A couple of things worth highlighting in today's daily report – the first being Chevron’s move to join the net-zero club – focusing all eyes now on ExxonMobil in particular but also the rest of the US E&P crowd. Chevron will have some major challenges getting to net-zero and will likely face much of the same skepticism that bp, Shell, and TotalEnergies attracted in Europe initially and still face today. The Europeans have placed a lot of their bets on moving into renewable power – for the moment, Chevron is focused on moving to net zero in its own operations, which we read as biofuels and a lot of CCS. Given the acute shortage of international natural gas, it would make the most sense for the independent natural gas E&P companies and the LNG sellers to jump on the same boat. By promising low carbon natural gas and LNG, the industry is much more likely to gain support for the expansion that the world needs to counter some of the EIA assumptions around coal and petroleum product use from 2030 to 2050. Of course, it would be a whole lot easier for the US industry to do this if they had a value on carbon to work with! The chart below looks at one of the core clean-up issues, which is methane leakage. This is a subject we cover extensively in our ESG and Climate service linked here.
Source: IEA Methane Emissions Analysis - 2021, October 2021
Separate, but related, we are getting much more noise on carbon credits and carbon trading as we head towards COP26. Many of the energy companies that have net-zero targets and many other industrial and retail companies with the same goals can't get there without the ability to buy offsets, and while cap and trade systems are operating with varying degrees of success in several markets, pure “offset” markets remains a mess, as the validity of many of the offsets claimed are questioned and the relatively low value of many of the offsets sold suggests that they do not reflect the cost of a ton of carbon abatement. At the other end of the scale, we have buyers willing to pay up to $1000 per ton for the genuine article – the offsets from the direct air capture unit in Iceland. This may be acceptable for the occasional billionaire with a conscience, but it will not work for a corporation – a real offset market – ideally globally – that reflects the incremental value of abating a ton of carbon is still needed.
