Conoco becomes first U.S. oil major to set net-zero target

Source: By Carlos Anchondo, E&E News reporter • Posted: Tuesday, October 20, 2020

ConocoPhillips announced plans yesterday to reach net-zero emissions from its operations by midcentury, making it the first American oil and gas major to adopt such a target.

The Houston-based company said that with its acquisition of Concho Resources Inc., it will be the first U.S. oil and gas company to take on a strategy to “meet an operational [scope 1 and scope 2] net-zero emissions ambition by 2050” (see related story).

Conoco plans to reduce scope 1 and 2 emissions — or those associated with removing fossil fuels from the ground and moving them to markets — between 35% and 45% by 2030. The firm’s net-zero pledge does not cover the greenhouse gases created by consumers, or scope 3 emissions.

While Conoco said its scope 3 emissions went up 9% last year, the company said it has “no control over how the raw materials we produce are transformed into other products or consumed” and that its greenhouse gas intensity target doesn’t cover those emissions.

John Roper, a Conoco spokesman, said the company is “advocating for scope 3 emissions intensity reduction through our support for a U.S. carbon price” and by joining the World Bank flaring initiative.

In a statement, Conoco said its net-zero emissions pledge is part of its commitment to limit global temperature rise to below 2 degrees Celsius.

Addressing climate change — along with meeting global energy demand and delivering returns — is part of the company’s climate risk framework, according to Ryan Lance, the firm’s CEO.

“We are making clear our intent to address all three issues by laying out a climate risk strategy that aims to reinforce our commitment to environmental, social and governance (ESG) excellence,” Lance said in a statement yesterday.

Conoco’s news follows announcements from European majors like BP PLC and Royal Dutch Shell PLC, which declared earlier this year their intentions to become net-zero companies by 2050.

Yet while Conoco’s pledge marks a step in the right direction, a significant gap remains between the firm and industry leaders, according to Mike Coffin, a senior analyst at the Carbon Tracker Initiative, a London-based think tank.

“Unlike BP’s ambitions, which cover Scope 1, 2 and 3 emissions on an absolute basis, ConocoPhillips’ scope 1 and 2 emissions intensity target places no limit on the total emissions that result from the hydrocarbons it produces,” Coffin said in an email yesterday.

Coffin said Conoco’s “potential exposure to stranded asset risk broadly remains unchanged” from a report earlier this month, where Carbon Tracker said 70% or more of Conoco’s business-as-usual project portfolio could be uncompetitive in a world where temperature rise is kept to 1.6 C above preindustrial levels (Energywire, Oct. 9).

He cautioned that a reduced demand for oil and gas — in an energy transition away from fossil fuels — has the potential to destroy significant value for unprepared companies.

Still, Conoco said it remains committed to “sustainably and affordably” meeting the world’s energy demands, noting it has “15 billion [barrels of oil equivalent] of resources below $40 per barrel [West Texas Intermediate] cost of supply, diversified geographically and across four megatrends, with an average cost of supply of less than $30 [per barrel of oil].”

Andrew Logan, senior director of oil and gas at the investment group Ceres, said Conoco is trying to argue an approach that’s about “investing only in low-cost, sort of Paris-compliant barrels of oil.”

“This is in an industry where everyone sort of claims that they’re going to be the last company standing, so it’s certainly risky, but you know, they’re laying out their cost curve — that’s very significant,” Logan said. “They’re laying out their plan for only investing in sub-$40-a-barrel projects, so it’s at least a coherent approach.”

Logan said the onus is on the company to prove its pledge, adding that investors realize only certain kinds of oil projects have any chance of surviving in a low-carbon future.

Companies are far less exposed to climate risk in their operational emissions than in the product, he added. Either a company manages that by setting a scope 3 target, as European companies have done, or by only investing in projects and products that are low cost but still economical in a low-carbon world, Logan said.

“For sure, there will be a lot of skepticism around whether it’s possible to remain a pure-play oil and gas company in a decarbonizing world, but at least they have the beginnings of a plan to try to figure that out,” he said.