Why shipping is sink or swim for Scope 3 in oil and gas. By Kris Fumberger

How to stay afloat

Reports from the IPCC and the International Energy Agency have dramatically raised the stakes for decarbonizing the oil and gas industry, imposing tough targets for transition to net zero by 2050. Investors have also piled on the pressure, with over 20 global investors last year outlining how companies must reduce and report emissions to qualify for inclusion in future net zero portfolios. Yet recent analysis reveals that the sector is on course to miss the 1.5°C mark by a significant margin, with the World Benchmarking Alliance predicting the top 100 oil and gas companies will overshoot the target by 2037.

This is worsened by the fact there is currently no sector-wide standard or best-practice methodology for achieving net zero across the oil and gas industry. The Science-Based Targets initiative (SBTi) published a universal methodology for net zero in October 2021, while the independent Global Reporting Initiative (GRI) released a new sector standard for net zero emissions by 2023. Without a universal guide to decarbonization within scientifically advised limits, oil and gas companies are effectively left to chart their own course to net zero.

The hidden emissions in the industry’s wake
In the absence of universal standards, the oil and gas industry has instead adopted a widely varying array of individual approaches which do not necessarily cover the true scope and scale of their emissions.

One of the biggest challenges for oil and gas companies is accounting for Scope 3 supply chain emissions, including up and downstream shipping. This is despite the fact that Scope 3 emissions account for 88 percent of all oil and gas greenhouse gas emissions and that failure to curb supply chain CO2 could cause fossil fuel firms to miss net zero targets.

Shipping emissions could soar 50 percent by 2050 which risks significantly increasing the carbon footprint of the oil and gas industry. Tankers largely powered by ‘dirty’ marine diesel and heavy fuel oil remain the primary mode of transport for intercontinental oil movement.

Bringing transparency to shipping
It is a daunting task to calculate shipping related emissions, made exponentially more so due to diversification and globalization of supply chains. The industry is also falling behind on measuring as well as managing emissions. Ships have recently improved at digital data capture and communication but many are still failing to derive insights from that data, which could dramatically increase carbon accountability and energy efficiency across supply chains. Shipping lags behind many other industries such as automotive and aviation in adoption of technologies such as AI and data analytics. For example, there is no universal big data analytics framework for ship performance monitoring to improve operational energy efficiency.

Transparent, actionable data is critical to helping the oil and gas industry record and report as well as ultimately reduce its shipping related emissions. For example, RightShip has launched a digital platform that ranks ships on environmental performance by accurately assessing the relative energy efficiency and theoretical CO2 emissions of each ship relative to vessels of a similar size and type. It even enables vessel companies to benchmark the performance of their fleet compared to the world fleet. Vessel owners can upload data such as recent energy-saving upgrades directly into the digital platform to create dynamic, data-driven GHG rankings. This data could ultimately be used to demonstrate compliance for bodies such as the SBTi, who introduced net zero standards and methodologies for oil and gas.

Transparent, data-driven vessel selection can give the oil and gas industry unprecedented visibility over their shipping related Scope 3 emissions and enable accurate carbon accounting for investors, governments and other stakeholders. Companies can benchmark annual progress towards net zero against equivalent vessels and even global fleets and accurately forecast future emissions. Independent vessel selection criteria, as part of a due diligence process, can also be used to select more energy-efficient or even renewably powered vessel designs, driving decarbonization of supply chains at source.

Pioneering oil and gas leaders are now using independent vessel selection criteria to analyze total supply chain shipping emissions and even predict future emissions across everything from specific supply routes to ship and cargo types. This information can help to rank individual suppliers on carbon emissions, and to reveal and remove carbon-intensive logistics companies from the shipping supply chain. Independent carbon accounting can also facilitate more intelligent optimization of cargo loads, ship speeds and trade routes to cut CO2 emissions. Research has shown that distance is the main driver of shipping emissions and we have helped major logistics firms use voyage optimization to dramatically reduce CO2 output.

However, as well as reducing fuel usage, ships will ultimately need to match other transport sectors and switch to renewable fuels. Hydrogen-derived green ammonia offers a sustainable fuel of the future for shipping supply chains. Ammonia can be made with renewable power, water and air, does not need to be stored in pressurized tanks or cryogenic dewars and can power both fuel cells and internal combustion engines. Australian mining giant Fortescue recently pledged to convert its entire fleet of 100 vessels to green ammonia within the decade as part of a drive to bring its Scope 3 emissions to net zero by 2040.

The voyage to net zero
The oil and gas industry is steeped in history, but this has also meant it remains mired in old operating models and systemic behaviors that are hard to shift. Yet, confronting and changing shipping related emissions will be pivotal to ensuring the oil and gas industry meets its net zero targets within scientifically advised timelines.

The key is to use independent vessel selection processes to bring greater transparency to shipping related emissions and inform data-driven solutions from changing routes and suppliers to transforming technology. This is the key to bring greater central visibility over emissions across fragmented, far-flung supply chains and accelerate the drive to net zero across the value chain.

For a list of the sources used in this article, please contact the editor.

Kris Fumberger

Kris Fumberger is Head of Sustainability and Environment at RightShip. Established in 2001, RightShip is one of the world’s leading ESG focused digital maritime platforms, providing expertise in global safety, sustainability and social responsibility practices. Founded with the mission to drive operational improvements in the global shipping industry, more than 4,500 people use RightShip’s due diligence, environmental and inspections services to help them manage risk and improve overall maritime safety standards.