Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
For more than a decade, IHS Markit has been estimating
greenhouse gas (GHG) emissions associated with hydrocarbon
extraction, refining, and ultimately end-use. Over this time, we've
seen a growing depth and complexity of questions about GHG
emissions associated with hydrocarbon production- to-use.
Governments have advanced polices that make use of GHG intensity
estimates in an attempt to reduce emissions over the crude oil
value chain. Investors are also more interested in understanding
the competitive implications of energy transition and the relative
GHG competitiveness of key assets and hydrocarbon companies.
Yet understanding the competitive framework of the global oil
and gas value chain is not enough. It is also important to
understand how GHG emissions occur over each stage of the life of a
crude oil from extraction to processing, retail, and ultimately
combustion of refined products such as gasoline and jet fuel (see
Figure 1).
Finding the right measure
Accessibility of GHG intensity estimates for select crude oils
has increased over the past 10 years. Companies have increased
disclosure, academia has produced more research, and various
consultancies and non-governmental organizations are generating
their own estimates. With this rising interest, the understanding
of crude oil GHG emissions is improving. But much of the analysis
is complex, requiring considerable technical understanding and
assumptions. This can make it difficult to understand methodology
differences between studies and estimates, leading to potential
misinterpretation.
Not all life-cycle estimates measure the same thing. There are
no set rules about what emissions to include or exclude. Some
studies work from end-use transportation fuel up the value chain
and account for all emissions that occurred to get to that fuel.
Others consider all products created from a barrel of oil and
account for the emissions associated with each product, regardless
of where products are used.
The scope of emissions to include along the pathway can also
differ, causing variance between estimates and confusion. Some
methods draw a tight boundary around emissions and only include
those that are a direct result of extraction, processing, and
combustion. Others use a broader definition and account for other
emissions that can be associated with the crude oil life cycle. For
example, some analysis considers the upstream emissions of the
fuels used in the extraction and processing (such as emissions
associated with producing natural gas or diesel that is used to
extract additional hydrocarbons). In turn, this requires an
understanding of where those fuels are sourced and their own
emissions pathway.
Some analysis includes all crude oil products that are combusted
or have the potential to be combusted in the estimate of a crude
oil pathway. Yet these estimates run the risk of unintended
consequences or misinterpretation of efforts by industry to lower
emissions.
Take the case of an oil production facility that consumes some
associated gas for use in onsite power generation. Most life-cycle
methods would include the combustion of those molecules for onsite
energy use in the facility emissions (a direct onsite emission).
But what if that facility installs solar panels to reduce its use
of associated gas and lower its GHG emissions? In the method that
attributes all emissions resulting from the barrel being produced,
there would be no notable impact on the emissions intensity. There
might even be an increase to account for any energy used in
installation or maintenance of the solar panels. Other methods
would argue the associated gas emissions should be allocated to the
sector that consumes it. This sort of example has obvious
implications as investors and governments seek to design portfolios
and policies to reduce exposure to emission intensity sources.
Data is king… of uncertainties
Accounting for emissions at each stage can be complex and
requires significant data. For example, extraction requires
information on the type, quantity, and quality of fuels being used
to produce the oil; the quality of oil and gas being produced; the
extraction method used; its impact on land use; and any fugitive
emissions, venting, or flaring that may occur. For downstream
refining, factors such as the products being made from the crude
oil, the complexity of the refinery expected to consume the crude
oil, and the disposition of co-products and by-products can impact
the analysis.
For many crude oils, public data may simply not exist, requiring
researchers to make numerous assumptions. For these reasons,
variability should be expected between estimates, and reliability
is an issue. Although data availability is often discussed in
research, there are seldom transparent metrics developed and
published on the confidence or accuracy of emissions estimates.
Accounting for reliability
Variability and reliability are material to interpreting
life-cycle GHG emissions estimates between crude oils. Because 70%
to 80% of GHG emissions take place at combustion, the actual
variability between estimates on a full life-cycle basis is
relatively low (see Figure 2). In truth, the uncertainty that can
occur between independent estimates of various crude oils can be
larger than the differences indicated between different crude
oils.
In IHS Markit analysis, the difference between the upper and
lower range of GHG intensity of crude oil consumed or refined in
the US ranges from 19% to -9%. In prior research, IHS Markit
compared multiple studies and found that estimates of production
emissions varied by an average of 30%. Depending on the crude oil
analyzed, this level of error equates to between a 5% and 15%
variance in the well-to-wheels life-cycle GHG emissions
estimate.
IHS Markit GHG Accounting and Estimation
Life-cycle analysis can be a very powerful tool that improves
the understanding of where and how emissions ccur and where the
differences between crude oils exist. Interest from governments,
financial institutions, and key stakeholders should be expected to
drive more research in this space (including from IHS Markit) and
pressure for additional oil and gas company disclosure.
However, life-cycle analysis is as much an art as a science.
Assessments of the same crude oil between estimates can vary wildly
due to different scopes of the emissions captured. The data
requirements can be extensive and often numerous assumptions must
be made. As a result, estimates can be uncertain.
Getting this right and understanding the limitations of
life-cycle analysis of crude oil and natural gas is essential.
Because of the complexity and integrated nature of the hydrocarbon
system, the potential for distortion exists if the wrong measures
are taken.
Crude oil is not homogenous, and it differs not only by
emissions pathway, but also by refining intensity, availability,
input cost, and value of the yield of the refined product. Even
within a specific crude oil pathway, emissions can vary
considerably. While it is common to see averages, such as "oil
sands" or "North Sea," these may poorly represent the actual
emissions of any one facility or pathway. A complete picture
requires an understanding of not only emissions, but also how the
value chain interacts chemically and economically to ultimately
meet consumers' needs.
IHS Markit has launched an initiative to develop "The Right
Measure." We will be partnering with industry and financial
institutions to take stock of the current state of GHG life-cycle
accounting and estimation. Then we will attempt to create consensus
between key institutions on best practices and methods, while
shedding light on measures we can put in place to increase
transparency around estimate reliability.
We hope our initiative will help shape the future of life-cycle
GHG accounting. Our learnings will be incorporated into a more
sustained effort by IHS Markit to estimate the GHG emissions of
hydrocarbon pathways, starting with crude oil and natural gas. Our
objective is to blend our deep technical capabilities with our
extensive data to help clients understand where emissions arise,
how various crudes compare, and why and how energy transition may
change the face of the global hydrocarbon industry.
Posted 11 July 2019 by Cathy Crawford, Director, GHG Accounting and Estimation, IHS Markit and
Kevin Birn, Vice President, North American Crude Oil Markets, IHS Markit.