Oil & Gas Scope 1, 2, 3 Emissions
The need to determine a company’s greenhouse gas (GHG) emissions has become a mandatory task for all oil and gas (O&G) operators. Current regulations only require annual reporting of direct GHG emissions from a company’s operations. With the advent of more Environment, Social and Governance (ESG) scoring of companies, there is a need to calculate all emissions associated with a company’s operations. The ESG score for a company is partly determined by the following categories of GHG emissions:
- Scope 1: Direct emissions
- Scope 2: Indirect emissions from energy consumption
- Scope 3: Other indirect emissions
Image location: https://www.epa.gov/climateleadership/scope-1-and-scope-2-inventory-guidance
The need to determine Scope 1, 2 and 3 emissions is also driven by proposed U.S. Securities and Exchange Commission (SEC) regulations requiring disclosure of GHG emissions by publicly traded companies. The SEC will also propose regulations for how ESG investment funds will prove claims of being environmentally friendly.
Oil and Gas Scope 1 Emissions
Scope 1 emissions for O&G operations include direct emissions from company operations. This includes equipment that combusts fuel (natural gas, diesel, gasoline) and equipment that emits methane to the atmosphere. Methods to determine Scope 1 emissions are well defined by the U.S. Environmental Protection Agency (EPA) and the American Petroleum Institute (API).
Examples of O&G Scope 1 direct emissions are:
- Fuel combustion from facility stationary engines, turbines, heaters, reboilers, boilers and flares.
- Venting of methane from storage tanks, glycol dehydrators, blowdown vents, fugitive emissions (valves, connections, seals, etc.), pneumatic devices and pumps, and pipelines.
- Venting of carbon dioxide from gas sweetening units.
- Fuel combustion from mobile sources such as company pumper vehicles serving and operating wells and facilities.
- Fuel combustion from company nonroad engines such as cherry pickers, manlifts, tractors.
Oil and Gas Scope 2 Emissions
Scope 2 emission for O&G operations are indirect emissions from purchased electricity, heat and steam. Guidance for Scope 2 electricity generation emissions is available from the EPA’s Center for Corporate Climate Leadership.
Examples of Scope 2 emissions are:
- Electricity purchased for company offices, field offices, shorebases.
- Electricity purchased for production facilities (wells, pump jacks, compressor stations, etc.)
Oil and Gas Scope 2 Emissions
Scope 3 value chain emissions result from use of sold products, product transport, employee business travel and employee commuting.
For the O&G industry product sold, this includes:
- Gasoline and diesel fuel refined from crude oil
- Natural gas used as fuel by utilities, businesses and homeowners
Scope 3 value chain emissions are not straightforward to estimate because one company’s Scope 1 and 2 emissions is another company’s Scope 3 emissions. The concern for this is double counting of emissions. Defining the boundary for an O&G company’s Scope 3 value chain emission is one major issue. Some expect that the coming U.S. Securities and Exchange Commission’s (SEC) Climate Disclosure (proposed in March 2022) will include guidance on determining Scope 3 emissions for the O&G industry.
IPECIA has guidance for calculating Scope 3 emissions for the O&G industry. General Scope 3 guidance can be found in the The Greenhouse Gas Protocol document, “The Corporate Value Chain (Scope 3) Accounting and Reporting Standard.”
Comparison to EPA GHG Reporting
U.S. Environmental Protection Agency (EPA) regulations require facilities that emit greater than or equal to 25,000 metric tons of GHGs (CO2e) to report their annual GHG emission to the EPA’s e-GGRT system. For O&G production facilities and O&G gathering and boosting stations, emissions from EPA specified “Basins” are aggregated to determine if reporting is required. For gas processing and gas transmission facilities, reporting is at the individual facility level. These rules are found in 40 CFR 98.
The EPA required reporting does not include all O&G facilities since facilities emitting less than 25,000 metric tons CO2e are exempt from reporting. Also, EPA reporting only requires reporting of part of a company’s Scope 1 GHG emissions. EPA reporting does not include direct emissions from company vehicles used by operations personnel to operate wells and facilities and nonroad engines (e.g., manlifts). No Scope 2 or 3 emissions included in EPA mandatory reporting rules.
Summary and Conclusions
The need to determine GHG emissions based on ESG Scope 1, 2 and 3 categories has grown into a requirement driven by environmental regulations, investors and social media considerations. Scope 1 emissions are direct emissions from a company’s operations. Scope 2 emissions are for purchase electricity, heat, and steam. Scope 3 are value chain emissions that result from use of soled products.
Companies should calculate emissions from all of their operations for Scope 1 and 2 categories. When the SEC Climate Disclosure rules are finalized, and Scope 3 guidelines are known, then Scope 3 emissions could be determined.
Cimarron – Who We Are
Cimarron’s overall goal is to reduce greenhouse gas emissions for all industries as we work with our clients to create a cleaner environment.
The company engineers and manufactures environmental, production and process equipment for the upstream, midstream and downstream energy industries, as well as environmental control solutions for biogas at wastewater facilities, digester tanks and landfills.
Our BTEX Eliminator, flares and ECDs meet all federal and state environmental regulatory requirements for control efficiency and destruction efficiency.
Cimarron offers our customers the know-how and environmental expertise to meet the environmental standards of today and tomorrow. Cimarron is committed to bring value to the Energy industry and their shareholders based on our financial strength, experienced personnel, and engineering capabilities.
As a company, we thrive every day to make a difference through innovation (e.g. ESG), customer focus, and operational efficiency. In addition to being present in all major regions in the US, Cimarron serves more than 45 countries around the world, ranging from offshore to desert. From key operational centers in the United States, Italy and the United Arab Emirates, Cimarron offers ongoing service and support through its own field service personnel and strategic third-party partners, creating a cleaner environment for our customers and their shareholders.
Since its founding in the mid-1970’s in Oklahoma, the company’s product offering has expanded from production equipment to include the largest line of environmental solutions that capture or incinerate fugitive vapors. With the acquisitions of HY-BON/EDI in 2019 and AEREON (including Jordan Technologies) in 2020, Cimarron has added strong brands, products, and services to its portfolio.
Please contact us to learn more about our products and services and about all our ESG solutions at email@example.com or visit our website www.cimarron.com.