Norwegian oil giant Equinor and the quest for net-zero

Can an oil company go green?

Can an oil company target net-zero carbon emissions while ramping up its fossil fuel investments? Equinor is proposing just this. Expanding its oil and gas infrastructure across the globe, but also stating that they will align with the Paris Agreement and achieve net-zero emissions by 2050.

Equinor

Equinor is a Norwegian energy company, majority owned by its government. Equinor has expanded into renewable energy, but last year around 80 percent of its Capex went toward oil and gas investments. Looking to the future it plans to expand fossil fuel production by 5 % by 2026. So how does this equate with its promise to reach net-zero emissions by 2050?

Firstly, Equinor has made some impressive strides in terms of decarbonisation. Investing in renewables has allowed it to reduce its operating emissions (scope 1). Equinor aims to reduce these by 50 % by 2030 through energy efficiency and by using renewable energy to power its oil rigs and other operations. However, it also plans to use carbon credits, a method which has come under a lot of scrutiny due their ineffectiveness in cutting emissions.

Equinor has also taken measures to reduce methane emissions during the extraction process. It has also taken action to (partially) electrify its shipping fleet. By this measure Equinor, (at least in comparison to other oil and gas producers) is a relatively low carbon outfit. Equinor’s climate reporting is heavily slanted to give the impression that the company is making a major effort to become more sustainable and reduce carbon emissions, but this largely ignores its scope 3 emissions.

Scope 3

Like other fossil fuel and commodity companies (such as Glencore) the majority of its emissions are scope 3. When Equinor sells oil and gas they are used and this is where the vast majority of emissions are created. Equinor plans to expand its renewable business, but it has no plans to wind down its oil and gas business.

At the same time it also plans to be net-zero by 2050. These either means that it will aggressively cut its oil and gas production in the next 20 years following 2026, or its plans are just that and there is little intention to actually decarbonise.

This year Equinor outlined plans for new oil and gas production ranging from Brazil to the Shetlands. These are not the actions of a company looking to wind down its core business.

Sarasin

An asset management group called Sarasin has challenged Equinor asserting that the company should rapidly move away from oil and gas to protect shareholder value. This financially driven argument runs that as the world decarbonises fossil fuel projects will become unprofitable as governments and individuals move away from using oil and gas.

ACCR

Analysis from the Australasian Centre for Corporate Responsibility (ACCR) showed that Equinor is not likely to show any positive cash flow from its new investments until after 2050. Therefore, these investments cannot support the transition to a net-zero world as Equinor claim. Also, that despite the company’s statements its investments are not Paris aligned. In addition its new investments are also capital intensive and likely to erode value over time. ACCR also make the powerful point that by investing in further oil and gas exploration it reduces the capital it can deploy to renewable energy projects.

Norway

Equinor in many ways mirrors the Norwegian government its majority shareholder. Norway has taken major steps (helped by its fossil fuel riches) to electrify the country’s transport system. Norway’s electricity is now 98 % produced by renewable energy (mainly Hydro power). KPMG rated Norway the country top of its net-zero readiness index. This makes a lot of sense until you take into account its oil and gas exports.

Norway continues to back the oil and gas in the international arena, often putting it at odds with its neighbours. The country makes a great deal of money from fossil fuel exports and has no plans to stop. Since the Russian invasion of Ukraine Europe has become more dependent on Norwegian oil and gas. From a geopolitical perspective it is superior to Russian supplies which has strengthened Norway’s case to keep producing energy.

At the same time Norway views itself as a model for green transition that others can follow. By providing cheap reliable energy it will allow other countries to shift to renewable energy. But over time and as the energy transition picks up pace questions will be asked: why did Norway carry on investing in a declining industry which is accelerating climate change.