The environmental damage individual crudes cause
There are four categories of crudes that pose the biggest climate gamble. Unfortunately the market doesn’t necessarily and consistently factor in the environmental damage individual crudes cause. This poses a major market failure that translates into long-term investment risks.
Gassy oils
All oil fields have some amount of natural gas associated with them. The more gas geologically mixed in with the oil, the more challenging and costly the job to separate these commodities and safely manage them. Despite the economic value in capturing and selling associated gas, many oil plays are not equipped to separate and transport gas. Producing gassy oil without special gas-handling infrastructure leaves producers with only one option—burning the gas as a waste byproduct. This practice is known as flaring. Oils that require significant flaring can result in upwards of 75 percent larger greenhouse gas (GHG) footprint than comparable oils that do not flare. Interestingly, Norway produces some of the world’s lowest GHG oils because, in an environmentally-enlightened and economically-beneficial move, it was made illegal to flare associated gas in the 1970s.
Heavy oils
All oils are comprised mainly of carbon and hydrogen. The more carbon they contain, the “heavier” these oils are because carbon weighs twelve-times more than hydrogen. The heavier the oil, the more energy it takes to lift out of the ground—and the more heat, steam, and hydrogen required to transform into gasoline, diesel, and other high-value petroleum products. The heaviest oils have GHG footprints that can be nearly twice as large as lighter oils. In addition to greater production and processing requirements, the extra burden heavy oils place on the climate is borne by their higher share of carbon-rich bottom-of-the-barrel products like petroleum coke and bunker fuel that are often priced to sell.
Watery oils
Geologically, oil and water are often layered atop one another underground. While natural barriers exist, unwanted water can get entrained in oil reservoirs. Water is heavy—350 pounds to the barrel. Oils that contain a lot of water take a lot of energy to bring to the surface. If an oil field has a water-oil ratio of 10 to one, that adds nearly two tons of water for every barrel of oil produced. And some oils, especially those in California’s San Joaquin Valley have 25, 50 or more barrels of water mixed into each barrel of oil. And all of this produced water must be re-injected below ground. Oils with high water-oil ratios can have a GHG footprint that is as much as 50 percent higher than unencumbered oils.