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ESG (Environmental, Social, and Governance) in Oil and Gas – Thematic Research

Pages: 59 Published: July 30, 2021 Report Code: GDOG-TR-S051

Climate change measures will fundamentally alter the industry. The measures the Paris Agreement signee governments will take to discourage emissions and ensure the success of net-zero goals will render conventional oil and gas activity less and less viable. In the next decade, wherein hydrocarbon demand will not fall significantly, oil and gas companies should minimize losses to emissions-discouraging measures such as carbon pricing by altering processes across the value chain to reduce emissions.

Oil and gas companies will need effective governance to steer themselves through the existential disruption that the next three or four decades will bring. The balancing act necessary for companies to meet net-zero objectives while retaining scale demands deft leadership: companies must sustain sufficient cashflows to handle demand volatility, overhaul their asset portfolios, make astute investments, and satisfy sustainability-minded stakeholders, all while providing stable dividends. As millennials come to dominate the consumer base and workforce and begin to assert their preferences, companies that fail to maintain good social practices (toward workers and affected local communities) will struggle to attract and retain customers and employees.

What are the main trends found in the ESG theme in oil & gas?

Technological trends

Renewable energy investment is essential to the green transition. Oil and gas majors are actively restructuring their businesses to incorporate renewable power capabilities in their portfolios.

Carbon capture & storage (CCS) refers to various technologies that trap greenhouse gas (GHG) emissions before they can dissipate in the atmosphere, then store them deep underground. It is central to many governments’ net-zero strategies. Tax incentives support CCS adoption in the US, and EU countries are capitalizing on industrial hubs and clusters for more effective CCS. The oil and gas sector has adopted CCS more than any other industry. Many companies develop CCS capabilities in-house, and vending CCS technology is an attractive long-term opportunity for oil and gas companies.

Electric vehicles (EVs) threaten hydrocarbon demand. Their replacement of traditional cars will erode the transport industry’s hydrocarbon demand, which is historically the highest of any industry. Operators should analyze the EV value chain for potential entry points such as fuel cell and battery development.

Artificial intelligence, industrial internet, wearable tech, blockchain, robotics are few other technology trends shaping ESG in oil & gas industry.

Macroeconomic trends

The Paris Agreement is an international treaty on climate change. Its goal is to limit global warming such that temperatures do not exceed 2 degrees Celsius more than pre-industrial levels which will impact the oil & gas industry.

Carbon pricing will be a key driver in oil and gas activity. Nations, particularly Paris Agreement signees, will seek to meet emissions goals by imposing higher and higher prices. Oil and gas companies should beware of the climate ambitions of nations in which they are active and anticipate that rising carbon prices will render continued hydrocarbon activity there unprofitable. Global carbon pricing initiatives will drive companies to decarbonize both their processes and products.

COVID-19 and the associated oil price crash exacerbated the existing strain on industry profitability. Some nations have seen record-breaking percentages of energy demand met by renewable energies and committed to prioritizing green initiatives in their fiscal responses to the pandemic. These are few of the many macroeconomic trends shaping the ESG theme in oil & gas industry.

What are the ESG challenges in oil & gas industry?

Environmental challenges

Oil and gas is more exposed to risk from environmental challenges than any other industry. Climate change is the most pressing challenge and reducing greenhouse gas (GHG) emissions will be the environmental priority for all industry companies, but oil and gas activity also harms the environment in the other three ways listed in our framework. Pollution comes from leaks, byproduct disposal, chemical disposal, and combustion. Marine biodiversity is threatened by offshore leaks and terrestrial biodiversity by onshore construction. Natural resources, particularly water, land, and sand, are used in large qualities by oil and gas activity. 

Social challenges

The oil and gas industry has a high social impact; it employs over 4.5 million people and operates globally. Oil and gas companies should take measures to ensure the wellbeing of their workforce, contribute to sustainable socio-economic development, and minimize negative social impact in host societies. 

Governance challenges

Oil and gas companies will need effective governance to steer themselves through the massive, existential disruption that the next three or four decades will bring. The balancing act necessary for companies to meeting net-zero objectives while retaining scale requires deft leadership: companies must sustain sufficient cashflows to handle demand volatility, overhaul their asset portfolios, and make astute investments, and satisfy sustainability-minded stakeholders, all while providing stable dividends. A good governance reputation will reward companies. As Millennials come to dominate the workforce and the consumer base in the next decade, companies with good governance reputations will find it easier to compete for customers and skilled employees.

Which are the key companies focusing on ESG theme in oil & gas?

Key companies focusing on ESG in oil & gas include BP, China Petroleum & Chemical Corp (Sinopec), Equinor, Shell, Eni, ExxonMobil, Chevron, Gazprom, Repsol, Saudi Aramco and Shell.

Market report scope

Companies BP, China Petroleum & Chemical Corp (Sinopec), Equinor, Shell, Eni, ExxonMobil, Chevron, Gazprom, Repsol, Saudi Aramco, Shell

 Scope

  • Comprehensive ESG framework. Identification of contributing factors for each of environmental, social, and governance and mitigating actions companies can take against them.
  • Explanation of GlobalData’s ESG feedback loop and the opportunity for companies to establish a virtuous cycle of sustainable action that benefits all stakeholders and finances.
  • Listing of all technological and macroeconomic trends relevant to ESG in oil and gas with explanation of their ramifications
  • Extensive coverage of the threats and opportunities that ESG concerns present to the oil and gas industry.
  • Coverage and analysis of all relevant companies’ relative positions in the ESG theme: 11 oil and gas operators, 9 equipment and services providers.
  • Unique thematic scorecard that ranks oil & gas companies according to their positioning in the ten themes most important to the industry.

Reasons to Buy

  • Survive future demand drops and inhospitable regulation by understanding the threats and opportunities ESG concerns present to the industry. Position yourself for future success by making the correct ESG investments.
  • Cut through the noise with GlobalData’s ESG framework that identifies contributing factors and mitigating actions.
  • Uncover the oil and gas companies excelling with GlobalData’s thematic scorecard. Understand and replicate their success with the extensive coverage of each leading company’s activity in the companies section.
  • Develop relevant and credible sales and marketing messages for oil and gas companies by understanding key industry challenges and which ESG products and services are desired. Identify attractive investment targets by understanding which companies are most advanced in the themes that will determine future success in the oil and gas industry.

Table of Contents

Executive summary 3

GlobalData’s ESG framework 4

Contributing factors and mitigating actions 5

Trends 6

Technology trends 6

Macroeconomic trends 9

The ESG action feedback loop 13

ESG challenges in oil and gas 14

Environmental challenges 14

Social challenges 30

Governance challenges 37

Case studies 40

Environmental 40

Social 40

Governance 41

ESG timeline 42

Companies 43

Sector scorecard 48

Integrated oil and gas sector scorecard 48

Glossary 51

Further reading 55

| Our thematic research methodology 56

| About GlobalData 58

| Contact Us 59

List of Tables

Technology trends

Macroeconomic trends

Norway’s pipeline of future field electrification projects

Examples of planned and active wind integration projects

Examples of active and planned solar integration projects

Major upcoming renewable energy projects of oil and gas companies

Largest capacity renewable fuel refineries

Company analysis: oil and gas operators

Company analysis: equipment and services providers

List of Figures

GlobalData’s ESG Framework

Contributing factors and mitigating actions

The ESG action feedback loop

The two approaches to reducing emissions

Potential sources of emissions in the oil and gas value chain

Opportunities to integrate renewable technologies across the upstream value chain

Benefits and challenges of renewables integration

Green hydrogen explanation

Global power generation by technology

Renewable energy deals by leading oil and gas companies by region

BP leads in renewable energy capacity

The wind power value chain

The size of the global wind power market, 2010-2030

Wind power installed capacity by region, 2030

Mentions of ‘carbon capture’ in company filings of oil and gas companies, 2016-2020

BP’s partnership with Kelvin

The oil and gas industry mapped to the sustainable development goals

The long-term energy transition targets of IOCs

Renewable pipeline capacity by technology

Major IOC’s GHG emissions in 2019

ESG timeline

Sector scorecards

Frequently Asked Questions

Key companies focusing on ESG in oil & gas include BP, China Petroleum & Chemical Corp (Sinopec), Equinor, Shell, Eni, ExxonMobil, Chevron, Gazprom, Repsol, Saudi Aramco and Shell.

BP, Equinor and Shell are the leaders in environmental theme in oil & gas sector.

BP, Eni, Equinor, ExxonMobil and Shell are the leaders in social theme in oil & gas sector.

BP, Chevron and Shell are the leaders in governance theme in oil & gas sector.

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