New study for investors shows carbon levels of shale crude

By Staff | October 10, 2017

Crude oils do not share the same carbon intensity levels. A research team at ARC Energy Research Institute hopes investors understand that such variability exists. In their new report, “Crude Oil Investing In A Carbon Constrained World: 2017 Update,” ARC outlines the differences in various crude types and how investors with knowledge of the types can benefit in their investing strategies. “Investors can identify crude oil assets that can make attractive returns under a realistic range of carbon prices, while avoiding higher carbon assets that are more challenged by carbon levies,” the ARC team said.

Some organizations or entities believe that crude oil investors could be exposed to financial risk due to the changing policy and regulatory landscape on greenhouse gas policy. By knowing which crude types produce the least amount of GHG emissions, investors can better position themselves should stricter policy and regulations become implemented. This week, the U.S. EPA announced plans to eliminate the Clean Power Plan, a regulatory structure designed to regulate the amount of carbon emissions from major producing sources such as coal-power generation facilities and other fossil fuel-based production sites.

In the report, ARC outlines the GHG emissions and investment risk of a specific crude oil asset using two approaches. The first approach compares emission levels of crude to others based on the full well-to-combustion life cycle emissions for the crude. The second approach, designed to help predict a producer’s liability in a very stringent GHG policy, calculates only the emissions that occur at the producer’s well site and operations.

For the report, ARC used a US average crude oil assessment provided by the U.S. Department of Energy in 2016 as a base to compare other crudes too.

For each crude type, the research team outlines the amount of kilograms of carbon per barrel that a crude type will create in the oil production and upgrading phase, the transport phase, the refining stage, the refined product transport phase and the combustion process. The combined total for each results in each crude type’s total well-to-combustion score.

The U.S. refined average score for the total well-to-combustion cycle is 510 kgCO2e/b. The U.S. Texas Yates (481), Texas Spraberry (474), U.S. Bakken No Flare (463), and U.S. Texas Eagle Ford Black Oil Zone (470) all came in below the U.S. average emission level benchmark. The oil production and upgrading percent difference to the U.S. refined average number for Bakken No Flare was the highest amongst all shale-based crudes at 68 percent.

In addition to its work on comparing and highlight certain types of crude oil and their respective GHG rates in comparison to benchmarks, the study’s team also offers a quick look at what future carbon pricing could realistically be. “Since it is impossible to predict how policy will evolve in the many countries where crude oil is produced and consumed, the simplest method is to use a carbon price as a proxy of how costs could increase with more stringent GHG policy,” the report noted. ARC’s perspective on carbon pricing is that in 2020 it could cost around $20/ton of CO2. By 2030, it could cost $40/ton of CO2. A single barrel of oil holds roughly 120 kg of carbon. Approximately seven barrels of oil is needed to make up one ton of carbon, putting the cost of more stringent GHG policies (assuming the $20/ton levels) in the $3/b range.

To view the study in its entirety, click here.