APPEC Carbon-offset crude trade to take time to develop - execs

An oil tanker is pictured in the waters off Tuas in Singapore
An oil tanker is pictured in the waters off Tuas in Singapore July 15, 2019. REUTERS/Edgar Su/File Photo
  • Unclear who will bear the carbon cost - Ecopetrol, Vitol
  • Industry needs to align on carbon intensity measurement, quality of offsets - Equinor

SINGAPORE, Sept 28 (Reuters) - More producers and refiners are looking at ways to offset carbon emissions of their crude oil exports to meet future global demand for low-carbon raw materials, although such trades will require time to develop as it remains unclear which parties will bear the decarbonisation costs, industry executives said.

Producers from the United States to Europe and Australia have sold so-called 100% carbon-neutral crude and condensate using carbon credit offsets earlier this year in preparation for carbon costs to be introduced for the fossil fuel. These costs cover greenhouse gas emitted from the oil's production process to its transportation to end users.

"Refiners are paying more and more attention to carbon emissions coming from the feedstock, and as a result, carbon reduction and compensation mechanisms will be playing a big role in the way crude will be purchased and traded," Pedro Manrique, Ecopetrol's commercial and marketing vice president, said in a panel discussion at Platts APPEC 2021 conference.

Producers Occidental (OXY.N), Lundin Energy (LUNE.ST), Woodside Petroleum Ltd (WPL.AX) and China's Sinopec (600028.SS) have collaborated with buyers including India's Reliance Industries (RELI.NS), South Korea's GS Caltex and Trafigura, in their first carbon offsets. read more

In response to the demand, S&P Global Platts said on Monday it will publish daily carbon offset premiums for 14 major crude oilfields from Oct. 1. read more

"Now the big question is related to how and who will be bearing the cost of decarbonisation," Manrique said.

"Will the cost be transferred across the value chain to the end user, or will it be distributed across the different players? That's a big question."

While many companies have rushed to do their first deals, subsequent deals will only happen until it is clear who will be paying for it, Vitol's Asia CEO Mike Mueller said.

For example, the cost of offsetting carbon emissions from a Very Large Crude Carrier (VLCC) of 2 million barrels of Colombia's Castilla crude coming to Asia is going to cost several million dollars, similar to the cost of offsetting carbon for an LNG cargo, he said.

"If you cannot pass this cost along to a consumer in a way that is geographically uniform, where there's a clearing mechanism to ensure that there is one carbon price for all then market forces will simply drive these proposals into being marginalized because you end up uncompetitive," Mueller said.

The European Union's carbon border tax and global aviation fuel legislation could make such trades mandatory, the executives said, but there needs to be regulations and standards on how the industry will measure carbon intensity and the quality of the offsets.

"There should be a premium for lower carbon crudes, they should attract higher value so probably there could end up being a two-tiered market at some point, but again, time will tell, as things evolve in the coming months and years," Molly Morris, Equinor's vice president of products and liquids said.

Reporting by Florence Tan and Koustav Samanta; editing by David Evans

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