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Understanding the Emissions Challenge

An assessment of integrated oils' efforts to reduce greenhouse gas intensity.

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Integrated oil companies are increasingly coming under pressure from investors and regulators to reduce emissions. Although their continued investment in oil and gas resources is being criticized, we find they are taking steps, to varying degrees, to address the emissions intensity of their portfolios because investors increasingly request they do so. Repsol (REP), Shell (RDS.A)/(RDS.B), and Total (TOT) lead on this front. The issue is increasingly one of competitiveness as well. As the global community reaches agreement that reducing emissions should be a common goal, so the probability of carbon taxes rises.

In this case, reducing emissions is equivalent to reducing costs, and those with the lowest emissions will therefore be the lowest-cost operators, a coveted position for a commodity producer. We have examined integrated oils’ main efforts to reduce the intensity of emissions and how effective they might be. Our analysis suggests that investments in renewable power generation are most impactful for reducing full-cycle emissions, followed by increasing natural gas production. Reducing flaring and methane emissions is important for reducing operated emissions intensity and typically makes economic sense. Investments in electric vehicle charging and biofuels are unlikely to have a material impact financially or on emissions intensity.

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Allen Good does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.