Featured Image

Are Short-Term Environmental Risks in Oil and Gas Declining?


By Tom Abrams, CFA  |  March 8, 2022

Climate concerns translate directly into concerns about risks. Those risks include added operating or capital costs, policy changes, shareholder preferences, the ability to attract employees, and even the right to operate or expand. On the other hand, becoming involved in carbon offset programs and other sustainability technologies could reduce perceived risks and exposures to negative externalities.

In this article, we first focus on the emissions of the oil and gas business—so-called Scope 1 emissions—separate from the emissions of its suppliers or customers. We highlight several steps the oil and gas sector is taking to reduce its emissions across the oil service, exploration and production (E&P), midstream, and refining industries. We next identify steps the industry is taking to invest in carbon capture use and sequestration (CCUS) and to leverage downhole, process, and pipeline expertise for handling carbon dioxide (CO2) and hydrogen—all steps to participate in a net-zero future.

Are the planned reductions in sector emissions and the increased exposure to solutions enough to reduce sector risks in the short term?

Sector Risks:

  • Reputational
  • Environmental
  • Operational
  • Capital Requirements
  • Technological
  • Policy
  • Liability
  • Asset Life
  • Credit/Access to Capital

Many steps are involved in the energy value chain and each has specific functions and environmental concerns. The production of oil and gas starts with the use of geoscience to find reserves, well drilling, well completion or fracturing (aka fracking), pipeline gathering, gas treatment, longer-distance transport (rail, truck, pipeline), storage, fractionating or refining, and potentially further processing into petrochemical and plastic products. However, in a general functional sense, oil and gas primarily deal with gas and liquids under controlled heat, burning, flow, and pressure in processing and transporting material for sale.

Reducing Scope 1 Emissions

We consider first the multiple ways the oil and gas sector is reducing its emissions, which are about 10% of the overall emissions attributed to hydrocarbons according to research from the Climate Accountability Institute. Many energy-intensive businesses are difficult to completely de-carbonize and the oil and gas business is no exception. However, like those other industries, oil and gas has focused on reducing energy use for decades for efficiency reasons and is now increasingly focused on its carbon footprint. Reducing a corporate emissions footprint should reduce several risks, including those of reputation, fines, capital requirements, and environment.

Emissions directly produced by oil, gas, and coal companies account for about 10% of fossil fuel emissions with the remainder emitted downstream. Of the 10% for which the energy industry is directly responsible, many in oil services, E&Ps, and pipelines are striving for a 25%-50% reduction in corporate greenhouse gas emissions over the next several years. According to the International Energy Agency (IEA), a 70% reduction is technically possible to abate. Many companies are also investing in carbon offsets and carbon offset technologies to achieve net-zero emissions and further reduce implicit carbon costs. Ironically, a well-managed company may have fewer emissions to reduce because it has already tightly monitored and controlled operations simply for efficiency.

Oil and Gas Industry Efforts to Reduce Emissions


A breakdown of reported U.S. Environmental Protection Agency (EPA) emissions illustrates that methane releases are concentrated in the onshore production and gathering and processing (G&P) areas. To mitigate methane emissions, the oil and gas companies need to focus on reducing leaks throughout the system and vapor recovery where methane and CO2 gas enter the atmosphere during handling. A whole new segment of comprehensive ground and satellite leak detection and repair is developing to serve the sector.


Carbon Dioxide

For CO2, most industry emissions occur as exhaust during fuel combustion during production and further downstream. As an overview, to mitigate CO2 emissions, the industry is focused on reducing flaring and both electrifying and replacing pumps and compressors.

E&P Focus Areas

E&P segment efforts are focused on several areas, including the following:

  1. Electrifying rigs and fracking equipment
  2. Managing leaks in new wells, particularly in high pressure plays
  3. Reducing flared excess gas both before gas gathering hookup and during ongoing operations
  4. Mitigating leaks in older operating wells
  5. Capturing and using or sequestering emissions
  6. Capping abandoned wells

On this last item, we have not seen the industry take on this effort broadly because accessing someone else’s wells and taking on clean-up liabilities are hurdles, but we believe the sector could help here.


The pipeline industry has had a multi-decade effort mainly focused on controls and monitoring to improve operations, safety, and efficiencies. Pipeline emissions are primarily found around above-ground facilities and gas facilities and compressors. More monitoring would include more widespread use of methane or oil leak detection equipment. Added controls would enable operations to immediately isolate and shut down assets in case of a pipeline incident.

Electrification of some functions such as replacing gas-fired compressors will also help the industry and adding solar generation in remote areas to power those compressors is becoming more of an industry practice. Gas-fired pipeline pumps and compressors can account for half of a pipeline’s CO2 emissions with other large items, including maintenance operations, testing, and emergency situations. Some types of compressors leak more than others in their normal rotations so can be replaced with different types as well.


For liquids pipes, the risks of greenhouse gas (GHG) emissions are lower. Liquids pipes also emphasize that shipping fuels via pipeline rather than truck or rail have a better GHG profile as well as positive cost and spill reduction aspects. In addition to enabling the movement of large amounts of crude or products that rail and truck capacity would not be able to handle, pipelines have the lowest greenhouse gas (GHG) emissions/bbl-mile transported. According to the Association of Oil Pipelines, transporting the same volume of energy products by rail increases the associated GHGs by 42% and, if by tanker trucks, 467% more GHGs are generated.

Refiner Efforts

Refiners appear primarily focused on potential leaks at downstream fractionation, refinery, or petrochemical plants (which also frequently use hydrocarbons as a combustion fuel) and capturing and using methane emissions or capturing CO2. Some refiners are also investing in biofuel production capacity, creating joint ventures on sustainable aviation fuels, and working on hydrogen fuel additives. In some cases, refiners are looking at their infrastructure to create biofuel hubs. Biofuel potential may be limited in scale, however, by waste collections or planted acreage requirements. Though in volume these fuels may be a small fraction of consumption (so vulnerable to greenwashing or “not enough” charges), they nonetheless could be seen as one of a thousand points of light with a different perspective. 

Participating in New Technologies

In addition to near-term efforts to minimize methane leaks and electrifying equipment to reduce CO2-emitting combustion, the industry participates in several other efforts. Hydrogen energy and CO2 mitigation technologies are being developed now, with likely more significant impacts in the 2030’s.. Though longer term in cumulative impact, we believe the industry’s participation in these areas could further reduce near-term risks by demonstrating some positive environmental efforts.

Certified Natural Gas

In some producing basins, notably the gassier Haynesville and Appalachia, the industry is beginning to offer certified and responsibly sourced gas supplies from small numbers of well pads. The definition of “certified” doesn’t appear to be fully set yet but essentially means that the gas is verified by one of four third parties as being produced to the highest standards. “Highest standards” often mean no methane leaks but can also include softer considerations of water, indigenous peoples’ concerns, safety, and end-of-well-life planning. Some gathering systems and pipelines are working, too, to certify the transportation of hydrocarbons all the way to the consumer.

This effort could extend all the way to “branded” liquified natural gas (LNG) exports, particularly from Gulf Coast locations close to the Haynesville play. Many will argue that “certified” is never acceptable if it means gas is ultimately being burned. The industry is focused on eliminating its methane emissions, which is a significant part of overall U.S. emissions, so this could be seen as progress.

Renewable or Responsibly Sourced Natural Gas (RNG)

RNG, also known as sustainable natural gas or biomethane, is biogas that has been upgraded to 90%+ methane, which can be used in the natural gas economy as fuel or a plastics precursor. Though scale may still be an issue, this could be considered progressive in some locations.

Carbon Capture Use and Sequestration (CCUS)

Carbon capture is becoming a much more significant part of the emissions equation for the future. Efforts will include collecting, handling, shipping via pipeline, and the storing of CO2. Some of the carbon sources will be created by the oil and gas industry but most will be from other industrial and utility operations. The oil and gas industry is positioned to coordinate with these other industries in proposals that leverage oil and gas midstream transportation and storage skills and infrastructure. A handful of expansive CCUS hubs and systems are being proposed in Canada, Appalachia, and the Gulf Coast.

Hydrogen Production Systems

There are several ways to produce hydrogen. The greenest uses renewable energy to separate the hydrogen and oxygen in water via electrolysis in a fuel cell; however, many believe that at this point, renewable energy may be better used in the grid for general electrification. Costs for fuel cells are currently prohibitive but there is a lot of global research on solutions and scale.

Today, the most common way to isolate hydrogen is by separating the hydrogen atoms from the carbon atoms found in natural gas in a steam reformer; CO2, however, is a key by-product of this process. Capturing that CO2 and storing it could be a solution though it would require public financial support without a revenue component for the CO2. CO2 is used today by injecting it into an oil field to produce more oil (so-called enhanced oil production or tertiary recovery). This use of CO2 is a long-used technique that could be expanded.

While some argue that producing more oil defeats the purpose, others argue that the system has negative net CO2 emissions, and others point out that the revenue from the enhanced oil production primes the economics of developing the hydrogen in the first place.

Hydrogen Handling

Regardless of how the hydrogen is produced, the oil and gas industry’s legacy skills with handling liquids and gases under pressure and with fuel additives position it to develop supportive hydrogen pipeline networks, fuel blending, and storage hubs.

Carbon Offsets

Some oil and gas companies contemplating net-zero futures are also starting to include the purchase of carbon offsets. In some cases, those offsets could be transmitted to users “per mcf” or “per barrel” to help them account for net-zero oil or gas consumption downstream.


If we disaggregate stock price drivers, commodity price and global political dynamics will likely continue to dominate industry fundamentals. But we believe many more constructive steps and climate efforts will be announced in the coming quarters by the oil and gas industry. Could industry reductions in Scope 1 emissions and participation in sustainable technologies reduce sector risks in the short term? To many the answer could never be YES because many of these moves don’t eliminate hydrocarbon energy fast enough. But it seems that in their totality these industry steps are indeed in the right direction near term. The final answer will likely depend on success with current programs but then, more importantly, continued follow-up and additional efforts by the sector as the world heads to a potential peak in oil demand in the late 2030’s and gas sometime thereafter.

The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

New call-to-action

Tom Abrams, CFA

Associate Director, Deep Sector Content

Mr. Tom Abrams is the Associate Director for deep sector content at FactSet. In this role, he is responsible for integrating additional energy data onto the FactSet workstation, including drilling, production, cost, regulatory, and price information. Prior, he spent over 30 years working at sell- and buy-side firms, most recently as the sell-side midstream analyst at Morgan Stanley. He also held positions at Columbia Management, Dreyfus, Credit Suisse First Boston, Oppenheimer, and Lord Abbett. Mr. Abrams earned an MBA from the Cornell Graduate School of Business and holds a BA in economics from Hamilton College. He is a CFA charterholder and holds certificates in ESG investing, sustainable investments, and real estate analysis. 


The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.