The greenest companies will win the biggest market share
The race is on to see which companies and countries can produce the greenest fossil fuels, and Texas is falling behind.
In Riyadh, Paris and Washington, business executives and government officials are no longer talking about whether oil, natural gas and coal cause climate change. Instead, they are talking about who produces the cleanest version of those fossil fuels.
Marketers call this process product differentiation. The company or region that can claim to produce the cleanest dirty energy could end up the last one standing as the world adopts cleaner alternatives wherever possible.
Even in a much smaller market, oil and natural gas survivors will be profitable because there are some things clean technology cannot replace.
I first heard about green oil two years ago when Saudi Arabian officials started talking about how few greenhouse gases they emit while producing their crude. A Stanford-led study found that because Saudi Aramco does not hydraulically fracture its wells and only rarely flares excess gases, Saudi oil has the least impact on the climate.
Add in the world’s lowest lifting costs, and Saudi oil becomes the logical choice for the European Union and other nations that will soon levy a tariff on petroleum imports based on their carbon intensity.
“As long as the right policies are in place, competing on carbon intensity will give you a higher share of the market,” Jim Krane, an energy fellow at Rice University’s Baker Institute, predicted. “Countries and companies that produce the really highcarbon intensity crudes are going to have a really hard time.”
The American Petroleum Institute, the industry’s top lobbying group in Washington, recently argued that the Biden administration should boost domestic production because U.S. environmental laws are stricter than most.
“The administration is leading us toward more reliance on foreign energy from countries with lower environmental standards,” API President Mike Sommers said in a statement denouncing a ban on new leases on federal lands.
API, though, has vehemently opposed stricter environmental standards, including new limits on flaring and methane emis
sions. Foreign leaders, meanwhile, consider U.S. environmental regulations lacking.
In October, the French government forced Parisbased energy company Engie to break off negotiations for a $7 billion liquefied natural gas export deal with NextDecade Corp. The contract was critical for NextDecade to attract financing for a new LNG export facility near Brownsville.
President Emmanuel Macron and French environmentalists said Engie should not buy natural gas from fracked wells in the Permian Basin where flaring is out of control. Unless NextDecade can find other customers, it’ll have to scratch the project.
Most governments are looking for ways to reduce greenhouse gas emissions to meet their obligations under the Paris Climate Agreement. The Biden administration plans to tighten rules for flaring and also order pipeline companies to plug leaks.
Responsible oil and natural gas companies, particularly supermajors such as Exxon Mobil, Chevron and BP, support tighter regulations. They know consumers want the industry to clean itself up.
Reducing flaring also makes financial sense. In a study financed by the Environmental Defense Fund, energy experts at Rystad consulting calculated that companies could generate $440 million in additional revenue a year by 2025 if they spent $50 million to capture 98 percent of the methane coming out of their wells.
Gov. Greg Abbott, though, is determined to make sure Texas producers end up blackballed. His latest political stunt was visiting an oil field service center in Odessa to order state agencies and lawmakers to fight all efforts to reduce emissions.
Thanks, governor; you pretty much guaranteed European and Asian nations will shop for their liquefied natural gas elsewhere. The Texas Railroad Commission, which regulates the oil and gas industry, has also decided to tell off the Europeans rather than reduce flaring.
“Terrible climate accords, bad investment decisions, and contract cancellations — this is what radical environmentalism gets us,” Commissioner Wayne Christian wrote in a hilariously over-the-top response to France’s decision. “Natural gas is clean, reliable, and affordable — why is that no longer good enough?”
Well, because energy markets are shifting under public pressure. to become more environmentally responsible.
Governments, particularly Texas officials, can help by imposing transparent regulations and an emission-reduction certification process. Otherwise, producers like Saudi Arabia will take an ever-increasing share of a slowly shrinking market.
If Texas wants to remain an energy exporter, it must give customers what they want. And when there are no alternatives, they want demonstrably cleaner fossil fuels.