johan sverdrup offshore field

The shore-powered Johan Sverdrup offshore field. Photo: Espen Ronnevik / Oyvind Gravas – Equinor ASA

Norwegian Oil Field Tests Market for Greener Crude

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June 16, 2021

By Andy Hoffman (Bloomberg) —

Lundin Energy AB will neutralize its share of direct emissions from the Johan Sverdrup offshore field in Norway, a first for a major oil facility.

The Stockholm-based company will buy offsets from projects that absorb greenhouses gases, such as reforestation, to cancel the emissions from about 100,000 barrels a day of crude, Nick Walker, Lundin’s president and chief executive, said in an interview.

Lundin is trying to be a first mover as the fossil fuel industry feels increasing pressure from banks, investors and governments to clean up. While the company’s offsets won’t cover greenhouse gases produced by customers burning the oil — so-called Scope 3 emissions that account for the vast bulk of the carbon released — it’s betting that there’ll be a market for fuels that are even a little greener amid the decades-long transition to clean energy.

“We are convinced we will create value out of this,” Walker said.

Oil producers and traders have previously used offsets for cargoes of crude oil, liquefied natural gas and marine fuels on a one-time basis. Buyers have also shown a willingness to pay more for lower-carbon production processes in other raw materials, including a nascent market for so-called green aluminum.

Low Emissions

Lundin is starting with Johan Sverdrup because the direct emissions from pumping its oil are already about 40 times lower than the world average, largely because its offshore facilities are powered by electricity.

“The carbon emissions are already so low, we said why don’t we buy the offsets and then we can sell every barrel as carbon-neutrally produced,” said Walker.

Lundin already sold its first carbon-offset cargo — certified as such by Intertek Group Plc — from Johan Sverdrup to refiner GS Caltex in Korea. While the 2 million-barrel cargo, due for loading in July, was sold at market prices, Walker expects buyers will eventually be willing to pay a premium for the crude. Refiners and chemical producers are increasingly looking to reduce their carbon footprints amid pressure from governments and regulators, he said.

Lundin has said it is investing about $1 per barrel in pretax capital expenditures for its decarbonization plan. The cost of neutralizing the remaining emissions through offsets for Johan Sverdrup is less than a penny per barrel, it says.

With all of its production in Norway, where high carbon taxes have spurred producers to reduce greenhouse gas emissions, Lundin Energy has committed to spend about $800 million to neutralize the direct emissions from all of its oil production by 2025.

Johan Sverdrup currently accounts for about 65% of the company’s current output. Its share of production from the field will rise to about 140,000 barrels a day next year, from about 100,000 barrels a day now.

“These are material volumes we’ll be delivering into the market,” Walker said.

© 2021 Bloomberg L.P.

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