Oil and Gas Project Interim Report

September 2022

OIL AND GAS PROJECT

INTERIM REPORT

September 2022

GLOSSARY .......................................................................................................................................... 3

1 INTRODUCTION ................................................................................................................................ 5

2 THE NEED FOR OIL AND GAS SCIENCE-BASED TARGETS ......................................................... 8

3 OIL AND GAS PROJECT TIMELINE ................................................................................................. 9

4 ITEMS COVERED IN THE PUBLIC CONSULTATION .................................................................... 12

5 OTHER ITEMS NOT EXPLICITLY ADDRESSED IN THE PUBLIC CONSULTATION ..................... 21

6 NEXT STEPS ................................................................................................................................... 24

1

This interim project report summarizes the progress of the Science Based Targets initiative’s Oil and

Gas (SBTi O&G) project to date. It sets out next steps for the review and finalization of the SBTi’s Oil

and Gas (O&G) sector methods and guidance.

1.1 Oil and Gas Project

In 2019 the SBTi initiated its O&G Project to develop methods and guidance to enable science-

based target-setting in the sector. The project aims to allow stakeholders, companies, investors,

governments and civil society to understand the alignment of O&G company emissions reduction

due to a range of circumstances including resource challenges associated with the COVID-19

pandemic and the prioritization of other workstreams such as the SBTi Net-Zero Standard for

Corporates, which launched in October 2021.

The SBTi remains committed to creating robust methodologies that will better support companies

in the O&G sector, and other high-emitting sectors, to decarbonize in line with climate science.

While the O&G methods and guidance are being developed, the SBTi’s policy for fossil fuel

companies states that the companies described in the policy cannot submit a science-based target

for validation or commit to set a science-based target with the SBTi.

companies are in a process of transition away from fossil fuels and allows for key metrics such as the

emissions intensity of energy to be calculated and compared to global energy transition scenarios

consistent with the Paris Agreement.

In this context “Integrated Energy companies” refers to Energy Companies with O&G activities but that are no longer strictly focussed on

With regards to specific activities and emission sources, the draft guidance primarily aims to address

embedded emissions in the fuel supplied. Operational emissions from methane, direct energy use and

electricity are also addressed.

The draft guidance also excludes certain activities because they were not considered sufficiently

1. Scenarios

2. Intensity vs absolute targets

3. Where in the Value chain targets

4. Disaggregation of targets by scope

5. Flexibility vs comparability

6. What counts for reaching a near-term and net-zero target

companies that want to transition but does not seem appropriate for companies that want to continue

Stance in draft guidance: The guidance allows IECs to set disaggregated targets for different scopes.

• Scope 1 and 2 emissions typically represent 15% or less of total emissions.

are also some constraints, both from the point of data availability and from the point of view of what can

logically be justified. Company targets will only be truly comparable with each other if companies follow

one single, prescriptive methodology.

Stance in draft guidance: Each methodology requires a defined indicator to set and measure

4.6.1 Carbon capture and storage (CCS)

approach and are contained fully within its supply chain. This is perhaps a more lenient approach than

4.6.2 Removals in the energy value chain

from the company’s GHG inventory as per the GHG Protocol), the ‘positive impact of exceeding zero

The same applies for indirect bioenergy. The proposed approach for the O&G guidance therefore aligns

with the Net-Zero Standard.

Stance in draft guidance: No allocation of land-use change removals has been made to other sectors

body. Therefore, removals outside the energy value chain (e.g. from afforestation, reforestation or

nature based solutions (NBS)) should not be allowed.

Consultation response: Consensus that non-energy value chain removals should not be accounted.

Post-consultation view: The SBTi’s immediate reflection on the consultation feedback was to

Context: The way in which companies account for energy is important to ensure consistency with the

chosen scenario. Using a consistent means to define the energy content delivered by a company

requires the selection of a ‘location’ within the value-chain to measure the energy delivered by a

company. There are typically three definitions of energy value-chain ‘locations’, relating to primary,

understand which losses are included in reporting.

some ambiguity in its calculation though, as often it is calculated by converting the energy content of

the final product (the secondary energy), which is readily available data, back to the primary energy,

which introduces several assumptions.

Post-consultation view: Due to obtaining only a small number of responses, most of which had

differing opinions, it is not possible to say that a consensus was reached on the issue. Therefore, the

different options require further elaboration.

4.6.5 Electricity accounting

Context: When calculating the emissions intensity of electricity, the total emissions associated with the

production of the electricity is divided by a measure of the primary energy used to create that electricity.

Historically, in energy accounting, renewable electricity has been converted into primary energy by

calculating how much fossil primary energy would be required to generate the same amount of

potential to lead to overcounting of primary energy production, and the conversion factors, such as

those used by the IPCC and IEA, can result in incentives for certain types of electricity generation that

may not be optimal. However, the conversion of electricity to primary energy recognises the high utility

of electricity.

that the primary energy equivalent of the electricity produced (or production plus net purchases,

whichever is largest) is accounted for according to the conversion efficiency of total electricity

PUBLIC CONSULTATION

Since the draft guidance was published, several further items have been raised with the SBTi, which

were not explicitly addressed by the six public consultation questions. These include items highlighted

by external publications since the consultation, or questions raised as part of consultation responses.

They cover a range of topics and are summarized below. They are listed in an approximate order of

priority, with regards to finalizing the O&G guidance. Not all the issues listed below will necessarily be

Some of the key considerations around net value chain accounting versus full value chain accounting

are that:

• Although O&G companies may be integrated across the value chain (upstream, midstream,

• The total quantity of traded oil and gas is much greater than what is produced. This contrasts

• Full value chain accounting may produce undesirable effects as it would be possible for

• Due to the inclusion of imports, the full value chain method is the most expansive view of a

• Some see the full value chain method as being a more precise application of the GHG Protocol

While the net value chain methodology appears to offer the right incentives and places greater climate

responsibility with companies that produce a lot of fossil fuels, rather than those that simply trade more

frequently along the value chain, some stakeholders preferred the application of a full value chain

approach due to its existing use within some organizations. A deeper review of this issue may be

required.

Agreement. The IPCC Sixth Assessment Report indicates that any additional fossil fuel production

infrastructure would likely result in warming of over 1.5°C and could result in warming of over 2°C (B.7,

IPCC Sixth Assessment Report). The IEA’s 2050 Net Zero Roadmap indicates there is no need for

investment in new fossil fuel supply provided low and zero carbon technologies are rapidly deployed.

have plans for new fossil fuel infrastructure development, needs to be considered.

3. Other qualitative targets (e.g. phasing out of assets)

The IPCC recently stated that the use of existing and planned fossil fuel infrastructure for the remainder

of expected asset lives would likely result in warming of over 1.5°C (IPCC Sixth Assessment Report).

These findings imply that existing and planned fossil fuel infrastructure should be phased down.

Therefore, whether inclusion of an asset phase-down criterion is necessary within the guidance, and

then how that could be assessed, needs to be considered. The SBTi may wish to address this as part

of establishment of other framework requirements, where non-quantitative elements will feature.

4. Accounting of divestment

As the draft guidance accounts for assets on an equity share basis, it is possible for a company to

accounting methods will easily provide the data that is needed to apply the proposed methodologies. A

key example relates to existing differences in how energy companies currently account for purchased

energy. This has implications for target setting, as they are likely to be calculated in different ways and

so cannot be easily compared. To produce consistent targets, it is likely that some organizations will

need to adapt their reporting requirements to align with the SBTi criteria. Therefore, alongside

consideration of reducing the data requirement for companies to generate targets, the establishment of

consistent guidelines for organizations to follow may be required.

companies can and should be covered by the guidance, even if it is not necessary to establish exactly

how this should be applied at this point.

7. Definition of petrochemical boundary

The complexity of the sector leads to a blurred boundary between O&G and the chemicals industry,

specifically the petrochemicals sector. The boundary between these sectors will be defined as part of

the SBTi’s chemicals sector work and will be consistently applied to both industries.

8. Inclusion of petrochemical target

feedstocks may be addressed as part of the O&G guidance.

9. Scope 3 emissions for gas transmission and distribution

The SBTi currently requires companies that obtain revenue from the sales, transmission, or distribution

of natural gas to set 1.5°C aligned scope 3 targets on use-phase emissions (scope 3 category 11)

associated with the sold gas, regardless of the percentage these emissions represent in the companies’

need to be removed from carbon intensity calculations to ensure a suitable indicator benchmark.

anticipated to be a major factor for scenarios as they move into the 2030s and 2040s.

6.1 Issues raised

Several issues have been identified through the review of progress to date in sections 4 and 5 of this

report. A high-level view on the issues is provided below, with further information and context provided

in sections 4 and 5. Several of these issues will inform the expert review process to enable the

finalization of the O&G guidance.

• New fossil fuel production and the Paris Agreement goals: Alignment with other SBTi

• Accounting of divestment: The treatment of divestment that does not result in production

• Data requirements for target setting: Feasibility of the volume and complexity of data

• Expert review evaluation and summary report (expected late 2022). Following the EAG