Reporting GHG emissions in the oil and gas industry

1. Reporting GHG emissions in the oil and gas industry Climate Change Working Group IPIECA October 2010

2. IPIECA – who we are and what we do • The only global association covering both upstream and downstream oil and gas • Focus on environmental and social issues • Formed in 1974 as the industry’s main channel of communication with the United Nations

3. Members: companies and associations

4. Our Mission – how do we get there? • IPIECA helps the oil and gas industry improve its environmental and social performance by: • Developing good practices • Enhancing knowledge and understanding • Engaging members and the wider industry • Working with key stakeholders

5. IPIECA and Climate Change CCWG established in 1988 Long history of UN engagementand work on key issues (CCS, transport, Natural Gas et al...) 3 main areas of work: GHG Metrics, including reporting guidelines Assessment, Policy and Strategy, including engagement in UNFCCC and IPCC GHG Emissions Management (new)

6. Reporting: the importance in our industry • Many reasons to measure and report GHGs • Voluntary programmes • Requests from stakeholders • Compare and manage emissions performance across facilities • Regulatory requirements • Audiences include customers, employees, government, trading schemes etc. • To produce credible information,companies need consistent data. • Varying formats required for different target audiences

7. Overview of oil and gas GHG guidelines • 2001 – API Compendium of emissions estimation methodologies (also 2004;2009) • 2003 – IPIECA release guidelines on reporting GHGs • Subsequently to that, IPIECA release: • 2005 – Guidance on Voluntary SustainabilityReporting • 2009 – Addressing uncertainty in GHGinventories • 2010/11 – Revision to sustainability reporting guidanceand the GHG reporting guidelines…

8. Genesis of 2011 revision of GHG reporting • After 7 years, Reporting Guidelines needed update… • To maintain consistency with other oil industry documents • To maintain alignment with updates to other voluntary guidelines • Emerging national reporting guidelines (e.g. UK DEFRA) • Changing requirements from stakeholders • Experience of member companies in implementing original guide

9. IPIECA GHG Reporting Guidelines • IPIECA / API guidelines are: • Based on WRI/WBCSD GHG Protocol 2004 • But builds upon it • Their Purpose • provide guidance, not prescribe standards • promote consistency in voluntary accountingand reporting • give a reliable, industry endorsed method forreporting GHG emissions that can be used by oil and gas companies anywhere in the world • The Scope • Accounting and reporting at facility through to corporate level

10. Structure The guidelines have chapters on: • Introduction, scope • Reporting principles • Setting the boundaries (organizational, operational) • Tracking emissions over time • Identification of industry GHGs to report • Evaluation of emissions (inc. uncertainty) • Reporting • Inventory assurance

11. GHG guidelines 2011: what has changed? • 2011 revision, has significant improvements: • Aligned with Sustainability Reporting Guidance • Improved chapter 3 on boundaries • Reporting unit’s • Organizational consolidations (boundaries), financial control • Operational boundaries • Scope 1, 2 and 3 improvements • Revised tracking emissions over time • Discussion of uncertainty and de minimis • Reporting emissions – aggregation and normalization NB: These guidelines are yet to be finalised and could change!

12. Ch. 3 Setting the boundaries • Oil and gas is a complex industry… • Encompasses a wide variety of activities: • Exploration and production of oil and gas • Refining, distribution and retail of products • Chemicals manufacture, distribution and marketing • Companies vary in legal/organizational structures • e.g. wholly owned assets, incorporated and non-incorporated joint ventures, subsidiaries, and others • So setting boundaries for reporting is critical • A key step is to define Reporting units • represent logical groupings • typically will be the smallest building block

13. Ch. 3 Setting the boundaries cont... • Organizational boundaries (or consolidation) • define which reporting units fall within the inventory boundary of a company and how the emissions from these units are accounted for • Operational boundaries • the scope of the emissions: which emissions sources of the reporting units should be included

14. Reporting Emissions from Joint Ventures Operational Financial Equity Share Control Ch. 3 Setting organisational boundaries • 3 possible approaches for organizational boundaries: • Equity share; operational control; financial control; • If asset wholly owned/operated, boundaries are clear • But partial owner/operation, boundaries more complex • based on company’s equity share of ownership (X%) • based on whether the company controls the joint venture, in which case it reports 100% of the joint venture’s emissions* Guidelines make no recommendation as to which approach to use

15. Ch. 3 Setting operational boundaries • Operational boundaries determine which emissions related to a company’s activities should be included SCOPE 1 Direct Emissions e.g. process emissions, flaring, fugitive emissions SCOPE 2 Indirect Emissions from energy consumption e.g. electricity, steam, heating (hot water), and cooling SCOPE 3 Other Indirect Emissions e.g. product use, 3rd party shipping, hydrogen production Companies should report Scope 1 emissions. They may choose whether to report Scope 2 and 3 emissions.Scope 2 reporting is recommended

16. Ch. 4 Tracking emissions over time • Desire to maintain data consistency over time • Aids comparability and allows for performance improvement • Normally, reference point is base year emissions • Fixed base year approach: a single base year, or average of years • Rolling base year approach: rolls forward regularly • When monitoring for performance improvement, base year emissions should be adjusted when significant changes occur • e.g. ownership of sources, calculation methods No recommendation as to whether fixed or rolling base year is used

17. Ch. 6 Evaluation of emissions - Uncertainties • Chapter 6 introduces evaluating emissions • Largely it focuses on uncertainty • The purpose of uncertainty quantification: • Provide transparency • Can be part of a learning and feedback process to improve quality • Common uncertainties in the industry • Combustion: Fuel composition • Venting: Quantity and composition • Fugitive emissions: composition, quantity • Important to contextualise uncertainty within ranges • Individual sources contribution to entire inventory

18. Ch.6 Evaluation of emissions - de Minimis • Sometimes companies need to decide on the significance of a source • Usually based on estimated % of total emissions, or a fixed value • Voluntary reporting guidance varies on de minimis • GHG Protocol does not recognize excluding emission sources that fall below a particular size, to promote the goal of completeness • The Climate Registry also does not allow for de minimis exclusion • ISO 14064-1 allows exclusion where sources are not material, or quantification is not technically feasible or cost effective Specific de minimis level is not recommended –a level may be significant for one facility, but not for another. Companies that do apply a numerical threshold should document it.

19. Ch.7 Reporting emissions – aggregation • GHG emissions can be aggregated across: • organizational • operational (always recommended) • others: geographic, organizational unit, source types • Companies who are able should report by sub-sector: • E&P • Refining • Petrochem’s, • Transport and Terminals, • Pipeline, • Marketing • NB: no widely accepted definitions of sub-sectors yet exist! Companies that report other environmental datashould use the same aggregation for GHGs.

20. Ch. 7 reporting emissions - normalization • Reporting normalized GHG Emissions • facilitates comparisons between products and processes, allowing for differences in production levels • However, output measures: • represent gross indicators of production • Do not take into account varying nature of operations • Should only compare like-like • Bases for normalizing within our industry • Have not been firmly established • Are only viable at a sub-sector level • Sustainability Guidance recommends sub-sector factors For companies that have not already established normalization factors, it is recommended the SG factors be used for voluntary reporting.

21. Thank you IPIECA the global oil and gas industry association for environmental and social issues www.ipieca.org

22. Ch. 2 Reporting principles • Principles are based on GHG Protocol • Main aim of the principles is to ensure that reporting is true, credible and unbiased • The reporting principles: • Relevance – boundaries selected to reflect organization’s emissions • Completeness – account for all sources, document exclusions • Consistency – use consistent methods and document any changes • Transparency – provide a clear audit trail; disclose assumptions • Accuracy– ensure no systemic bias; quantify and reduce uncertainty

23. Ch.3 Setting organisational boundaries • Equity share • A company accounts for GHG emissions from reporting units according to its interest in the assets managed by the reporting unit, regardless of whose control the Joint venture or asset is under • Typically a company applies equity share factor at reporting unit level • Control approach • Companies account for 100% of GHG emissions, if • Under Operational control: • The asset is operated by the company, or under a contractual obligation; • Or, the company determines board-level decisions in a joint venture • Under Financial control: • the company has the ability to direct the financial and operating policies of the business with a view to gaining economic benefits No recommendation as to which of the 3 approaches to use

24. (Ch. 3) CDSB approach to boundaries • We do suggest accounting by equity share for situations under financial control • Where the financial control approach differs most critically from the equity share approach for the petroleum industry is in the treatment of emissions from ventures that are conducted as separate companies (e.g. incorporated joint ventures or associates). Such ventures fall outside the financial control boundary, and therefore their emissions would not be accounted for when reporting on the basis of financial control. • Other differences between the financial control and equity share approach are the treatment of Subsidiary companies and Stock ownership in a publicly traded corporation.

25. Ch. 5 Identifying relevant GHGs • Basket of 6 Kyoto gases: • Carbon Dioxide, CO2 • Methane, CH4 • Nitrous Oxide, N2O • Hydrofluorocarbons, HFCs • Perfluorocarbons, PFCs • Sulfur Hexafluoride, SF6 • Recommended that companies account for and report all significant emissions of each of the six • Most expected to have CO2, and [lesser] CH4, and N2O

26. (ch 7) Relative uncertainty: up and downstream Upstream Downstream

27. Ch. 7 reporting emissions - normalization

28. Ch. 8 Inventory assurance • Inventory assurance processes • based on two chapters from GHG Protocol: Managing inventory quality and Verification of GHG emissions • Companies not using inventory quality management systems should consider adopting them • Level of assurance required increases from internal to public to regulatory/financial reporting: • used within the firm only – internal assurance processes sufficient? • reported publicly – engage external assurance providers? • ETS / some voluntary programs – external assurance required • Materiality • Information is considered material if, by its inclusion or exclusion, it influences decisions or actions taken by users of that information