Global Fuel Standards Are Pushing the Dirtiest Oil out of the Market

October 13, 2020

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by Michael J. Coren (Quartz) Not all oil is equal. We think of petroleum as equivalent whether it comes from the ground in Saudi Arabia or Texas. But that’s not quite right. There are hundreds of grades of fuels out there, each with different carbon footprints—and different impacts on the climate.

The dirtiest oil, like the viscous stuff from Canada’s tar sands, has to be steamed out of the ground and heavily refined before being shipped off to the coast. That makes it responsible for three times more carbon emissions than a barrel of “light crude,” which gushes out of the ground in Saudi Arabia. Saudi’s oil also contains less water, and tends to come out of the ground with less methane, all of which means less emissions per gallon by the time it’s burned in your engine.

That variation in carbon intensity promises to shake up the global oil market, writes energy economist Philip Verleger in a report to investors. Governments concerned about climate change generally aren’t banning fossil fuels outright; they’re creating low carbon performance standards, which allow for taxing of fuels based on their carbon content. A steadily rising price for carbon means the dirtiest fuels—from places as disparate as Canada, Venezuela, and Alaska—will eventually be pushed out of those systems.

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Any fuels used in California that fall below its carbon intensity target—ethanol, biodiesel, renewable diesel, compressed natural gas and biogas, hydrogen, and electricity for electric vehicles (EVs)—can generate credits. Those above, such as conventional diesel or gasoline, generate a deficit, requiring credits to comply with the standard. Drivers never see the tax, except as slightly higher prices for conventional gasoline. Instead, petroleum importers, refiners, and wholesalers who fall under the program must pay the difference, or find different fuels.

The state’s air regulatory body, the California Air Resources Board (CARB), measures the life cycle emissions for every major fuel—allowing it to award credits, or impose credit deficits, on fuel suppliers. The variation is dramatic: The carbon arriving in fuels shipped to California is vastly different not just between countries (which can vary by a factor of five), but even among individual oilfields.

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More than 840 unconventional fuel sources have been certified by CARB for use in its trading scheme. Dairy cows in Indiana, pigs in Missouri, methane-rich landfills in Illinois, molasses ethanol producers in Brazil, and even waste wine from California vintners are all sources of transportation fuels such as ethanol (derived from plants), biogas (via animal manure), and hydrogen manufactured by splitting water using solar electricity. Several, such as biogas generation on dairy and pig farms, result in negative emissions due to their displacement of methane emissions, a potent greenhouse gas. At the moment, ethanol and biodiesel are the two largest alternative contributors to California’s transportation system, accounting for well over half its alternative transportation fuel generating credits, estimated at about $1 billion in 2018, according to Stillwater Associates, an energy consultancy.

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While most of the world lacks stringent carbon intensity standards, the program is now inspiring followers (pdf). Canada, the European Union, Oregon, and others are now adopting low-carbon standards of their own. Nearly a dozen US states are considering them. As global carbon standards tighten, the most carbon-intensive fuel sources will likely see their markets shrink first and prices fall below historical benchmarks. READ MORE

Carbon intensity of certified fuels in California's transportation system

Carbon emissions per unit of energy (gCO2e/MJ) (compilation of CARB data by Quartz)

Hydrogen (California grid electricity) 164

Standard gasoline (California) 101

Standard diesel (California) 100

Hydrogen (via California landfill gas) 96

Sorghum ethanol (Kansas) 89

Corn ethanol (Nebraska) 86

Corn ethanol (North Dakota) 82

Soybean biodiesel (Canada) 56

Molasses ethanol (Brazil) 42

Fish oil renewable diesel (Singapore) 33

Animal and poultry tallow (California) 24

Waste wine ethanol (California) 22

Used cooking oil biodiesel (South Korea) 20

Diesel via municipal solid waste (Nevada) 15

Biodiesel via used cooking oil (San Diego) 9

Sugarbeet ethanol (California) 7

Hydrogen via solar electrolysis 0

Grid solar or wind electricity 0

Biogas electricity generation via dairy manure (California) −108

Compressed natural gas via swine manure (Missouri) -372

https://qz.com/1912801/californias-low-carbon-fuels-are-changing-the-oil-market/

U.S. Oil Production Has Already Passed Its Peak, Occidental Says (Bloomberg)

Saudi America: The Truth About Fracking and How It’s Changing the World (Bethany McLean)

Russian Oil Companies Plan Significant Drilling Cuts For 2021 (Energy Market Place)

Methane Leaks Globally Rise Dramatically Despite COVID-Related Slowdowns (Our Daily Planet)

On a High Note: Alberta Tightens Emission Standards for Oil Sands Mines (World War Zero; includes VIDEO)

Excerpt from Bloomberg: America’s oil production will never again reach the record 13 million barrels a day set earlier this year, just before the pandemic devastated global demand, according to Occidental Petroleum Corp.

“It’s just going to be too difficult to replace the 2 million barrels a day of production that we’ve lost, and then to further grow beyond that,” Chief Executive Officer Vicki Hollub said Wednesday at the Energy Intelligence Forum. “Over the next three to four years there’s going to be moderate restoration of production, but not at high growth.”

Occidental is one of the biggest producers in the U.S. shale industry, which added wells at such a rate prior to the spread of Covid-19 that the country became the world’s top crude producer, overtaking Saudi Arabia and Russia, ushering in an era that President Donald Trump called “American energy dominance.”

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Shale’s debt-fueled expansion came to a juddering halt due to lower gasoline demand and oil prices, but also because of Wall Street’s increasing reluctance to fund growth at any cost. Shale operators are increasingly prioritizing cash flow and returns to investors over production growth. READ MORE