US oil and gas producers have begun to follow their European rivals in setting ambitious targets on cutting their emissions amid mounting investor pressure over climate change.
Pioneer Natural Resources, the biggest independent oil and gas producer in the Permian Basin, last week vowed to cut the intensity of its greenhouse gas emissions by a quarter by the end of the decade.
That followed recent announcements by rivals ConocoPhillips and Occidental Petroleum that they would reduce emissions from their operations to net-zero by mid-century, marking the first such pledges by big American oil companies.
US producers have lagged those in Europe in making climate commitments. But these latest moves suggest growing pressure from climate-conscious investors is pushing them to follow a similar track.
“I think it is increasingly important to our investor base — and I think it will be for all in the space — to be able to address all aspects of ESG in our business,” said Mark Berg, executive vice-president at Pioneer, referring to the environmental, social and governance concerns that investors now factor in.
“Emissions . . . is very high on the list on the ‘E’ side of ESG, so I think you will see an increased focus on that.”
The biggest European energy majors — Shell, BP, Eni, Equinor, Total and Repsol — have already outlined ambitions to cut emissions to net-zero by 2050.
Until recently, US shareholder pressure had largely come from religious groups, socially focused investors and a handful of pension funds.
“The real change recently has been the very largest investors in these companies — the State Streets, the Blackrocks, the Wellingtons — are now concerned as well,” said Andrew Logan, director of oil and gas at Ceres, a non-profit organisation that coordinates investor action on climate. “And that to me has led to a real sea-change in the attention that companies are giving to these issues.”
In the US — where the shale patch has developed a poor image on pollution, especially in the flaring of natural gas — companies are also reflecting a changing political reality.
Where President Donald Trump focused on rolling back regulation on the industry, his successor, Joe Biden, has vowed to clamp down on polluters, which lawyers said may involve tighter regulation of emissions reporting.
While the bulk of emissions from the energy sector come from the burning of fossil fuels, upstream oil and gas production also pumps a significant volume of greenhouse gases into the atmosphere. In the US, the industry produced 133m tonnes of CO2 in 2018 — the most of any country worldwide according to consultancy Rystad Energy. Russia, in second place, produced 116m tonnes.
The manner in which US producers are looking to tackle emissions differs from their European counterparts, whose pledges have typically covered so-called scope 3 emissions — those caused by the burning of their products — as well as emissions from their own operations. As a result, many European companies have pledged to shift their business model to include a growing share of renewables and electricity businesses.
In contrast, Conoco — the first US producer to announce a net-zero target in late October — omitted scope 3 emissions from its targets, indicating it intends to remain focused on its core business.
Occidental has said it will work to neutralise scope 3 emissions by shifting its model towards carbon capture and sequestration services as opposed to renewables. Chief executive Vicki Hollub told IHS Markit last week that Occidental would ultimately become “a carbon management company” with its oil and gas providing “a support business unit”.
Analysts said that a focus on emissions could help US producers win back investors after years of poor returns.
“In a way the industry is making a virtue out of necessity,” said Mr Logan. “They don’t have investors who are enthusiastic about their current approach, so I think there’s a lot of reason to think that what is now a slow pivot will snowball over time.”