Chevron shareholders gave a thumbs-up to putting SCOPE-3 greenhouse gas emissions on the company's public radar screen, although they rejected another climate change proposal at the annual shareholders' meeting May 26.
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A shareholder proposal asking the company to "substantially" reduce SCOPE 3 emissions from its energy products in the medium- and long-term future, received 61% of shareholder votes cast, Chevron said. The board had recommended shareholders vote against the proposal, saying it was already taking feasible steps to report its SCOPE 3 emissions.
SCOPE 3 emissions arise indirectly from assets not owned or controlled, and are thus considered hardest to monitor. By contrast, SCOPE 1 emissions are direct emissions from sources a company owns or controls, while SCOPE 2 are indirect emissions from purchased energy.
During the meeting, Chevron CEO Mike Wirth said the company has established Scope 1 and Scope 2 metrics for upstream oil, gas, flaring and methane and said the board believes the most appropriate approach for measuring the emissions performance of an upstream asset is greenhouse gas intensity by commodity on an equity basis, which ensures the company is accountable for all emissions from projects, even those it doesn't operate.
Wirth said the company addresses Scope 3 emissions by supporting a price on carbon through "well-designed" policies, "transparently" reporting SCOPE 3 emissions from use of its products and enabling customers to lower their emissions through increasing its renewable products, offering offsets and investing in low-carbon technologies.
Spending of $3 bil through 2028
Through 2028, Chevron plans to spend about $2 billion in carbon reduction projects. It has increased renewable fuels and products in its value chains over the last 10 years and plans to spend another $750 million by 2028 in renewables and offsets.
It also recently increased its commitment to low-carbon technologies that address SCOPE 3 emissions, said Wirth, such as carbon capture utilization and storage by committing $300 million to the Future Energy Fund II.
"Many of [those low-carbon technologies] can provide dramatic opportunities to meet energy demand," he added.
He noted Chevron has set emissions metrics for 2023 and 2028 and intends to do so every five years afterwards, adding that achieving lower emissions intensities was linked to most company employees' variable compensation.
Wirth noted Chevron's energy mantra going forward is "higher returns, lower carbon."
"Chevron shares the view that managing climate risks is vital to delivering superior long-term value," he said. "[We believe] the future of energy is lower carbon."
Another Chevron shareholder climate-change proposal requested the board to issue an audited report in early 2022 on how significant reduction in fossil fuel demand, set out in the IEA Net Zero 2050 scenario, would affect its financial position and underlying assumptions. That proposal received a significant minority (48%) of shareholder votes.
In a May 20 report, consultant Wood Mackenzie said the energy transition represents $14 trillion worth of "uncertainty for upstream oil and gas."
"The industry now finds itself having to supply oil and gas to a world in which future demand -- and price -- are highly uncertain," Wood Mackenzie vice president Fraser McKay said in the report. "But the world will still need oil and gas supply for decades to come, and the scale of the industry will remain enormous."
While a number of majors are progressing large-scale climate-change projects such as carbon capture and storage developments, most independents are not although a significant number have made various types of progress on emissions reductions, net-zero goals or fuel switching in their operations from diesel to natural gas.
E&Ps mull climate alternatives
Asked during a recent quarterly call in late April if its executives were pondering construction of a carbon capture/storage or other alternative energy projects, Continental Resources CEO Bill Berry said his company was "looking at all our waste and what happens to it and trying to take that to the absolute de minimal level."
"That's our primary pursuit, is to reduce the actual emissions that come, whatever form they're in," Berry said. "And then second, look at any type of carbon capture." He did not immediately say if the company would actually pursue such a project.
Asked the same question during its Q4 2020 call in February, ConocoPhillips CEO Ryan Lance said his company was "actively advocating for a well-designed price on carbon in the US" which is the "most economically efficient and effective step that can be taken by the US to set the world on a sustainable path to long-term GHG emission reductions."
Even so, "at least for now, we believe the highest value we can create for all our stakeholders is by being the best E&P [exploration and production] company in the business," Lance said.
But E&P business models must adapt to maximize value as the oil and gas sector matures, said Wood Mac's McKay.
"Consolidation to bolster margins will gather momentum," he said. "Specialists will carve out niches. Applying the right technology and retaining the right people will determine their success. Just a few more years of firm oil prices would strengthen balance sheets, making transition strategies easier to execute."