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US' Occidental supplies first cargo of 'carbon-neutral crude' to India's Reliance

Highlights

VLCC Sea Pearl delivered 2 million barrels of US crude to Jamnagar

Oxy says this is first step towards net-zero oil

Various offsets were used to cover GHG emissions

London — Oxy Low Carbon Ventures, a subsidiary of Occidental Petroleum, delivered 2 million barrels of "carbon-neutral oil" to Reliance Industries in India, it said late Jan 28.

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The US company said it was the energy industry's first major petroleum shipment in which greenhouse gas, or GHG, emissions associated with the entire crude lifecycle, from wellhead to combustion, were offset.

Oxy said this is a first step toward the "development of a net-zero oil" or "climate-differentiated crude oil," which will be produced through the capture and sequestration of atmospheric CO2 via industrial-scale direct air capture facilities and geological sequestration.

The Sea Pearl VLCC delivered 2 million barrels of crude to Reliance's 1.45 million b/d refining complex in Jamnagar this week, according to cFlow, S&P Global Platts trade-flow software.

CARBON OFFSETS

The oil was produced in the US Permian Basin by Occidental. The US company said Australian investment bank Macquarie Group had arranged and structured the bundled offset supply deal.

"With a growing majority of major producers looking to lower their net emissions and offtakers also aiming to reduce carbon footprint, the market will likely see an increasing number of these trades," Peter Compton, Senior Project Consultant of Custom Analytics at S&P Global Platts, said.

Oxy said the volume of offsets applied against the cargo was sufficient to cover the expected GHG emissions from the entire crude lifecycle including oil extraction, transport, storage, shipping, refining, subsequent use, and combustion.

These offsets were sourced from a variety of projects verified under the Verra Verified Carbon Standard program, meeting eligibility criteria for the UN's International Civil Aviation Organization's Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA.

Occidental, the top oil producer in the Permian, is an industry leader in enhanced oil recovery that uses CO2 to extract more crude oil from mature wells.

CARBON INTENSITY

According to the US Environmental Protection Agency, 2 million barrels of crude is equivalent to about 860,000 mt of CO2 emissions.

CO2 emissions per barrel of crude oil are determined by multiplying heat content times the carbon coefficient times the fraction oxidized times the ratio of the molecular weight of CO2 to that of carbon, according to the EPA.

In a recent report, Platts Analytics noted that the growing demand for low-carbon oil could impact the traded price of oil.

The oil market could start applying carbon intensity as an attribute of the crude, similar to the way the market views sulfur.

"Sulfur devalues crude roughly in line with its prevalence in the oil, all else equal. Likewise, the market could come to devalue crude produced at a relatively high rate of emissions," the Platts Analytics report said.

"As the market for low-carbon oil matures, prices will likely reflect the associated upstream carbon intensity, with crudes of lower carbon intensity trading at a premium to those of higher carbon intensity."

PLATTS CEC

Platts began publishing daily assessments reflecting the CORSIA-eligible carbon credit market, called Platts CEC, from Jan. 4, 2021.

The Platts CEC was assessed at $1.02/mtCO2e on Jan. 28.

The Platts CEC assessment reflects the most competitive CORSIA-eligible credit within the Voluntary Carbon Credit market, and continues to be set by Renewable Energy credits, 2016 vintage, from larger-scale projects in India, China and Turkey.

In the broader voluntary carbon credit market, there was evidence of stronger demand over the week starting Jan. 25.

Xpansiv's CBL Global Emissions Offset, or GEO, contract saw a jump in traded levels over the week, according to data from the exchange.

On Jan. 28, just under 375,000 mt of carbon was transacted via the platform at 95 cents/mt, $1/mt, and $1.05/mt. One of the transactions was for just under 350,000 mt.

According to market data, most of the activity was driven by increased demand.

Occidental is one of the few US oil companies that has committed to net-zero emissions strategy for the coming decades.

"We have set a target to reach net-zero emissions associated with our operations before 2040 and an ambition to achieve net-zero emissions associated with the use of our products by 2050," Occidental President and CEO Vicki Hollub said in December.

It is also the only US energy company participating in a collaborative platform, alongside European energy majors BP, Shell, Eni, Equinor, Galp, Repsol, Shell and Total, that has developed six principles to support the energy transition and combat climate change.