Chevron Corp. is aiming by 2050 to reach net-zero carbon in its equity upstream operations, with more capital set to be poured into alternative energies and improved efficiencies across the traditional global oil and natural gas businesses.

The San Ramon, CA-based integrated major has adopted a net-zero pledge within 30 years for Scope 1 (direct) and 2 (indirect) emissions. It also has incorporated Scope 3 (customer) targets  into its greenhouse gas emission goal by establishing a portfolio carbon intensity target from the use of its products.

“Solutions start with problem solving, which is exactly what the people of Chevron do – and have excelled at for over 140 years,” said CEO Michael Wirth. 

In unveiling the Climate Change Resilience report, Wirth said Chevron is demonstrating “how we are investing in lower-carbon businesses and why we believe this is an exciting time to be in the energy industry.”

‘Carbon-Efficient’ Natural Gas, Oil Business

A 5%-plus carbon emissions intensity reduction target also is set for 2028 from 2016 levels.

The target “allows flexibility” to expand the traditional oil and natural gas business, “provided it remains increasingly carbon-efficient, and pursue growth in lower-carbon businesses.”

Chevron said it plans to reach its goals by continuing to pursue partnerships with “multiple stakeholders, along with progress in technology, policy, regulations and offset markets.”

In setting its ambitions, Chevron tested its portfolio against projected demand and prices under the flagship report published in May by the International Energy Agency (IEA) regarding net zero emissions (NZE) by 2050. The IEA’s NZE 2050 hypothetical scenario “relies on assumptions that would entail unprecedented policy and other action by a large number of stakeholders and governments worldwide to achieve emissions-reduction targets,” Chevron noted. 

“Under the assumptions underlying the scenario analysis, we believe Chevron could transition to meet the market changes projected by the scenario” by:

  • Focusing the Upstream business on assets that are the “most competitive” from a cost and carbon-intensity perspective;
  • Aligning the Downstream & Chemicals business around “scaled, efficient, flexible, integrated and high-margin” value chains; and 
  • Concentrating the New Energies investments in areas where it has a competitive advantage, such as in carbon capture utilization and storage (CCUS), hydrogen and renewable fuels. 

“Our business model can evolve to accommodate the growth of our New Energies business if the policies, such as significant economy-wide carbon prices envisioned in NZE 2050, enable lower carbon solutions to scale,” management said. “Under this hypothetical scenario, we would expect to experience substantial reductions in projected cash flow as we evolve from a company focused primarily on hydrocarbon extraction and refining to one also focused on new energies, CCUS and petrochemicals.”

Where Is Chevron’s Future Growth? 

Over the long term and under the carbon prices assumed in the NZE 2050 scenario, the New Energies segment, including renewable fuels, would generate a larger share of cash flow and earnings. New Energies “would go from being a very small part of the portfolio to becoming the largest driver of cash flow and could deliver a profitable transition for shareholders.”

The company’s broad and deep portfolio over the next decade is expected to help mitigate modeled risks and adjust capital spending “in response to changing industry economics.” 

In addition, Chevron said its marginal abatement cost curve, or MACC, investments would enable it to further reduce the carbon intensity of assets while supplying the market with lower carbon-intensity crude oil, still needed in NZE 2050. 

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“Although Upstream capital and exploratory spending, production, and cash flow would decline over the first decade in the NZE 2050 scenario, free cash flow is projected to remain positive,” management noted.

Most of the Upstream business investments today are in short-cycle, unconventional assets in the Americas, with U.S. prowess in the Permian and Denver-Julesburg basins, along with projects in Argentina and Canada. The short-cycle nature of the assets are helping Chevron to “respond to commodity price volatility, cash flow, and earnings, even in a hypothetical low-price environment like the IEA’s NZE 2050 scenario,” management noted.

In addition to the unconventional assets, the Upstream base businesses in the deepwater Gulf of Mexico, Kazakhstan and Nigeria “would continue to generate cash flow in the short term at lower crude prices based on investments largely made in the past. These assets would provide opportunities for investment in brownfield projects that are typically higher return and lower risk because they  leverage existing assets and infrastructure.”

Positive For Australian LNG

Meanwhile, the liquefied natural gas (LNG) assets in Australia over the short term also would generate cash flow “in an environment that lacks substantial price growth with just our existing asset base and select brownfield investments,” management noted.

In addition, the Eastern Mediterranean gas assets “would represent an additional and sizable source of cash flow during this period with only limited investment.”

Post-2030, the Upstream business would see “no new investment” under the NZE 2050 scenario. “Free cash flow would decline substantially in the 2030s. By 2050, cash flow and production would be modest.” While the competition among producers should intensify, declining commodity prices would further reduce industry costs.

“Our legacy gas assets such as Gorgon, Wheatstone and the Eastern Mediterranean would continue to be competitive in meeting demand for natural gas” over the longer term, management said. 

“In addition, the increased demand for hydrogen would create opportunities to supply gas for blue hydrogen.”

Some assets beyond 2030 could be challenged because of lower prices, which could lead to changes in the Upstream portfolio, Chevron said. It did not detail what those changes could be.

However, the “continued focus on reducing the emissions intensity of our operations would enable us to supply the market with lower carbon-intensity crude and natural gas.”

Management acknowledged that the asset mix overall “would need to evolve to adapt to various scenarios” but “we believe our portfolio management approach would enable Chevron to be resilient under the modeled assumptions. We believe our processes for tracking leading indicators and adapting our business enable us to be flexible in response to potential changes in policy, supply, demand, and physical risk.”