaluechainStageOperationalboundaryAllocationmechanismIntegratedS1+2+3WTWSDAConvergenceS1+2+3Least-costUpstreamScope1-CH4SDAConvergenceScope2SDAContractionScope3,USPSDAConvergenceMidstreamScope1SDAContractionScope2SDAContractionScope3,USPSDAContractionDownstreamScope1SDABenchmarkScope2SDAContractionScope3,USPSDAConvergenceItisrecommendedthatcompaniesonlyfocusonsubsectionscoveringthestagesinwhichtheyoperate.TheScope2methodisthesameforallstagesandispresentedattheend,insectionX.Companiesoperatinginmultiplestagescanrefertoallrelevantsubsectionsandcombinetheiremissiontargetsorcandecidetouseoneoftheintegratedmethods.26IntegratedWell-to-wheelmethodTheapplicationofthismethodshallcoveralltheenergyproducts21managedbyanintegratedcompanyandshallconsidertheirimpactsonawell-to-wheelbasis22,consideringbothdirectandindirectemissionsfromcompaniesassociatedwiththeirenergyproductsbusinesses.Themethodologycanbeappliedbyintegratedcompanies,aswellasnon-integratedcompanies.IndicatorTheindicatorbeingproposedforthesettingofSBTforIntegratedOil&GascompaniesisessentiallythesameastheonebeingusedbyShell23andENI24andothercompanies,withafewdeviationswhichwillbedetailedhere25.TheindicatorisaScope1+2+3emissionsintensityindicator,whichtakesintoconsideration,notthefullvalue-chainemissions,butthe“well-to-wheelemissions”,thisis,thevaluechainemissionsrelatedtotheproduction,processinganddeliveryofenergytothefinalconsumerandisdefinedinEquation2-Well-to-wheelindicator.Oil,GasandIntegratedenergycompaniestradeenergyproductsatmultiplepointsoftheirvaluechains.Thegoalistoassessallenergyproductssoldbyacompany,whichincludesmaterialproducedandprocessedbythecompanyandmaterialsproducedandprocessedbyothers.Thisapproachconsidersthesumofallvolumesmanagedateachstepofthevaluechainforeachproduct,consideringimportsandexportsandnettinginternalexchangesofproductstoavoiddoublecounting.AspertheboundaryconsiderationsinChapter2,thecompanyshallfollowanequityshareapproachtotheconsolidationoftheseflows.ThevaluestobeconsideredareNetValueChainvaluesforproductsdestinedforenergyuse26,definedinEquation1.ProductsandtheiremissionsThispartspecifiesthenumeratorpartofEquation(2).TheproductstobeconsideredbycompanieswhensettingtheirGHGcarbonintensitytargetshallincludeallenergyproductsintheportfolioandconsiderthefullGHGemissionsacrossthevaluechain.ThecompanyshallconsiderallproductsinFigure4thatitproduces,refinesormarkets–independentlyofwhentheyhaveentereditsvaluechain,seeprevioussection-andallstepsofthevaluechainthatarehighlighted(perproduct)inthebluelightboxes.ThecompanyshouldalsoincludetheGHGemissionsarisingfromtheothernon-highlightedstepsinthevaluechain(e.g.transportationanddistribution).AnnexDspecifiesinfurtherdetailtheapplicationofEquation(2)toeachproductaswellasemissionfactorstobeusedforthesecalculations.21AsperboundaryrequirementsandrecommendationspresentedinChapter1.22Inpracticethisisnottrulya“tank-to-wheel”analysis,butitismostapproximatedtoone.DeviationsareexplainedinAnnexE.23Pleaseseehttps://tinyurl.com/y86ghpxo24Pleaseseehttps://tinyurl.com/y8nctvaf25Someofthisdeviationscanbeobservedinhowthecompaniesareapplyingthesameprinciplesdifferentlybetweenthem.26Thismeans,aspertheScopeandBoundarychapter,thatatproductionstagediscountfactorscanbeappliedforproductsdestinedfornon-energyuse,suchaspetrochemicalfeedstock,lubricants,etc.27Equation2-Well-to-wheelindicator!"($%$)!"=[)+,-3(01))!",$%&'()]+,-./0),&12)./34+[()1+)2)!",2%5,−7-8+9:;<=>+8?@8+<,ℎ->-]6-./0)+[)+,-3(B)0)!",2%5,−!%>:C<=-><]+,-./0),,%7+2)./34DC->EFGC,>+HI@<!",2%5,CI(WTW)PbCompanyproductGHGintensityinmassCO2eperenergysold,calculatedonawelltowheelbasis.P,soldEnergyproductsoldingivenyear.YYeary.Scope3(PGS)yP,boughtScope3,PurchaseGoodsandServices:areindirectemissionsfromtheproductionofrawmaterialsforproductionofenergyproductsorenergyproducts,acquiredbythecompanyinyeary,accountedonacradletogateboundary.(S1+S2)yP,soldScope1+Scope2emissionsfromtheproductionofproductssold.S1Scope1emissions,ordirectemissionsfromoperationsalreadytakeintoconsiderationanyCO2amountscapturedandpermanentlystored;biogeniccarbonthatiscapturedandpermanentlystored,wouldbeconsideredasaremovalandaccountedinthatcategory.RemovalsfromatmosphereRemovalsgenerallyrespecttocarbonremovedfromtheatmosphereoroceanspoolsintoanotherreservoir.Inthiscase,itrespectstoanydirectremovalsfrombiorefineryprocessesonly.Indirectremovalaccountingisnotallowedasitiscurrentlyunclearandisalsounlikelytoplayasignificantroleindecreasingthecarbonintensityofenergysupplieduntilthe2040’s.Scope3(USP)yP,soldScope3,Useofsoldproducts:areindirectemissionsresultingfromtheuseoftheenergyproductssoldingivenyeary.1.Itisagrossemissionfromfossilenergyproductssold,calculatedbymultiplyingactivitylevelsbyaCO2emissionfactorthatreflectsthecarboncontentofthefuelandhasnoconsiderationofcarboncaptureandstoragewithinvaluechain.CtransfersTransfersoffossilcarbonfromitsnaturalreservoirsintocontrolledreservoirsorproducts,whereCarbonthatwouldhaveotherwisebeenemittedisnowpermanentlystored.TheaccountingofCarbontransfersinthedownstreampartofthevaluechainiscurrentlyunclearandsothisparcelisnotallowedatthisstageandisalsounlikelytoplayasignificantroleindecreasingthecarbonintensityofenergysupplieduntilthe2040’s.EnergyinproductsyP,soldEnergyintheproductssoldingivenyeary28ProductsandtheirenergycontentThispartspecifiedthedenominatorpartofEquation(2).Figure4showsthepointatwhichtheenergycontentdeliveredshouldbemeasured–e.g.afterrefinerygatesforoilorbeforegridinjectionforelectricity,whichwillequateto“secondaryenergy”27.AnnexDspecifiesinfurtherdetailtheapplicationofEquation(2)toeachproductaswellasthedetailsofhoweachproductshouldbeconvertedintosecondaryenergy.Figure4–Energyproductsandtheiremissionsinthevalue-chainOnthecalculationofthesecondaryenergycontent,itisparticularlyrelevanttheassumptionsrelatedtoelectricitycalculations,whichrequireparticularcareandhavesignificantimpactonthecalculationoftheindicatorandthescenariopathway.PleaseseethesectionrelativetoelectricityinAnnexDformoreonthispoint.ConstructionofthescenariopathwayFortheapplicationofthismethodtheEnergymeasurementusedintheconstructionoftheindicatorneedstobeconsistentwithEnergymeasurementusedinthescenario.Asperabove,companiesshouldmeasure“SecondaryEnergy”(oroilproducts“afterrefinerygates”,orelectricitybeforeinjectionintothegrid).Thisindicatoriscomparedtoacarbonintensityof27Secondaryenergyproducts,asperUNdefinition,“isthemanufactureofenergyproductsthroughtheprocessoftransformationofprimaryfuelsorenergy”,whereprimaryisdefinedas“thecaptureorextractionoffuelsorenergyfromnaturalenergyflows,thebiosphereandnaturalreservesoffossilfuelswithinthenationalterritoryinaformsuitableforuse..Theresultingproductsarereferredtoas“primary”products”.Accordingtothisdefinition,severaltypesofenergyatthisstagewillstillbe“primaryenergy”,suchasnaturalgasandsomeformsofrenewableelectricity.29secondaryenergycalculatedinthesamewayastheindicator,fromeitheraprimaryenergysupplyscenario,asecondaryenergysupplyscenarioorafinalenergydemandscenario.Dependingonwhichinformationisavailableforeachscenario,differenttransformationsofthescenariomightneedtobeused.Inthismethodacompanyshallusea“SecondaryEnergycarbonintensitypathway”scenario,calculatedtofittothemaximumextentpossibletheindicatorinEquation2)anditshouldbebuiltbasedonscenariodatafromtheWB2Cor1.5CscenariodatasetsidentifiedinChapter3.IfacompanyisusingadifferentscenariothantheonesidentifiedinChapter3,thescenarioshallcomplywiththecriteriasetthereandthecompanyshalldocumentitcomprehensivelyaswellashowthescenariohasbeentransformedtomatchtheindicator.AnnexEcontainsanexampleoftransformingscenariodataoutputintoa“SecondaryEnergycarbonintensitypathway”thatisinlinewiththeproposedindicatoranditscalculationrulesperfuel(asperAnnexD).Textbox1–FullemissionsintensityofFinalEnergydemand,usingtheIEAWEO2019SDSApplicationTodetermineascience-basedtargetusingthismethodthecompanyshouldcalculateitsWTWCarbonIntensityvalueforthebaseyearandthenapplythesameprincipleasusedintheSectoralDecarbonizationApproach(SDA)convergeallocationformula,thisis,convergencetothesectoraverageby2050.Inthiscase,thesectoristhe“integratedenergy”sector,whichencompassestheoverallprovisionofenergytotheeconomy,asrepresentedbythepathwaycalculatedintheprevioussection.ToapplytheSDAconvergenceallocationEquation3shallbeused.Equation3–SDAconvergenceallocationformulaUsingtheprocedureinAnnexEitispossibletoconstructaglobalcarbonintensityofsecondaryenergypathway,consideringbothCO2andCH4emissions,whichcanbeusedtosetaWTWtarget,usingtheSDAconvergenceallocationmechanism.010203040506070809020052010201520202025203020352040204520502055tCO2/TJYear30!"!=%∗'!+)""#$#where,%=!"%−)""#$#'!=()"!−)""#$#)/()"%−)""#$#)dCIbSI2050pySIySIbCIyDifferenceinemissionsintensitybetweencompanyinbaseyearandsectorin2050(tCO2/TJ)Companyemissionsintensityinbaseyear(tCO2/TJ)Sectoremissionsintensityinconvergenceyear2050(tCO2/TJ),givenbythescenarioConvergenceindexofthesectorinyearySectoremissionsintensityinyeary(tCO2/TJ),givenbythescenarioSectoremissionsintensityinbaseyearb(tCO2/TJ),givenbythescenarioCompanyemissionsintensityinyeary(tCO2/TJ)Textbox2–AnexampleoftargetsettingforafictiousOilandGascompanyusingtheWTWSDAmethodologyInapplyingtheWTWmethodologyanOil,GasandIntegratedenergycompanyshall:UsingtheSDAconvergenceallocationmechanism,acompanyGHGintensitypathway(tCO2e/TJ)canbeproduced(yellowline)whichconvergestothesectoremissionsintensityofsecondaryenergyby2050.ThiscurvecanbeusedtosetWB2CSBTtargetsaccordingtotheWTWmethod.Thetargetcanbeexpressedasaspecifiedintensity(~32tCO2e/TJ,inthisexample)orasa%reductionfromabaseyear.Inthisexamplethebaseyearwassetat2020,astheaverageoftheprevious4years.0%10%20%30%40%50%60%70%80%90%100%01020304050607080902010201520202025203020352040204520502055WTWmethodology-CompanyexampleSectorGHGintensitypathwayCompanyGHGintensitypathwayCompanyintensityreductionpathway(%)tCO2e/TJ311.ChoosearecentbaseyearwhichisrepresentativeofitsrecenttrendsORchooseanaverageofprevious3to5years;2.Convergetothescenariosectorbenchmarkin2050;3.Setashort-termtargetwithinatimeframeof5to15years.TheWTWmethodcanbeappliedbyIntegratedcompanies,aswellasbycompaniesoperatingatanysegmentoftheOil&Gasvaluechain,asperthisguidance.Least-costmethodologyTheLCMisaforward-lookingmethodthatallocatespotentialfutureproductionaccordingtoaneconomicrationaleofassumingthatdemandismetbythelowestcostprojectsavailable.Thismethodologyoffersasimplifiedmodelofhowmarketsmightrationallyallocatesupplyinthefaceofdwindlingdemandand,similarly,howextractivescompaniesmightconsideracompetingsetofpotentialinvestments.Theapproachisbasedontheeconomiclogicthatinacompetitivemarket,thehigher-costprojectswillbeoutcompetedbythosethatcansupplythemarketatlowercost.Theapproachthereforematchestheaggregatedemandlevelderivedfromanygivenlow-carbontransitionpathwayscenariotothelowestcostprojectsetthatmightsupplyit.TheLCMassumesthatprojectswhicharealreadyproducingorunderdevelopmentcontinuetoproduce,andthereforeanticipatedproductionfromthesesourcesisnettedoffthetotalrequireddemandlevel.Itthenturns,insequence,tothecheapestavailablesourcesofpotentialfutureproductiontosupplytheresidualdemanduntilthegivenlevelofdemandissatisfied.ThebasisforcomparingprojectsintheLCMisunitlevelproductioncostsandbreakevenpricesareusedforthispurpose28.IndicatorTheindicatorusedbytheLCMisacarbonbudget(tCO2)allocatedforeachcompanyforagiventimeperiod.Thiscarbonbudgetcanbedividedintotwoparts:thecommittedcarbonbudget;andtheinvestablecarbonbudget.Thecommittedcarbonbudgetistheestimateofthecarbonbudgetalreadycommittedinexistingassets;theinvestablecarbonbudgetistheportionthat,consideringtheassetsownedbythecompanyandtheLCM,mightfitunderagiventemperaturetargetbudget.Thiscarboncanthenbedistributedduringthattimeperiodindifferentways–themethodproposesitisdonelinearly–providinganextractablecarbonallocationperyear.ScenariosComparingsupplytodemandforagivenclimateoutcomerequirestranslatinganultimateassociatedglobalwarming,definedbyacarbonbudget,intoseparatedemandpathways/levelsfortheenergysourcesunderreview.Thesedemandlevelsarethenusedasthebasisoftheanalysis.Anumberofdifferentorganisationsproducemodelleddemandscenariosforgivenclimateoutcomes.28BreakevenpricescalculatedforanIRRof15%iswhattheCarbonTrackerInitiativehasusedintheirpublishedanalysisusingthismethodology.32TodatethemethodhasalreadybeenappliedtotheIEAWEOSDS2019;theIEAEnergyTechnologyPerspectives(ETP)Beyond2DegreesScenario(B2DS);scenariosfromtheIAMC1.5°CScenarioExplorerdatabase29consistentwiththeP1andP2scenarioarchetypes(usedintheIPCCSpecialReportonGlobalWarmingof1.5Degrees);andasareferencebaselinecasetheIEAWEOStatedEnergyPoliciesScenario(IEAWEOSTEPS2019,previouslyknownastheNewPoliciesScenario).FormoreinformationonscenarioselectionforSBTsettingpurposes,pleaseseeChapter3.ApplicationThemethodfollowsthesesteps:1.Selectascenariotousewithanassociatedclimateoutcome;2.Identifyademandprofileinthatscenarioforeachfossilfuelcommodityregionallyandovertimeunderthatscenario;3.Identifyaninternallyconsistentsetofsupplydatawithassociatedsupplycosts(preferablyfromanexternaldatabase)thatestimatesbreak-evencostsforpotentialprojectsandestablishameritorderofsuchprojectsbasedoncosts(a“costcurve”);4.Deductfutureproductionfromexistingprojectsfromthedemandprofiletoestablishresidualdemandtofillwithfutureprojectoptions;5.Fillresidualdemandwithavailablepotentialproductionfromfutureprojectoptionsonaleast-costbasis,yieldingalistofprojectsthatare“inside”and“outside”thespecifiedscenariodemand;6.Calculateaggregatecarbonemissionsforthescenarioperiodforeachcompanybasedontheirprojectsetthatfitsinsidethedemandlevel;7.Optional:Adjustthatbudgetbasedonemissionsintensityofthecompany’sportfolio;8.Defineapathwayforfuturecompanyemissionsusingthecompany’scalculatedcarbonbudget,it’sknownstartingpoint(today’sproduction/emissions)andtheassumptionofalineartrajectory.ThemethodhasbeenappliedsuccessfullybyCarbonTrackernamelyintheirreportBreakingtheHabit.MoreinformationcanbefoundinAnnexF,whereadetaileddescriptionofthemethodcanbefound.Upstream:Scope3,USP(SDA,convergence)IndicatorTheindicatorbeingproposedforthesettingofSBTforScope3,UseofSoldProductsemissionsforupstreamoperationsisthetotalScope3,UseofSoldProductscarbonemissionsintensityofenergyproducedbythecompany,wherethecarbonemissionsintensityarecalculatedaspertheProductionMethoddefinedinthe“CDPTechnicalNote:GuidancemethodologyforestimationofScope3category11emissionsforoilandgascompanies”.Equation4–Scope3,Useofsoldproductscarbonintensityofsoldproducts!"()3,0)1)!&=21&∗34&−!56789:;6938;6<=>8'6?%@AB9!&,()+or29https://data.ene.iiasa.ac.at/iamc-1.5c-explorer/#/login?redirect=%2Fworkspaces33!"()3,0)1)!&=21&∗CD&∗34,-&−!56789:;6938;6<=>8'6?%@AB9!&,()+CI(S3,USP)PyCompanyproductGHGintensityinmassCO2eperenergysold,calculatedonawelltowheelbasis.P,soldEnergyproductsoldingivenyear.YYeary.NPPNetproduction(int,mmbbl,mbpd,boe,boed,bcf,mmcm,etc)EFPFullcombustionemissionfactor(intCO2/t,tCO2/mcm,tCO2/mmBtu,etc)HVPHeatingvalue(inGJ/kg,TJ/Gg,toe/m3,boe/gal.,Btu/cf,etc.)EFPceFullcombustionenergyemissionfactor(intCO2/TJ,tCO2/boe,etc)CtransfersTransfersoffossilcarbonfromitsnaturalreservoirsintocontrolledreservoirsorproducts,whereCarbonthatwouldhaveotherwisebeenemittedisnowpermanentlystored.TheaccountingofCarbontransfersinthedownstreampartofthevaluechainiscurrentlyunclearandsothisparcelisnotallowedatthisstageandisalsounlikelytoplayasignificantroleindecreasingthecarbonintensityofenergysupplieduntilthe2040’s.PleasenotethattheCTransferrespectsonlytoCCSappliedinthedownstreampartofvaluechainandso,directemissionscapturedandstoredshouldnotbecountedhere.EnergyinproductsyP,soldPrimaryEnergyinupstreamproductssoldingivenyearyProductsandtheiremissionsForthecountingofemissions,similarconsiderationsasintheWTWmethodologyapply.SeeAnnexD.ProductsandtheirenergycontentForthecountingofenergy,similarconsiderationsasintheWTWmethodologyapply,butinsteadofusingsecondaryenergy,primaryenergyisused.SeeAnnexG.ConstructionofthescenariopathwayFortheapplicationofthismethodaPrimaryEnergycarbonintensitypathwayforeachmainfueltypeisbuilt,basedonscenariodatafromtheWB2Cor1.5CscenariodatasetscomplyingwiththecriteriasetinChapter3.FortheconstructionofapathwaythatcanbecomparedwiththeS3,USPindicatorspecifiedabove,thefollowingvariablesareneeded30:1.“EmissionsCO2”foreachfueltype(coal,oilandgas)whichwouldcomprisethe“CO2emissionsfromenergyuseonsupplyanddemandside”forthatparticularfuel.Please30PleasenotethatMethaneemissionsnotincludedhere.ThereasonforthisisthatCH4emissionshappenmainlyoutsidetheproductusephaseandso,thescenariowouldnotbeconsistentwiththeindicator.Forthisreason,theindicatorisalsoconstructedonlyhasCO2andnotCO2e.34notethatthesevariablesdonotexistintheIAMdatabaseandarederivedfromdataexistentintheWEO201931;2.“PrimaryEnergy”contentofeachfuelalsotakenfromthesamesource;Thesamenotesonuseofscenariovariablecategoriesapplyasinsection3.1.2.Textbox3–EmissionsintensityofPrimaryEnergy,usingtheIEAWEO2019SDSInthismethoduseismadealsooftheactivityprojectionsforeachfuel,sopathwaysareusedalsofortheamountsofOilandGasallowedinthescenarios.31Datacanbefoundin“TableA.3:ElectricityandCO2emissions–World2,page681,tableatbottomofthepagewithtotalCO2permainfuel,representingnetemissionsperfuel.PrimaryenergyvaluesofeachfuelaretakenfromTableA3:Energydemand–World,page679.UsingtheprocedurehighlightedaboveitispossibletousetheIEAWEO2019SDSscenariotoconstructfuelspecificpathwaysfortheircarbonintensityofdeliveredprimaryenergy.TheseconsideronlyCO2(theCO2embodiedintheenergyproducts),whichcanbeusedtosetaS3,USPtarget,usingtheSDAconvergenceallocationmechanism.Thegraphicsbelowrepresent(1)Carbonintensityofoil(CO2/TJprimaryenergy);and(2)CarbonintensityofGas(CO2/TJprimaryenergy)[Yaxis=carbonintensityintCO2/TJprimaryenergy;Xaxis=year].(1)(2)01020304050607020002010202020302040205045464748495051525320002010202020302040205035Textbox4–SectoractivityscenarioforOilandGas,accordingtoIEAWEO2019SDSApplicationTheScope3,Useofsoldproducts(S3,USP)emissionsbudgetfortheupstreamstageiscalculatedusingtheSDAConvergenceallocationmethod.TheSDAconvergenceallocationmethodisbasedontheprinciplethatacompany’semissionsintensityshouldconvergetoitssector’semissionsintensity(definedbythescenario)inthelong-term.Oncetheintensityconvergencepathisestablished,itmaybeusedtocalculatethecompany’sabsoluteemissionspathway.Theemissionsbudgetcanthenbeknownandisthecumulativeofabsoluteemissionsoverthetargetperiod.ForupstreamS3,USP,emissionsintensityrelatestotheprimaryenergyproductduringitsusephase,measuredforeachproductonanenergybasis(metrictonsCO2perTJ).Themeasureofactivityisnetproduction,orproductionavailableforsale,i.e.grossproductionminusthecompany’sownconsumption.AnS3,USPbudgetiscalculatedforeachprimaryenergyproductbeforebeingaggregatedtothecompanylevel.Aseriesofsixcalculationstepsisfollowed:Step1istocalculatetheweightedaverageemissionsintensityofeachprimaryenergyproduct.Attheproductinventorylevel,eachprimaryenergyproductmayrepresentagroupingofproducts.Forexample,the‘oil’productincludesallupstreamliquids:crudeoil,condensate,syntheticoil,bitumen,naturalgasliquids,etc.AsexpressedbyEquation5,theweightedaverageemissionsintensityoftheproductisthesumofallsub-productusephaseemissions,deductingforwheresub-productcarbonissequestered,dividedbytheaggregateproductenergy.Sequestrationoccursinmanyoilproductapplications,suchaswhenbitumenisusedforroadsurfacing–seetheboundarychapterandprovisionsonapplyingdiscountfactorsfornon-energyoilproducts.Undersomescenarios,sequestrationwillalsooccurinthefuturewhereCarbonCaptureandStorage(CCS)technologyisdeployedinthepowersector.Thegraphicsbelowrepresenttheactivityscenarioforoil(1)andGas(2)[Yaxis=carbonintensityinEJprimaryenergy;Xaxis=year].(1)(2)05010015020025020002010202020302040205002040608010012014016020002010202020302040205036Equation5–Carbonintensityofprimaryenergy!"%.=∑!"%(.∗F1−9;H%(.I∗!J%(.(.∑!J%(.(.CIpbCIspbCAspbseqspbCompanyemissionsintensityoftheprimaryenergyproductp(e.g.oil)inbaseyearb(tCO2/TJ)Companyemissionsintensityofsub-productsp(e.g.crudeoil,condensate,etc.)inbaseyearb(tCO2/TJ)Companyactivity(production)ofsub-productspinbaseyearb(TJ)Fractionofcarbonsequesteredduringthelifetimeofsub-productspStep2istocalculatetheusephaseemissionsintensitypathwayofeachprimaryenergyproduct.Eachpathwayconvergestothesectoraverageinthelong-termandiscalculatedusingtheSDAconvergenceEquation3.Equation3–SDAconvergenceallocationformula!"!.=%.∗'!.+)""#$#.%.=!"%.−)""#$#.'!.=()"!.−)""#$#.)/()"%.−)""#$#.)dpCIpbSIp2050ppySIpySIpbCIpyEmissionsintensitydifferenceforproductpbetweencompanyinbaseyearandsectorin2050(tCO2/TJ)Companyemissionsintensityofproductpinbaseyearb(tCO2/TJ)Sectoremissionsintensityofproductpinconvergenceyear2050(tCO2/TJ)ConvergenceindexparameterofthesectorforproductpinyearySectoremissionsintensityofproductpinyeary(tCO2/TJ)Sectoremissionsintensityofproductpinbaseyearb(tCO2/TJ)Companyemissionsintensityofproductpinyeary(tCO2/TJ)[note:ifSIpb–SIp2050=0,thenCIpy=CIpbinallyears]37Textbox5–Step1and2Step3istocalculatethecompany’sabsoluteproductemissionspathwaybycombiningthecompany’sconvergedproductemissionsintensitypathwaywiththesector’sproductproductionpathway.Implicitinthiscalculationisthatthecompanywillmaintainafixedmarketshare,i.e.followsector’sindexofproduction.ThecalculationisexpressedinEquation6.Equation6–Companyemissionsforproductp!3!.=!"!.∗!J%.∗F)J!./)J%.ICEpyCIpyCApbSApySApbCompanyemissionsfromproductpinyeary(tCO2)Companyemissionsintensityofproductpinyeary(tCO2/activity)Companyactivity(production)ofproductpinbaseyearb(TJ)Sectoractivity(production)ofproductpinyeary(TJ)Sectoractivity(production)ofproductpinbaseyearb(TJ)Step4istoaggregatetogethertheemissionpathwaysofallprimaryenergyproducts.ThisisexpressedbyEquation7.Equation7–Companyemissions!3!=K!3!..CEyCEpyCompanyemissionsfromallproductsinyeary(tCO2)Companyemissionsfromproductpinyeary(tCO2)UsingtheprocedurehighlightedabovewecalculateinStep1acompanycarbonintensityof65tCO2/TJforoiland55tCO2/TJforGas.InStep2weapplytheSDAconvergencemechanismtocalculatethecarbonintensitypathwayforoil(1)andgas(2),convergingtothesectorintensityfigurein2040(inthisexample,andgiventhescenarioonlygoesthatfar)[Yaxis=carbonintensityintCO2/TJprimaryenergy;Xaxis=year].(1)(2)010203040506070200020102020203020402050010203040506020002010202020302040205038Textbox6–Step3,4and5Step5istodeterminethecompany’sallocatedemissionsbudgetviatherelationshipexpressedinEquation8.Thebudgetiscumulativeemissionsovertimeandmakesuptheareabeneaththeabsoluteemissionscurvewhenplottedagainsttime.Thebudgetmaybecomputedbysummingcompanyemissionsineveryyearfromthefirstyearafterthebaseyearuptoandincludingthetargetyear.Equation8–Companycarbonbudget!L/=M!3!.%=%/CBtCEyCompanyemissionsbudgetfrombaseyearbtotargetyeart(tCO2)Companyemissionsfromallproductsinyeary(tCO2)Step6(optional)istodeterminetheaggregatecompanyS3,USPemissionsintensitypathway.AsexpressedinEquationError!Referencesourcenotfound.,thisistheaggregateabsoluteemissionspathwaydividedbythecompany’sownprojectionofaggregateprimaryenergyproduction.UsingStep3,wecalculatehowtheOil(blue)andGas(orange)activityprofileshouldchange(1)[Yaxis=EJ].Bymultiplying(ineachyear)bytheprofileofcarbonintensityforeachenergyproduct(calculatedinstep1and2),weobtainanabsoluteemissionsprofileforOilandGas(2)[Yaxis=MtCO2].Step4(notshown)wouldconsistinaddingtheblueandorangelineingraphic(2).Byaddingallyearsoftheemissionprofileforallproducts(step5)weobtainacarbonbudgetforthespecifiedperiod(2020-2040),whichinthiscase,is8815GtCO2.(1)(2)012345620002010202020302040205005010015020025030020002010202020302040205039Textbox7–Step6Equation9–Companyprimaryenergycarbonintensitypathway!"!=!3!!J!CIyCEyCAyCompanyemissionsintensity(productaggregate)inyeary(tCO2/TJ)Companyemissions(productaggregate)inyeary(tCO2)Companyactivity(aggregateproductproduction)inyeary(TJ)Upstream:Direct(Scope1)Methaneemissions(SDA,convergence)IndicatorTheindicatorbeingproposedforthesettingofSBTforDirect(Scope1)methaneemissionsfromupstreamoperationsisEquation10-Upstreammethaneintensityindicator!"(!C0)!&=!C03O>99>?89∗2838;6<=>8'6?%@AB9!Finally,bydividingtotalemissionsbytotalactivity,weobtainthecarbonintensityofprimaryenergyforthecompany(yellowcurve).(Bluelineisthesectorcarbonintensityforoilandtheredthesectorcarbonintensityforgas).Ifthecompanyisconsideringexpansiontorenewables,itcouldalsoperformsimilarcalculationstoitsrenewableenergyproducts.Thiswouldbeaddedtoboththeprimaryenergydeliveredandemissionsandwouldleadtofurtherreductionsinintensitythantheonesshowninthegraphicabove.01020304050607020002010202020302040205040CI(CH4)PyCompanyupstreamCH4intensityinmassCO2eperenergyproducedinyeary(tCO2e/TJ)andforproductP(OilorGas).yYeary.CH4emissionsMethaneemissionsresultingfromtheproductionofenergyproducts(tCH4).28Methane100-yearGlobalWarmingpotential.EnergyinproductsyPrimaryEnergyinupstreamproductssoldingivenyearyAspertheboundaryconsiderationsinChapter2,thecompanyshouldfollowanequityshareapproachtoconsolidateitsCH4butmayuseanoperationalcontrolapproachtoconsolidateCH4emissions.Textbox3–Alternativeindicator(%)ConstructionofthescenariopathwayFortheapplicationofthismethodwehavebuilt“CH4EmissionsforUpstreamOilandGas”basedonIEAWEO2018data,whichprovidesforoilsupply(upstreamandmidstream)aCH4benchmarkof32.64(kgCO2-eq/boe)foroiland60.90forgas(kgCO2-eq/boe).DetailscanbefoundinAnnexHCH4emissionsscenarios.Thesevaluesarefurtherpartitionedbetweentheupstream/midstream/downstreamparts,usingthevalues(%)of98/2/0foroiland66/26/7forgas,resultinginthefollowingbenchmarkforupstreamoilandgas:Table4–CH4Benchmarkforoilandgas(kgCO2-eq/boe)OilUpstream31.99GasUpstream40.19ThesevaluesarethenscaleddownproportionallyusingCH4scenariodata,usingIEAWEO2019SDSdata,asperfigurebelow.Figure5–CH4reductionsfromOilandGassupplyglobally(source:IEA2019)AcommonalternativetoexpressCH4emissionsistoexpressitonapercentbasis,thisis,amountofmethaneemissionspernaturalgas(CH4)produced.Thispercentagecanbecalculatedonavolume,massorenergybasis,forexample,theOGCI(OilandGasClimateInitiative)hasamethaneintensitytargetof0.25%by2025.Companieswantingtovalidatetheirtargetsusingsomealternativeindicator,willbeaskedtoprovidetheconversionbasistocomparethemversustheindicatorproposedhere.41WhichresultsinthescenarioshowninError!Referencesourcenotfound.andFigure6.Insummarythescenariopathwaywasconstructedinthefollowingmanner:•IEAWEO2019projectiononabsoluteCH4emissionreductionsforOilandGasupstreamoperations;•TheIEAWEO2018globalaverageCH4emissionintensitiesforupstreamoilandgas,takenas31.99kgCO2-eq/boeforoiland40.19kgCO2-eq/boeforgas;•ApplyingtheoverallmethaneemissionreductiontotheaverageCH4emissionintensities.ApplicationTheallocationmechanismformethaneemissionsupstreamproductionistheSDAconvergence,witharequirementforafasterconvergence(agreedwithintheindustry,governmentsandcivilsociety)tobereachedby203032.32E.g.throughsuchinitiativesasClimateandCleanAirCoalition(MethaneGuidingPrinciplesandOil&GasMethanePartnership)ortheOilandGasClimateInitiative(OGCI)methanetargets.Table5–ScenarioforglobalaverageUpstreamCH4emissionsintensity(kgCO2-eq/boe)(source:IEA2018)OilGas[kgCO2-eq/boe]202032.040.2202520.726.120309.511.920358.811.020408.110.120457.39.220506.68.3Figure6–CH4emissionsintensityreductionsfromOilandGassupplyglobally42So,foragivenCH4intensityinthebaseyear!"(!$!)"#,themethanetargetbyyearywillbeEquation3–SDAconvergenceallocationformula!"!&=%&∗'!&+)""#1#&%&=!"%&−)""#1#&'!&=()"!&−)""#1#&)/()"%&−)""#1#&)CIPydPppySIP2030pPySIpySIpbCIpyCompanymethaneemissionsintensityofproductPinyeary(kgCO2e/BOE)MethaneemissionsintensitydifferenceforproductPbetweencompanyinbaseyearandsectorin2030(kgCO2e/BOE)ConvergenceindexparameterofthesectorforproductPinyearySectoremissionsintensityofproductpinyeary(tCO2/TJ)ConvergenceindexparameterofthesectorforproductPinyearySectormethaneemissionsintensityofproductPinyeary(kgCO2e/BOE)SectoremissionsintensityofproductPinbaseyearb(kgCO2e/BOE)CompanyemissionsintensityofproductPinyeary(kgCO2e/BOE)[note:ifSIpb–SIp2030=0,thenCIPy=CIPbinallyears]After2030,thetargetshouldfollowthebenchmark,so!"!&=)""#1#2"#$#&CIPydPppySIP2030CompanymethaneemissionsintensityofproductPinyeary(kgCO2e/BOE)MethaneemissionsintensitydifferenceforproductPbetweencompanyinbaseyearandsectorin2030(kgCO2e/BOE)ConvergenceindexparameterofthesectorforproductPinyearySectoremissionsintensityofproductpinyeary(tCO2/TJ)Alternative1(CH4Contraction)Anallowedalternativetothe“Upstream:Direct(Scope1)Methaneemissions(SDAConvergence)”methodistouseanabsolutecontractionmethodbasedonaCH4scenariothatfavoursdecisiveactionwithinthenextdecade(2020to2030).Inabsolutecontractionmethodsemissionsreduceproportionallytothescenario.Equation11–SDAcontractionformula(formethane)!3340,!=!3340,%∗)3340,!)3340,%CECH4,yCECH4,bSECH4,ySECH4,bCompanymethaneemissionsinyeary(tCO2e)Companymethaneemissionsintensityinbaseyear(tCO2e)Sectoremissionsinyeary(tCO2e)Sectoremissionsinbaseyear(tCO2e)43Alternative2(Upstream+midstream;Midstream)ThesamemethodcanbeusedtoconstructaCH4emissionreductionintensitytargetforUpstream+MidstreamoperationsorjustforMidstreamtargets.Upstream:Direct(Scope1)CO2emissions(SDAconvergence)IndicatorTheindicatorbeingproposedforthesettingofSBTforDirect(Scope1)CO2emissionsfromupstreamoperationsisEquation12-UpstreamCO2indicator!"(!R")!&=!R"3O>99>?8938;6<=>8'6?%@AB9!CI(CO2)PyCompanyupstreamCO2intensityinmassCO2perenergyproducedinyeary(tCO2e/TJ)andforproductP(OilorGas).yYeary.CO2emissionsMethaneemissionsresultingfromtheproductionofenergyproducts(tCO2).EnergyinproductsyPrimaryEnergyinupstreamproductssoldingivenyeary.AspertheboundaryconsiderationsinChapter2,thecompanyshouldfollowanequityshareapproachtoconsolidateitsCO2butmayuseanoperationalcontrolapproachtoconsolidateCO2emissions.ConstructionofthescenariopathwayTodate,ithasnotbeenpossibletoaddressoutstandingquestionsthatallowforthepresentationofascenariosetforpurposeofapplicationofthismethodology.Upstream:Direct(Scope1)CO2emissions(SDAcontraction)IndicatorTheindicatorbeingproposedforDirect(Scope1)CO2emissionsfromupstreamoperationsistotalCO2emissionsfromUpstreamproduction.ThecompanyshouldfollowanequityshareapproachtoconsolidateitsCO2emissionsbutmayuseanoperationalcontrolapproach.ConstructionofthescenariopathwayIEAscenariosdonotcontaindataonCO2emissionsforOilandGasUpstreamandMidstreamoperations.SeveralscenariosfromtheIAMC1.5ºCScenarioExplorerdocontainscenariosfor“CO2emissionsfromfuelcombustionandfugitiveemissionsfromliquidfuelextractionandprocessing(e.g.oilproduction,refineries,synfuelproduction,IPCCcategory1A1b,partsof1A1cii,1B2a)”,whichcouldpotentiallybeusedtosettargets.Unfortunately,todate,ithasnot44beenpossibletoaddressoutstandingquestionsthatallowforthepresentationofacoherentscenariosetallowingtheapplicationofthismethodology.ApplicationForagivenlevelofCO2emissionsinthebaseyeartheCO2emissiontargetbyyearywillbeEquation13–SDAcontractionformula(forCO2)!R",!=!R",%∗)335",!)335",%CO2,yCO2,bSESIPbCompanymethaneemissionsintensityofproductPinyeary(kgCO2e/boe)CompanymethaneemissionsintensityofproductPinbaseyear(kgCO2e/boe)SectoremissionsintensityofproductPinyeary(kgCO2e/boe)SectoremissionsintensityofproductPinbaseyear(kgCO2e/boe)Scope2(SDA,Convergence)IndicatorTheindicatorbeingproposedScope2CO2emissionsistotalCO2emissionsfromelectricityconsumption.Scope2includesemissionsfromthegenerationofelectricity,steam,heat,andcoolingthatispurchasedbythecompanyforitsownconsumption.Itistreatedequallyoverthewholevaluechaindueitsrelativelylowinfluenceonthecompany’soverallcarbonfootprint.Purchasesofsteam,heat,andcoolingareexcludedfromthemethodologyduetotheirlowimpactandthepaucityofrelevantscenariodata.ThecompanyshouldfollowanequityshareapproachtoconsolidateitsScope2CO2emissionsbutmayuseanoperationalcontrolapproach.ConstructionofscenariopathwaysScope2emissionspathwaysaretheresultoftwofactors:1)howthecarbonintensityofthegridsupplyingelectricityevolvesinthefuture(powersectorintensityscenario);2)howtheelectricityconsumptionofthecompanyevolvesinthefuture(activityscenario).Forbothcases,itshouldbeindicatediftheyareWB2Cor1.5Cscenarios.Powersectorcarbonintensityscenarioscanbeobtainedfromseveralsources,namelytheIAMCDatabaseandtheIEA,andwithdifferentlevelsofgranularity.Ideally,theyshouldcomefromthesamescenariosusetosetScope3andScope1emissiontargetsbutmaycomefromadifferentscenario.Thecompanyshouldanalysethecarbonintensityofitselectricityandgenerateacompanyspecificpathwayforthecarbonintensityofitselectricity.TheevolutionofelectricityconsumptionofdifferentsegmentsoftheOilandGasvaluechain,whileundergoingseveretransformation,aregenericallynotavailable.Forthisreason,thecompanyshouldproposeandjustifyitsownscenarioforhowitselectricityconsumptionislikelytoevolve.45Electricitysystemscarbonintensitydifferssignificantlybycountryandregion.Theapplicationofthemethodologyshouldbedoneatacountrylevelbutcanbedone,forsimplicity,athigherlevelsofgranularity.Thiswillhighlydependofthetypeofcompanythatisapplyingit.Multi-nationalcompaniesoperatinginmorethan5countries,mayusearegionalgranularity.Companiesoperatingin5orlesscountries,shallusecountrylevel(orstatelevel,ifavailable)granularity.ApplicationGiventheprovisionofthetwoscenarios–thepowersectorcarbonintensityscenarioandthecompanyactivityscenario–absoluteScope2emissionspathwayscanbecalculatedusingEquation14.Equation14-Scope2absoluteemissionstargetcalculation!36",!=!;A!∗!;"!CES2,yCecyCeIyCompanyScope2emissionsinyeary(tCO2)Companyelectricityconsumptioninyeary(GWh)Companyspecificelectricityemissionsintensitypathwayinyeary(tCO2/GWh)46Section2:ContextandBackground47Chapter5:ContextTheParisAgreementhassetacleardirectionfortheeconomyindecadestocome.Theagreementaimstostrengthentheglobalresponsetothethreatofclimatechange,inthecontextofsustainabledevelopmentandeffortstoeradicatepoverty,includingbyholdingtheincreaseintheglobalaveragetemperaturetowellbelow2°Cabovepre-industriallevelsandtopursueeffortstolimitthetemperatureincreaseto1.5°Cabovepre-industriallevels,recognizingthatthiswouldsignificantlyreducetherisksandimpactsofclimatechange.Thecombustionoffossilfuelsrepresentsthesinglelargestsourceofcarbondioxideemissions.TheOil&Gasindustryisoneofthelargestcontributorsofmethaneemissions.Ontheotherhand,theOil&Gasindustryholdsconsiderablescientific,technical,economicandfinancialassetsthatcanprovidesignificantcontributionstothelow-carbontransition.Assuch,theOil&Gassectorishighlyexposedtolow-carbontransitionrisks(andopportunities)andneedstoundergosignificanttransformationforsocietytomeetthegoalsadoptedbyover195countriesthroughtheParisAgreement.GuidanceObjectiveThepurposeofthisprojectistodevelopscience-basedtarget-settingmethodologiesthatallowstakeholders,includingcompanies,investors,governmentsandcivilsociety,tounderstandthealignmentofOil&GascompanyemissionsreductiontargetswiththeleveloftransformationrequiredtomeetthegoalsoftheParisAgreement.Theproject,firstandforemost,willaddressembeddedemissionsinfuelsupplied,butwillalsoseektoaddressscope1emissions(energyandmethaneprocessemissions).Atalaterstagetheprojectshouldconsiderscope2emissionsandlinkstorefineryandpetrochemicalindustry,consistentwiththeSBTi’schemicalsectordevelopment.MethodologyDevelopmentProcessThemethodologydevelopmentisledandsupportedbyCDP.CDPdraftsthemethodologydocumentsandmakesproposalstothetechnicalworkinggroup,whichthenprovidesinputandrecommendations.Thetechnicalworkinggroup,composedofapproximately20membersrepresentingcivilsocietyorganizations,Oil&Gascompanies,investors,policymakers,academics,andotherexperts,conveneregularlytoprovideinputandcritiquethemethodology.TheprojectwaslaunchedbyCDPinNovember2019andwaskickedoffwiththefirstmeetingofitstechnicalworkinggroup.TenmeetingshavebeenheldbeforeAugust2020.ApublicconsultationwilltakeplacefromAugust10thtoOctober4th,2020.DuringthePublicConsultation,thepublicisinvitedtoprovidefeedback,opinions,andcommentsonsettingscience-basedtargetsforOilandGasandIntegratedEnergycompanies.ThepublicconsultationisavailableontheSBTiOilandGaswebsite.Thefeedbackwillthenbereviewed,andCDPwillproduceaseconddraftthatwillbedeliveredtotheSBTiforapproval.ThemethodologywillbedeliveredtotheSBTibytheendoftheyear.ThisdevelopmentoccurssimultaneouslywiththeACT–AssessingLow-CarbonTransitionOil&Gassectormethodologydevelopment,convenedbyADEMEandCDP,andwithitsowntechnical48workinggroup.SeveralmeetingshavebeenheldwithboththeSBTandACTtechnicalworkinggroups.TechnicalWorkingGroupTheSBTiO&GMethodologydevelopmentissupportedbyatechnicalworkinggroupincluding:•WorldWildlifeFund(WWF)•Shell•Galp•Total•Bp•Eni•Repsol•CaliforniaResourcesCorporation(CRC)•Agencedelatransitionécologique(ADEME)•UKOil&GasAuthority•WorldResourceInstitute(WRI)•iCare&consult•UNGlobalCompact•ImperialCollegeLondon•UniversityofQueenslandBusinessSchool•CarbonTracker•ClimateAccountability•AvivaInvestors•HSBC•WorldBenchmarkingAllianceTheScienceBasedTargetsInitiativeTheScienceBasedTargetsinitiative(SBTi),acollaborationamongtheCDP(formerlytheCarbonDisclosureProject),theUnitedNationsGlobalCompact(UNGC),WorldResourcesInstitute(WRI),andtheWorldWideFundforNature(WWF),championsSBTsettingtoboostcompanies’competitiveadvantageinthetransitiontoalow-carboneconomy.Throughsettingandmeetingscience-basedtargets(SBTs),companiesmayreceivebenefits,suchasincreasingbusinessresilienceandcompetitiveness,therebydrivinginnovationandtransformingbusinesspractices,buildingcredibilityandreputation,andinfluencingandpreparingforshiftsinpublicpolicy.TheSBTi’soverallaimisthatbytheendof2020,science-basedtargets(SBTs)willbecomestandardbusinesspractice,andcorporationswillplayamajorroleindrivingdownglobalGHGemissions.Science-basedtargetsprovidecompanieswithaclearlydefinedpathwaytofuture-proofgrowthbyspecifyinghowmuchandhowquicklytheyneedtoreducetheirgreenhousegasemissions.Targetsadoptedbycompaniestoreducegreenhousegas(GHG)emissionsareconsidered“science-based”iftheyareinlinewithwhatthelatestclimatesciencesaysisnecessarytomeetthegoalsoftheParisAgreement–tolimitglobalwarmingtowell-below2°Cabovepre-industriallevelsandpursueeffortstolimitwarmingto1.5°C.49Chapter6:OverviewofO&Gindustry[tobeaddedinfutureversion]50Chapter7:Challengesoftransitioningtoanet-zeroeconomyThischapterprovidesasimplifiedapproachtoanoverlycomplexchallenge:howcanOilandGascompaniescontributetothetransitiontoanet-zeroeconomy?Itpresentsabrieflayoutofthenatureofthechallengeandthenproceedstoproposeaframeworkof“transitionmodes”:archetypesofspecificstrategicmovesthatcompaniescanadopttosupportthetransition.Theapproachtakentodefinethesearchetypesisareflectionbasedonreadingsandconversationswithmanyactors–includingindustry–activelyinvolvedinfindingwaysforwardforthischallenge.Eacharchetypeisbrieflydescribedandcharacterizedastoits:1)applicability;2)risksandopportunities;3)barriers/criticalissues;4)keyindicatorsofchangeand;5)acompanyexampleofitsapplicability,wherepossible.Transitionmodeswereprovidedasastartingpointforafacilitateddiscussioninaface-to-faceworkshopthatoccurredinNovember2019,bringingtogethertheTechnicalWorkingGroupsoftheAssessingLow-CarbonTransition(ACT)andSBTinitiativesworkingwiththeOilandGassector.Theobjectiveofthisworkshopwastobuildsharedvisionsandnarrativesonindividualcompanypathwaystotransitiontoabroadrangeofstakeholders.Thenatureofthechallengeisamplyknowntodispenselengthytreaties,andatthesametimesufficientlybroadtograntsomepagesthathighlightsomeofthekeytopicsrelevantforthediscussion.Ourapproachistoembraceitscomplexity,tryingtonotsingle33outanydimension-forexample,political,economic,technical,legal,socialormoral-butforeachoptiontryingtolookatabroaderpictureofhowthesedimensionsmightinterplay.Forindividualcompanies,theavailabletransitionpathwaysaremorediverseandmoreuncertainthantheoverallnarrativeforthesector.Thesedifferentpathwayswillbechosenbyamultitudeofcontextualfactorsincludingcompanyculture,history,geography,regulatoryandpoliticalenvironment,etc.34,aswellasinternal,genericallycalled“capabilities”.Insimpleterms,therearemanywaystomake-andtolose–money,andthesewillbeshapedbytechnical,politicalandsocialforces.OilandGascompanieswillreactdifferentlytothetransitionandthisdiversityisanassetforthetransition.OilandGascompanies35pursuing“defensive”strategies36wouldlikelywanttoexplore33Garciaetal.(2014)“Strategicpartneringinoilandgas:acapabilitiesperspective”,EnergyStrategyReviews,3,pp.21-2934Whichcanbefoundintheacademicliteratureonstrategicresponseofcorporatestoenvironmentalissues,e.g.Levy,D.L.,&Newell,P.(2000).OceansApart?BusinessResponsestoGlobalEnvironmentalIssuesinEuropeandtheUnitedStates.Environment:ScienceandPolicyforSustainableDevelopment,42(9),8–21.doi:10.1080/0013915000960576135Oroil-producingcountries,asthesamechallengescanbeposedatthegeopoliticallevel.36“Defensive”inthesensethatisdesignedtosustainthedemandforaproductortofendoffanattackfromapotentialcompetitor-inthiscase,non-fossilfueltypesofenergy.Seee.g.Steger,U.(1993)“TheGreeningoftheboardroom:howGermancompaniesaredealingwithenvironmentalissues”,in51themarketopportunitiesleftbymoreactiveoilcompaniesthatleavethemarket.Acompanyleavingthemarketwilldosoduetosignsofdecreasedprofitability37,increasedrisks38,loweraccesstofinance39andpotentiallowerdemand40–amongotherfactorslikelytoshapetheindustryindecadestocome.Thefuturewillrevealexactlyhowcertaintensionswouldunfold,e.g.whetherdemandandsupplyinteractionswillmeetfutureexpectationsofkeyactors.Thelow-carbontransitionrequireseffectivewaystocurtaildemand41aswellassupply42.Policyinterventionseemsinevitableifwearetosuccessfullytransition,whichmightrequiretheemergenceofstrongsocialmovementssuchastheonesrecentlyemerging43.Withoutpolicyintervention,somecompaniesmightarguethattheyprefertolettheiroperationsdecline,butonlyafterthereisnomoredemandfortheirproducts.Inthiscase,ifwearetomeettheParisagreement,suchcompaniesmust,atsomepoint,bebroughttothepointofclosurebyacombinationofsupply,demand,andregulatoryandsocialpressure,whichwouldincreaserisksandseverelyreducetheirprofitability.ForallthehigherpurposesofOilandGascompanies–fromprovidingcheapenergytopoweringtheenergytransitiontominimizedamagesofclimatechange–OilandGasgenerating“superiorreturnstoshareholders”remainsasanimportantmotivation.Thisisunlikelytochangeandisakeypartinthetransition.Companiesarefacedwithkeystrategicchallenges:1)Continuingoperationsuntiltheirsociallicensetooperateterminates;2)Managingtheirdecline;orotherwise3)Activelytransitioningtheircapitalintosomeotherprofitablebusinessmodel.Manywithintheindustryunderstandthattheyarefacedwithanexistentialchallenge,andthatactivelymanagingthetransitionisbetterthanwaitingforthingstohappen44.Fortheseactors,itisclearthatthelevelK.FischerandJ.Schot(eds.),EnvironmentalStrategiesforIndustry:internationalPerspectivesonResearchNeedsandPolicyImplications,Washington,DC,islandPress.37Forexample,onrelationshipandtrendsbetweenprofitabilityandEnergyReturnonInvestmentseeKingandHall(2011)“RelatingFinancialandEnergyReturnonInvestment”,Sustainability,3,pp.1810-1832;andMurphyDJ.(2014)“Theimplicationsofthedecliningenergyreturnoninvestmentofoilproduction“,Phil.Trans.R.Soc.A372:20130126.38Seeforexample“BuildingaResilientEnergyGulfCoast”(2010),publishedbyEntergyandAmerica’sWetlandFoundation39Forexample,“FinancialStressintheOilandGasIndustry:StrategicImplicationsforClimateActivism”(May2018)bytheInstituteforEnergyEconomicsandFinancialAnalysisandSightlineInstitute40Forexample,DavidJ.MurphyandCharlesA.S.Hall.2011.Energyreturnoninvestment,peakoil,andtheendofeconomicgrowthin“EcologicalEconomicsReviews.”InRobertCostanza,KarinLimburg&IdaKubiszewski,Eds.Ann.N.Y.Acad.Sci.1219:52–72;41Brandtetal.(2013)“PeakOilDemand:TheRoleofFuelEfficiencyandAlternativeFuelsinaGlobalOilProductionDecline”,EnvironmentalScience&Technology201347(14),8031-804142Lazarus,M.andAsselt,&Harrovan(2018)“Fossilfuelsupplyandclimatepolicy:exploringtheroadlesstaken”,ClimaticChange(2018)150:1–1343Farmeretal.(2019)“Sensitiveinterventionpointsinthepost-carbontransition”,Science,12April2019,Vol.364,issue643644Lovell,Bryan(2010)“ChallengedbyCarbon–TheOilIndustryandClimateChange”52oftransformationrequiresawilltochange,andthatwherethereisawill,thereisaway-whichtheyarebeginningtoexplore.Settingpubliccommitments,liketheadoptionofascience-basedtarget,areanexpressionofthiswillingnesstoembracechange.ThereisthusanincreasedresponsibilityfromtheSBTcommunityintermsofdefiningmethodsthatallowthepublicrecognitionofthesecommitments,whileguaranteeingthattheydorepresentameaningfulcontributiontomeettheParisgoalsandcanbeeffectivelyusedastoolstohelptransformcompanies.Givenhowmuchdependsonthetransition,findingawaytoimplementitissoimportant-toinvestors,tothecompaniesandtosocietyoverall-tobeleftonlytothecompaniesthemselves.Furthermore,thecomplexityoftheenergysystem45meansthatthetransitionwilldependonamultitudeofactors,networks,technologies,policyandsocialinteractions.Thefollowingsectionsdefinearchetypesofpotentialtransitionpathwaysforcompanies.Allarchetypesare,toacertainextent,unrealisticandincomplete.Realityistoocomplextobecapturedinsimplifiednarratives.Buttheaimofthesenarrativesistocapturetheimaginationofpeoplewhoarewillingtoleadthesector.Differentiatingbetweentheleadersandthoseunwillingtolead(whomaybetterdeservethemoralcondemnation46ofpresentandfuturegenerations)mightitselfbeapowerfulincentivetochange.LiteraturereviewThefieldofstrategicresponsestothelow-carbonenergytransitionbyOilandGascompaniesisrelativelynew.However,thereareatleasttworeportswhichclassifythepossiblestrategies.AreportbyE3GandtheSustainableFinanceProgrammeattheUniversityofOxfordoutlinesthreeviabletransitionstrategies47:●Firstoneout:maximiseprofitsthroughcost-cuttingandassetsweatingduringaprocessinwhichcompanyoperationsareslowlyrampeddownandcapitalreturnedtoshareholders.●Lastonestanding:gainmarketsharefromcompetitorsinordertotakeoverwhatremainsofthedecliningoilmarket.●Plannedtransformation:shiftcompanyofferingtofocusoneitherrenewablesorservicesrelatedtothecompany’sexpertiseinOilandGas.45Baleetal.(2015)“Energyandcomplexity:Newwaysforward”,AppliedEnergy,138,pp.150-15946ForaninterestingdiscussiononclimatechangeandmoralityandtheroleofinstitutionsandbureaucraciesseeNestarRussellandAnnetteBolton(2019)“ClimateCatastropheandStanleyMilgram’sElectricShock“Obedience”Experiments:AnUncannyAnalogy”,SocialSciences,MDPI,OpenAccessJournal,vol.8(6),pages1-27,June.47Caldecott,B.,Holmes,I.,Kruitwagen,L.,Orozco,D.,etal.(2018)CrudeAwakening:MakingOilMajorBusinessModelsClimate-compatible.53Thereportalsopointsoutthattherearealsopossiblestrategiesthatareunlikelytobesuccessfulforanycompanyinthelongrun.Theseinclude,forexample,continuingwithOilandGasbusinessasusualastheenergytransitionprogresses.TheIEApresentsfourcategoriesofpossibletransitionresponses,whicharelikelytobetakenupincombinationsorinsequence48:●OptimisingcontinuingOilandGasoperationsbyminimisingcostsandreducingemissions.●Deployingcarboncapture,utilisationandstoragetechniquestominimiseemissions.●Shiftingbusinessfocustolow-carbonliquidsandgasessuchashydrogen,biomethaneandadvancedbiofuels.●UndergoingatransitionfromanOilandGascompanytoanenergycompany.Theintroductionof“transitionmodes”inthispaperaddstothediscussionbypresentingaframeworkthataimstobebothcomprehensive,coveringallviabletransitionstrategies,andfocused,presentingonlythosestrategiesthatcanleadtothetypeoflarge-scalecompanytransformationsrequiredbytheenergytransition.Inourview,akeyadvantageofpresentingtheseoptionsinathoroughformatistobeabletonamethemandbeveryspecificabouttheirimplicationsandhowstakeholderscandetectearlysignalsofthemhappening.TransitionmodesThetransitionmodesarespecificstrategicresponsestothechallengeoftheenergytransition.Theterm“transitionmode”istakenhereasanexplicitanalogytothevibrationmodesofgreenhousegases(GHG)intheatmosphere.Differentmoleculesvibrateandreacttothesameincomingenergyintheirownway,dependingontheirchemicalcomposition.Inthesameway,facedwiththesamechallenge,companieswill“vibrate”,orrespond,differently.AswithGHGmolecules,acompany“molecule”doesnotvibrateinonesinglemode,rather,severalco-existbutsomedominate.Thetransitionmodesshouldbeviewedasarchetypesofstrategicmovesthatcompaniescanadopttosupportthetransitionandthatcancoexistandbecombinedwithincompaniesinvariedways.WeproposethatthefollowingtransitionmodesaremadeavailabletoOilandGascompanies:●Energycompany:diversifyingtootherformsofenergy.●Carboncompany:transitiontoacirculareconomymodelaroundcarbondioxide.●Manageddecline:rampingdownOilandGasoperationsandreturningcapitaltoshareholderswhilemaximisingshareholdervalue.●Newdirection:transitionawayfromOilandGastootheractivities.48IEA(2020)TheOilandGasIndustryinEnergyTransitions.54Foreachtransitionmodeorarchetype,weprovide:1)Abriefdescriptionofitsapplicability;2)Keyopportunitiesandrisks;3)Likelybarriers;4)Keyindicatorsthatthemodeistakingplace;and5)Briefdescriptionofactualcompanybehaviourasanexample,ifpossible.EnergycompanyDescriptionTheenergy(diversification)modeassumesthatcompaniesseethemselvesnotas“OilandGascompanies”butasenergycompanies–thetermIntegratedEnergyCompanyseemstobeemerging.OilandGascompaniesprovidingenergytotheirclientsbroadenthescopeoftheiractivitiesandtransitionintonon-carbonformsofenergysupply.TheanalogyforthistransitionmodeisthestrategicchangeofEuropeanElectricUtilitiesintheearly2000’sfrompowerproducerstorenewableandenergyservicecompanies.ThischangeislikelytoseemanyOilandGascompaniestransformedinto,forexample,electricitycompanies–giventhatallscenariospredictacriticalroleforelectricityinthetransition–potentiallyintegratinggeneration,retail,etc.Currentlyintegratedcompaniesseemtomostlikelytakethistransitionroute.Thesecompaniesaredrivenbytheenergydemandoftheircustomers–butthedemandmightnotbecompatiblewiththeParisgoals.Inallthisdebate,thereisaconstanttensionbetweendemandrequirementsandtheextenttowhichthesupplysidecanactivelyinfluenceitandstillmaintainprofitability.Movingtooearlyortoolatemightleadtowastedcapitalandbusinessopportunities.Forthisreason,collaborationalongthevaluechainandacrosseconomicsectorswillbeextremelyimportant,particularlyinprovidingenergytoenergyintensiveandhard-to-abatesectorslikeshipping,aviation,metals,miningandcementproduction.ThenewEnergyCcompaniesmighttransformthemselvesintolargeEnergyconglomeratesactivelyexploringarangeofrenewableornon-renewablesources,suchasnuclear,biofuels,hydrogenorammonia.RisksandopportunitiesKeyriskswiththisapproachrelatetotheabilityofmaintainingthe“coreOilandGasfunction”andmanagingitsdecline-oritsreturnstoriskprofile-whileincreasingandexpandingthealternativeenergyofferingandmaintainingortransformingthecorporatestructure,culture,technologybaseandoperations.Itislikelythattheinvestmentsrequiredwillleadtodecreasedprofitability,whichmightcreatechallengeswithshort-termshareholders.Maintainingtwo(ormore)differentbusinessmodelsatthesametimecancreateinternaltensionsthatmightleadthetransitionprocesstobefasterthanintended.Therateatwhichthechangehappensisacriticalissue,likelytobedeterminedbypressurefromgovernments,shareholdersandotherstakeholders,aswell55astheneedforthetransitiontobefinanciallyviable.Theincreasedspeedoftransitioncouldbetriggeredbothbyinternalandexternalfactors(social,technical,politicalorother,suchastheCOVID19pandemic).BarriersOnemainbarriertothistransitionmodeisthechangeincultureandcapacityrequiredtoenternewbusinesseslikeelectricityproductionwithdifferentsetsofclients,deliverymodes,regulationsandpolicies,whilekeepingcurrentactivities.Thisimpliesaverysignificantre-structuringofcompaniesandconsiderableleadershipandvision.Itislikelythatthestrategyisonlypossiblethroughacquisitions,whichmightbecostly,ormergers,whicharecomplex.Thesemightrequiresubstantialsupportfromregulatorsandmarketsupervisionauthorities.Financingthistransitionwhilestillgeneratingvalueforshareholdersisalsocrucial.Asecondbarrieristheneedtogetthetimingandpaceofthechangeright.Establishedcompanieswillhavetoinnovateasiftheyweredisruptorsoftheirownbusinesses.Otherwise,existingpotentialforinnovationinhydrogen,ammonia,energystorageandenergyefficiencymightberealisedtoolate.Companiescannotwaitfordemandtobethere-theywillneedtohelpcreatedemandforthenewsolutions.Thefinalbarrieristhequestionofwhatmighthappentothecompanies’assets.Companiescaneithermanagethedeclineoftheirassets,strandthematanappropriatetime,orsellthemforreinvestmentpurposes.Inmostcases,thesellingofassetswillleadtothecontinuationofproductionbyanotherparty,causinga“leakage”effectofcontinuedemissions.IndicatorsKeyindicatorsofasignificantmoveintothisdirectionare:●tCO2/TJofenergyproductsprovidedtotheeconomy(atpointofsales).●Keynarrativesonstrategyandtransition.●Investmentflowstowardsnewrenewableenergyassetsversusnewfossilfuels.●Investmentflowstowardsacquisitionofrenewableenergyassetsvs.newfossilfuels.●OverallpercentageofEBITDAcomingfromfossilfuels.ExamplesThebestexampleofthisapproachtodateisDONGEnergy,whichtransformeditselfintowhatisnowcalledOrsted.DONGwasastate-ownedcompany,createdin1972,operatinginUpstreamProductionofoilandnaturalgas.DONGEnergywasfoundedin2006fromthemergerofsixDanishenergycompanies,comprisingofprivateenergyproducers,publicutilities,andenergydistributionbusinesses.Atthisstage,itownedsignificantpowerproductionfacilitiescomprisingoil,gas,andcoal,aswellhydrocarbonE&P,offshorewindfarms,andthedevelopmentofCCStechnology.Overthecourseofadecade,thecompanyhastransformedfromafossilfuelcompanytothelargestoffshorewinddeveloperinEuropeandthelargestutilityinWesternEurope49.Thecarbon49Harries,T.&Annex,M.(2018)Orsted’sprofitabletransformationfromoil,gasandcoaltorenewablesPoweringPastCoalAlliance.[Online].12December2018.PoweringPastCoalAlliance.56footprintofthecompanyreducedby52%between2006and201750.Thetransitionstrategyisfocusedoninvestinginbuildingnewenergybusinessinwindandbiofuels.Inadditiontothe“energycompany”strategy,onecanfindelementsofthestrategieshighlightedinCaldecottetal.(2018)51“firstoneout”option,buildingonprofitmaximizationthroughcost-cuttingandassetsweating,andaconsiderablefocusoncorebusiness,sellingoffnon-strategicassets.Duringthisprocess,thecompanywaspartofasignificantreformoftheDanishpowersector52.Thisseemedtobetheresultofacarefullyplannedandexecutedtransformation:shiftingthecompanyofferingtofocusonelectricityandfromtheretorenewableenergy,off-shorewindinparticular,whichmadeuseofexistingengineeringcapabilitiesatDONG53.Orstedfullydivesteditsupstreamfossilfuelassetsin2017throughasaletothepetrochemicalcompany,Ineos,in201754.Thedownsideofthetransitionisthat,thefossilfuelassetsdivestedbythecompanyarestilllargelyinoperationandemittingcarbon.Elementsofthisstrategycanbefoundin,forexample,Shell,Total,BPandEni’spubliclyavailabledocuments.However,theextenttowhichmuchlargercompaniescanfollowasimilarpathwithlittletonostatesupportisdoubtful.Carboncompany(circulareconomy)DescriptionOilandGascompanieshaveconsiderableexpertiseinfindingappropriategeologicalstructuresthatcontainhydrocarbons,drillingthroughthem,extractingoilandgas,andtransportingthemtomarkets.Theyarethepointwherecarbongetsintroducedintotheworld’seconomy.Thismodelcanpotentiallybereversedtoclosethecarbonloop,atleastforkeysourcesofcarbon,bymovingtoacirculareconomymodel.ThiswouldmeanOilandGascompaniesinitiallyprovidingservicestostoreCO2intodeepgeologicalformations–potentiallyallowingfurtherextractionofoilandgasthroughEnhancedOilRecovery–andbuildinginfrastructurethatallowsthecaptureofCO2anditstransportationtostoragesites.Companiescouldpotentiallybetransformedinto“carbonneutral”companiesoreven“carbonnegative”companies,providingcarbonremovalandstorageservicesortechnologiestoothercompanies,e.g.byhelpingtoimplementBioenergyAvailablefrom:https://poweringpastcoal.org/insights/economy/orsteds-profitable-transformation-from-oil-gas-and-coal-to-renewables[Accessed:27April2020].50Orsted(2017)DONGEnergytochangecompanynametoØrsted.[Online].2October2017.Availablefrom:https://orsted.com/en/company-announcement-list/2017/10/1623554[Accessed:27April2020].51Caldecott,B.,Holmes,I.,Kruitwagen,L.,Orozco,D.,etal.(2018)CrudeAwakening:MakingOilMajorBusinessModelsClimate-compatible.52IRENA(2013)30YearsofPoliciesforWindEnergy:Lessonsfrom12WindEnergyMarkets.53Lu,H.,Guo,L.&Zhang,Y.(2019)Oilandgascompanies’low-carbonemissiontransitiontointegratedenergycompanies.ScienceoftheTotalEnvironment.[Online]686,1202–1209.Availablefrom:doi:10.1016/j.scitotenv.2019.06.014.54Megaw,N.(2017)DongEnergysellsoilandgasbusinesstoIneos.[Online].24May2017.FinancialTimes.Availablefrom:https://www.ft.com/content/57482c0b-db29-3147-9b7e-c522aea02271[Accessed:27April2020].57CarbonCaptureandStorage(BECCS).ThismodelcanbefurtherextendedtoincludeCarbonCaptureandUsagevaluechains,wherethecapturedCO2isusedasrawmaterialforotherprocesseswhereitiseitherpermanentlyortemporarilycaptured.RisksandopportunitiesTherearesignificantchallengesintheimplementationofaCCS,CCUSand/orBECCSstrategy.RelyingonfossilCCSforclimatechangemitigationleadstoanexpansionoftheallowanceoffossilfueluse.Overallsocietalrisksoftheseapproacheshavebeenthefocusofongoingdiscussion,alsoatacademiclevels,whereconcernshavebeenidentifiedontheethicsofnegativeemissiontechnologies(Lenzi,2018),includingFossilCCS.Theseare1)Mitigationobstructionpotential;2)Potentialfordangerouspolicygamble;3)Technologicaloptimismorthesystematicoverestimationofthehumanpotentialtomanagethecarboncycle.Asaconsequenceofsomeoftheseconcerns,theremightbesocialandeconomiclimitstoCCSthathavetobeconsideredmorethanphysicallimits,particularlywithinthefirsthalfofthecentury(Karayannisetal.,2014).itmightbethatthesesolutionsareunavoidableinthelongterm,buttheconditionsfortheirsuccessfulimplementationasabusinessareseveraldecadesawayand,assuch,shouldnotberelieduponforaneffectiveshorttomid-termbusinesstransformationofOilandGascompanies.AsreportedintheSR1.5(IPCC,2019),1)CCSislargelyabsentfromtheNationallyDeterminedContributions(Spenceretal.,2015);2)Itislowlyrankedininvestmentpriorities(Fridahl,2017);3)Current“economicincentivesforrampinguplargeCCSorBECCSinfrastructureareweak(Bhaveetal.,2017);and4)Averageinvestmentscoststo2050forBECCSinfrastructureforbio-electricityandbiofuelsareverylarge,estimatedat138and123billionUSDperyearrespectively(Smithetal.,2016b).BarriersThemainbarriertothistransitionmodeisthelackofabusinessmodel,asthereisnodemandfortheservice.Thisisunlikelytochangeuntilgovernmentsmovedecisivelyoncarbon.Thesecondbarrierisitssocialacceptability,withstrongconcernsthatCCSwilllegitimizecontinuousfossilfuelextraction.Finally,thereareuncertaintiesrelatedtocosts,safetyandpermanenceofstorage,technologicalcapabilitiesanddeploymentpace.IndicatorsKeyindicatorsofasignificantmoveintothisdirectionarethoughttobe:●tCO2/TJofenergyproductsprovidedtotheeconomy(atpointofsales),consideredonanet-basis(carboninputtedintoeconomy–carbonremovedandpermanentlystored).●Keynarrativesonstrategyandtransition.●InvestmentflowstowardsCCS,CCUSandBECCStechnologies.●QuantitiesofCO2permanentlystoredvs.quantitiesoffossilcarbonextracted.●Overall%ofEBITDAcomingfromthisoffering.ExamplesSeveralcompanieshavebeeninvestinginCCStechnologies.Theseinclude,forexample,Equinor,Occidental,Chevron,BP,andothers.IntheUK,BP,Eni,Equinor,ShellandTotalare58workingtogetheronalarge-scaleCCSprojecttodecarbonisetheindustrialregionofTeesside55.However,alarge-scaletransitiontothisbusinessmodelwouldrequireovercomingthebarrierslistedabovevianewgovernmentpoliciesandincentivesforcompanies.TherearenofamiliarOilandGascompaniestodatewhichcanreliablybeconsideredashavingimplementedsuchamodel.Asummaryofatscaleexperimentstodayisprovidedinthetextbox5657.ManageddeclineDescriptionInthemanageddeclinemode,companiesseektomaximisevaluetoshareholderswhileminimisingtransitionrisksandfocusinglessonfuturegrowthandmoreonvaluedelivery.Thislaststepiscritical,asitisthefundamentalchangeinaligningwiththeParisgoalsandtheneedtoreduceemissions.Thestrategyisbasedonapragmaticandresponsibleresponsetothetwoperspectivescommonlytakenwhilediscussingaboutthelow-carbontransition:1)Thealignmentperspective,whichconsidershowemissionsalignwithmitigationscenarioscompatiblewiththeParisgoals58;and2)Theriskperspective59,i.e.minimisingfinancialdownside.Inthealignmentperspective,thereisarecognitionthatOilandGasextractionneedstobereducedoverallmightimplyanecessaryreductioninOilandGasinvestmentsaswellasproduction.Theriskperspectiveassumesthatwithsmallerdemand,oilpricesarelikelytodecrease,andthatamuchtighterfinancialdisciplineinthesanctionofnewprojectsiseconomicallyandfinanciallydesirabletomanagetransitionrisks.Inthepast20years,a55Lammey,M.(2020)OilmajorscommittospeedinguphugecarboncaptureprojectonTeesside.[Online].2020.EnergyVoice.Availablefrom:https://www.energyvoice.com/otherenergy/225633/oil-majors-commit-to-speeding-up-huge-carbon-capture-project-in-teesside/[Accessed:12June2020].56CaliforniaResourcesCorporation(n.d.)CarbonCapture&Sequestration:California’sfirstCCSproject.[Online].Availablefrom:https://crc.com/images/documents/publications/Infographic_CRC_CarbonCaptureStorage.pdf[Accessed:24June2020].57Snieckus,D.(2020)Equinor,ShellandTotalsignoffonbuildingworld’sfirstcarboncapturenetwork.Recharge.15May.5859CaliforniaResourcesCorporationisdesigningCalifornia’sfirstCCSsystemintheElkHillsField.Plannedtobeoperationalby2030,thefacilitywouldbethelargestofitskindintheUnitesStates,capturingandpermanentlystoring1.5milliontonnesofCO2annually.Thecarboncapturedfromanaturalgas-firedpowerplantwillbenotonlystoredbutalsousedforenhancedoilrecovery.Equinorisleadingtheplanneddevelopmentoftheworld’sfirstCCSnetworkinwithShellandTotal.TheNorthernLightsprojectisplannedtocapture5milliontonnesofCO2peryearfromindustrialemittersinEuropeforstorageinNorway’scontinentalshell.TheCO2wouldbetransportedbyshipsandpipelines,whichmeanstheprojectwouldleadtothebeginningsofthefirstfullCCSvaluechainintheworld.Thefacilityissettoopenby2024.59temporaryperiodofrisingcommoditypricesmaskedtrend-settingstructuralchangesintheOilandGasindustry,namelythataccesstohydrocarbonreservesonlygetsharderwithmaturingfields(anddespitetechnologicalimprovements);toughercompetitionfromnationaloilcompaniescoupledwithresourcenationalismandtheneedtoaddressclimatechange,drivinganeverstrongerpolicyandsocialpressureoncompanies.Companiescanbesuccessfulonbothperspectivesiftheyimplementamuchmoredisciplinedapproachtocapitalinvestment,sanctioningfewerprojectsatlowercost.Thisimpliesthattheyareincreasingprofitmarginsanddecreasingriskswhileshrinkingproductioninabsolutetermsandthusmanagingthenecessarydeclineinoilandgasdemand(andsupply).FormostOilandGascompanies,thiswillmeanthatinthenextinvestmentcycles(2025andbeyond),amuchsmaller,orevenzero,projectpipelinewillberequiredtoexist.RisksandopportunitiesOpportunitiesfromthismodelisderivedfromtheclarityoffocus,theriskavoidancephilosophyandthepotentialhigherreturnsintheshortterm-somethingthatmightbepositivelyreceivedbyinvestors60.InvestorsmightfavourthisoptionbecauseitenablesthemtoownthedecisionontheexposureofdifferentsegmentswithintheOilandGasindustry–e.g.beingexposedtoupstreambutnottorefining.Althoughintheshorttomid-termthiscanbeaneffectivewaytotransition,inthelong-term,itpresentsrisksassociatedwiththe“lastonestanding”strategy(Caldecottetal.,2018),someofwhicharethenormalrisksthatanOilandGascompanyfaces(political,geological,price,andsupplyanddemand)butcompoundedforstructuralreasonsthatseemunlikelytogoaway.Theendresultofthisstrategyseemslikelytobe:1)Thecompanygetsstrandedbythematerializationofsomeunforeseenorunmanagedrisk.Windingdownwillbeadelicatebalancingexercise,sinceasthecompanyshrinksitriskslosingthehedgeprovidedbydiversifiedportfolios.DiversificationisarelevantriskmanagementstrategyforUpstreamcompaniesexposedtomultiplerisks–e.g.volatilityofcommodityprices,politicalrisks,environmentalaccidentsand,inthelong-term,thegraduallossofthesociallicensetooperate.2)Thecompanyiseffectivelydissolvedinaplannedmanner,itsoutstandingassetslikelytobeacquiredatsomepointbyanothercompany,whichwillcontinuetoexploretheassets,orimplementaproperplanfortheshut-downanddecommissioningofassets.Companiesdissolvingisanormalprocessinacapitalisteconomy,buttheseprocessesareusuallynotexplicitlyplannedoutcomes.3)Thecompanychoosesoneoftheotherexitstrategies,ifthatisstillpossible.4)Thecompanywillindeedbethelastonestanding,gainingmarketsharefromcompetitorsorbuyingthemout.ThisisunlikelyforanIOC,giventherelevanceandaccesstocheapresourcesbysomeoftheNOCs.Furthermore,therearemanyOilandGascompanies,butonlyone“lastonestanding”-thelikelihoodofsuccessinthelong-runisnotthemostfavourable.6060BarriersAmainbarriertothistransitionmodeisthepsychologicalbarrierofnormalbusinessmanagementofseeking“growth”insize,insteadof“growthinvalue”delivered.Goodmanagementtendstobeseentomeanexpandingcompanyoperationsandgrowthasanobjectiveinitself.Traditionally,oilmanagementoperatingperformanceisbasedontheirsuccesstomaintainorincreasetheirreserve-replacementratio(RRR)-thisistheamountofoiladdedtoacompany'sreservesdividedbytheamountextractedforproduction.Thisvisionisstillprevalentwithintheindustry,andsoislikelytobearealbarrier.Furthermore,itmightbedifficultformanagementtocommunicateandmotivateitsemployeesforatypeofstrategythatmightleavethemunemployed.Indicators●Reservereplacementratio(RRR).●Keynarrativesonstrategyandtransition.●Breakevencostofinvestedprojects.●Shareholderdividends.ExamplesWhilethereisnoclearexampleofamajorOilandGascompanyfollowingthistransitionmode,indicationsofthestrategycanalreadybeseen.Inthelastfewyears,manycompanieshaveannouncedrevisionanddelayofinvestmentsthatseemtoindicatethattheyhavebeguntoconsidermorecarefulanalysisofearlysignalsoftransitionrisk.ThereservesandresourcereplacementratiosofOilandGasmajorshavebeenincleardeclineinrecentyears(Bousso,2018;OGJEditors,2019)61,62.AccordingtotheCarbonTrackerInitiative,somecompaniessuchasEniarealludingtothepossibilityofdeceleratingtheiroilproduction,althoughnocompanyseemsreadytoclearlycommittothis63(Grant,2020).NewdirectionDescriptionInthismode,anOilandGascompanyradicallyreinventsitselftostartoperatinginadifferentsectorandwithanentirelydifferentsetofactivities.Insteadofgoingwider,asinthe“Energycompany”modeproposedabove,thecompanydecidestogo“different”andreinventsitself,buildingonconcreteopportunitiesthatitmighthaveencountered.Itisnotunusualforcompanies61Bousso,R.(2018)ForBigOil,reservesizematterslessthanever.[Online].16May2018.Reuters.Availablefrom:https://www.reuters.com/article/us-oilmajors-reserves/for-big-oil-reservesize-matters-less-than-ever-idUSKCN1IH1I2[Accessed:27April2020].62OGJEditors(2019)Rystad:Oilandgasresourcereplacementratiolowestindecades.[Online].9October2019.Oil&GasJournal.Availablefrom:https://www.ogj.com/exploration-development/reserves/article/14068305/rystad-oil-and-gas-resource-replacement-ratio-lowest-in-decades[Accessed:27April2020].63Grant,A.(2020)Eni–thefirstoilcompanytolayoutastrategyofmanageddecline?-CarbonTrackerInitiative.CarbonTracker.61toreinventthemselvesinacapitalistsociety,respondingtotechnological,marketandsocialchanges.RisksandopportunitiesCompletelyreinventingacompany’sbusinessisariskyproposition,particularlywhenthattransformationisdrivennotbythenormalseizingofopportunitiesthatappear,butasaresponsetohigherthreatstothecurrentbusinessmodel–aspartofareactiveapproachtostrategy,insteadofanactiveone.However,asnotedabove,inthehistoryofcapitalismtherearemanyexamplesofcompaniesconsiderablyreinventingthemselvesandchangingtowardsneworunexpecteddirection64.CompaniesintheOilandGasvaluechainhavemanyskills,knowledgeandtechnologiesthataretransferable,toacertainextent,toothersectors.Assomebusinessactivitiesdecrease,othersmightbeexpectedtogrow,supplyingservicestootherpartsoftheeconomy.Forexample,theconsiderableknowledgeinoff-shoreplatforms–anactivityexpectedtodecrease–istransferableandinhighdemandintherenewableenergysector.OilandGasserviceproviderscanpotentiallyreinventthemselvesasconstruction,engineeringservicesortelecommunicationproviders.BarriersInthecontextofthesignificanttransformationtheOilandGassectormustgothrough,thesizeofthecompanymightconstitutearelevantbarrierforthistypeoftransition.Extremelylargecompanieswillhaveadiversityofcapabilitiesandbusinesses,andclarityoffocuswillbehardertoachieveandlikelymoredifficulttoimplement.Smallercompaniesaremoreprobabletobemoreagileinrespondingtoemergingopportunitiesinthemarket,facelessscrutinyandhavefewerregretsifthingsgowrong.IndicatorsKeyindicatorsofasignificantmoveintothisdirectionarethoughttobe:●Keynarrativesonstrategyandtransition.●Mergers,acquisitionsandspin-offsfromthecompanyfocusingonpartsofthebusiness.●BusinessdiversifyingitsclientbasetooutsidetheOilandGasvaluechain.●Overall%ofEBITDAcomingfromnon-OilandGasrelatedbusinesses.ExamplesAfteramergerbetweenrivalcompaniesFMCTechnologiesandTechnip,TechnipFMCPlcannouncedin2019thespin-offofitsengineeringandconstructionoperations,leavingTechnipFMCPlcasatechnology-focusedequipmentsuppliertooilandgascompanies.AccordingtoitsCEO,themovewouldimproveflexibilityandallowthenewcompaniestounlocknewopportunities65,withthenewconstructioncompanycontinuingtopursueopportunitiesin64AnexampleofsuchtransformationsthroughacompanyhistoryisforexampleNokiawhichhasstartedhasapapermillcompany,transformedintoanindustrialconglomerate,toaphoneproducingcompanyandfinallyanetworkprovider,asreportedbyReuters.65https://business.financialpost.com/pmn/business-pmn/oil-services-firm-technipfmc-to-split-into-two-publicly-traded-companies-262liquefiednaturalgasandbroadeningitsmarketfocustoincludebiofuelsandalternativeenergyprojects.TechnipFMC,whichhadamarketcapitalizationof$10.31billion,saidthenewParis-basedcompanywilldealwithonshoreandoffshoreoilandgasprojects.Thesplitwasexpectedtobefinalisedinthefirsthalfof2020.ConclusionsWiththemountingpressureofclimatechangeandpublicdemandsofclimatemitigation,OilandGascompaniesmustdecidehowtorespondtothelow-carbontransition.Companieschoosingtoactivelyengagewiththetransitionhavefour“transitionmodes”,allofwhichhavebothadvantagesanddisadvantagesandcanbeadoptedincombinations:●Becomingan“EnergyCompany”isanattractiveoption,asitallowsfornewbusinessandcontinuedgrowth,butachievingtherequiredshiftincultureandcapabilitieswhilegettingthepaceofchangerightmaybetricky.●Becominga“CarbonCompany”canbeawaytoleverageexistingassetsandskills,butlackofaviablebusinessmodelisasignificantbarrierinthecurrentpolicyandregulatoryenvironment.●“Manageddecline”seemstoservethemedium-tolong-terminterestsofshareholderswellbutgoesagainsttraditionalmodelsofbusinessmanagementandmaybedifficulttobalanceagainsttheinterestsofemployeesandmoreshort-terminvestors.●Intheory,“NewDirection”offerscountlessopportunities,butinpracticeitislikelytobedifficultforestablishedcompaniestocompletelychangetheirfieldofoperation.Thechoiceoftransitionmodewilldependonthespecificsituationofeachoilcompany.Inallcases,thisisanexistentialchoicenotonlyforthecompanies.Giventheirroleinthecurrenteconomicsystem,effectivetransitionofOilandGascompaniesisachallengewithimpactontheentirefabricofsociety,includingonfuturegenerations.Effectivetransitionfromfossilfuels,willneedtheinvolvementandimplicationofallactorsintheenergyvaluechain.63Chapter8:Resourcesandextramaterials[tobeadded]64References(Challenges)Bousso,R.(2018)ForBigOil,reservesizematterslessthanever.[Online].16May2018.Reuters.Availablefrom:https://www.reuters.com/article/us-oilmajors-reserves/for-big-oil-reservesize-matters-less-than-ever-idUSKCN1IH1I2[Accessed:27April2020].Caldecott,B.,Holmes,I.,Kruitwagen,L.,Orozco,D.,etal.(2018)CrudeAwakening:MakingOilMajorBusinessModelsClimate-compatible.Harries,T.&Annex,M.(2018)Orsted’sprofitabletransformationfromoil,gasandcoaltorenewablesPoweringPastCoalAlliance.[Online].12December2018.PoweringPastCoalAlliance.Availablefrom:https://poweringpastcoal.org/insights/economy/orsteds-profitable-transformation-from-oil-gas-and-coal-to-renewables[Accessed:27April2020].IEA(2020)TheOilandGasIndustryinEnergyTransitions.Lu,H.,Guo,L.&Zhang,Y.(2019)Oilandgascompanies’low-carbonemissiontransitiontointegratedenergycompanies.ScienceoftheTotalEnvironment.[Online]686,1202–1209.Availablefrom:doi:10.1016/j.scitotenv.2019.06.014.Megaw,N.(2017)DongEnergysellsoilandgasbusinesstoIneos.[Online].24May2017.FinancialTimes.Availablefrom:https://www.ft.com/content/57482c0b-db29-3147-9b7e-c522aea02271[Accessed:27April2020].OGJEditors(2019)Rystad:Oilandgasresourcereplacementratiolowestindecades.[Online].9October2019.Oil&GasJournal.Availablefrom:https://www.ogj.com/exploration-development/reserves/article/14068305/rystad-oil-and-gas-resource-replacement-ratio-lowest-in-decades[Accessed:27April2020].Orsted(2017)DONGEnergytochangecompanynametoØrsted.[Online].2October2017.Availablefrom:https://orsted.com/en/company-announcement-list/2017/10/1623554[Accessed:27April2020].(Boundaries)Brown,D.M.,Bonte,M.,Gill,R.,Dawick,J.,Boogaard,P.J.,2017.Heavyhydrocarbonfateandtransportintheenvironment.QuarterlyJournalofEngineeringGeologyandHydrogeology50,333–346.https://doi.org/10.1144/qjegh2016-142Butt,A.A.,2014.Lifecycleassessmentofasphaltroads:decisionsupportattheprojectlevel.ArchitectureandtheBuiltEnvironment,KTHRoyalInstituteofTechnology,Stockholm.EvaKrtková,VladimirDanielik,JankaSzemesová,KláraTarczay,GáborKis-Kovács,VladimirNeuzil,2019.Non-EnergyUseofFuelsintheGreenhouseGasEmissionReporting.atmosphere10.Gordon,D.,Brandt,A.,Bergerson,J.,Koomey,J.,2015.CREATINGAGLOBALOIL-CLIMATEINDEX72.65IPCC,2014.ClimateChange2014:MitigationofClimateChange.ContributionofWorkingGroupIIItotheFifthAssessmentReportoftheIntergovernmentalPanelonClimateChange,in:Edenhofer,O.,R.Pichs-Madruga,Y.Sokona,E.Farahani,S.Kadner,K.Seyboth,A.Adler,I.Baum,S.Brunner,P.Eickemeier,B.Kriemann,J.Savolainen,S.Schlömer,C.vonStechow,T.ZwickelandJ.C.Minx(Ed.),ClimateChange2014:MitigationofClimateChange.ContributionofWorkingGroupIIItotheFifthAssessmentReportoftheIntergovernmentalPanelonClimateChange.IPCC.IPIECA,2014.Oilandgasindustryguidanceonvoluntarysustainabilityreporting(3rdedition).IPIECA.IPIECAandAPI,2016.Estimatingpetroleumindustryvaluechain(Scope3)greenhousegasemissions.Overviewofmethodologies.IPIECAandAPI.https://www.ipieca.org/resources/good-practice/estimating-petroleum-industry-value-chain-scope-3-greenhouse-gas-emissions-overview-of-methodologies/IPIECA,APIandIAOGP,2011.Petroleumindustryguidelinesforreportinggreenhousegasemissions-2ndedition.McCoy,K.,Zimbron,J.,Sale,T.,Lyverse,M.,2015.MeasurementofNaturalLossesofLNAPLUsingCO2Traps.Groundwater53,658–667.https://doi.org/10.1111/gwat.12240Melton,M.,Hudson,A.,Ladislaw,S.,2015.Energy101:IntroductiontoOil.CentreforStrategicandInternationalStudies(CSIS).Santos,A.R.,Silva,R.J.da,Renó,M.L.G.,2015.AnalysisofPetroleumCokeConsumptioninSomeIndustrialSectors.JournalofPetroleumScienceResearch4,1–7.Shires,T.M.,Loughran,C.J.,StephanieJones,EmilyHopkins,2009.CompendiumofGreenhouseGasEmissionsMethodologiesfortheOilandNaturalGasIndustry,EnergyAPI.API.Tordo,S.,2011.NationalOilCompaniesandValueCreation,WorldBankWorkingPapers.TheWorldBank.https://doi.org/10.1596/978-0-8213-8831-0(scenarios)M.Figueiredo&D.Reiner&H.Herzog,2005."FramingtheLong-TermInSituLiabilityIssueforGeologicCarbonStorageintheUnitedStates,"MitigationandAdaptationStrategiesforGlobalChange,Springer,vol.10(4),pages647-657,October.ElmarKriegler,GunnarLuderer,NicoBauer,LaviniaBaumstark,ShinichiroFujimori,AlexanderPopp,JoeriRogelj,JessicaStreflerandDetlefP.vanVuuren2018Pathwayslimitingwarmingto1.5°C:ataleofturningaroundinnotime?Phil.Trans.R.Soc.A.37620160457,http://doi.org/10.1098/rsta.2016.0457AndréNollkaemperandDovJacobs(2013)SHAREDRESPONSIBILITYININTERNATIONALLAW:ACONCEPTUALFRAMEWORK,availableathttp://www.mjilonline.org/wordpress/wp-content/uploads/2013/04/Nollkaemper-Jacobs-FTP-3_C.pdf66Hupmanetal.,IAMC1.5°CScenarioExplorerandDatahostedbyIIASA;Faria,P.C.S.andLabutong,N.(2019),"Adescriptionoffourscience-basedcorporateGHGtarget-settingmethods",SustainabilityAccounting,ManagementandPolicyJournal,Vol.11No.3,pp.591-612.https://doi.org/10.1108/SAMPJ-03-2017-0031C.McGlade,P.Ekins(2015)Thegeographicaldistributionoffossilfuelsunusedwhenlimitingglobalwarmingto20C,Nature,517(2015),pp.187-190WhiteL(1967)Thehistoricalrootsofourecologiccrisis.Science155(3767),1203–1207Rogelj,J.,etal.,Mitigationpathwayscompatiblewith1.5°Cinthecontextofsustainabledevelopment,inSpecialReportontheimpactsofglobalwarmingof1.5°C.2018,IntergovernmentalPanelonClimateChange:Geneva.Lovell,B.(2011)“ChallengedbyCarbon:TheOilIndustryandClimateChange”,CambridgeUniversityPress67GlossaryScope1Scope2Scope3,UseofSoldProductsScope3,PurchasedGoodsandServicesUpstreamMidstreamDownstreamIntegratedEnergycompany

1、当您付费下载文档后，您只拥有了使用权限，并不意味着购买了版权，文档只能用于自身使用，不得用于其他商业用途（如 [转卖]进行直接盈利或[编辑后售卖]进行间接盈利）。
2、本站所有内容均由合作方或网友上传，本站不对文档的完整性、权威性及其观点立场正确性做任何保证或承诺！文档内容仅供研究参考，付费前请自行鉴别。
3、如文档内容存在违规，或者侵犯商业秘密、侵犯著作权等，请点击“违规举报”。

碎片内容

碳中和的最新文档