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Carbon implications of marginal oils from market-derived demand shocks

Nature volume 599, pages 80–84 (2021)Cite this article

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Abstract

Expanded use of novel oil extraction technologies has increased the variability of petroleum resources and diversified the carbon footprint of the global oil supply1. Past life-cycle assessment (LCA) studies overlooked upstream emission heterogeneity by assuming that a decline in oil demand will displace average crude oil2. We explore the life-cycle greenhouse gas emissions impacts of marginal crude sources, identifying the upstream carbon intensity (CI) of the producers most sensitive to an oil demand decline (for example, due to a shift to alternative vehicles). We link econometric models of production profitability of 1,933 oilfields (~90% of the 2015 world supply) with their production CI. Then, we examine their response to a decline in demand under three oil market structures. According to our estimates, small demand shocks have different upstream CI implications than large shocks. Irrespective of the market structure, small shocks (−2.5% demand) displace mostly heavy crudes with ~25–54% higher CI than that of the global average. However, this imbalance diminishes as the shocks become bigger and if producers with market power coordinate their response to a demand decline. The carbon emissions benefits of reduction in oil demand are systematically dependent on the magnitude of demand drop and the global oil market structure.

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Fig. 1: Estimated global crude oil upstream marginal cost of production (2015).
Fig. 2: Upstream cumulative volume-weighted average CIs (right axis) and sorted SPs (left axis) of global oilfields for PC, oligopoly and cartel economic cases versus the percentage of total oil production in 2015.

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Data availability

The field-level environmental and economic dataset generated during the current study are provided as a separate Excel file at https://doi.org/10.6084/m9.figshare.15029565. The carbon intensity data are taken from https://doi.org/10.1126/science.aar6859. The core economic datasets used during the current study (that is, the Wood Mackenzie dataset) are not publicly available due to them being proprietary/commercial datasets.

Code availability

The custom software or code is not central to the paper or required to support the main results being reported in the manuscript. Thus, all custom codes are available upon request.

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Acknowledgements

The authors want to thank J.-C. Monfort from Aramco Americas for help creating the global map display.

Author information

Authors and Affiliations

  1. Department of Chemical and Petroleum Engineering, University of Pittsburgh, Pittsburgh, PA, USA

    Mohammad S. Masnadi

  2. Department of Energy Resources Engineering, Stanford University, Stanford, CA, USA

    Giacomo Benini & Adam R. Brandt

  3. Technology Outlook, Technology Strategy and Planning Department, Saudi Aramco, Dhahran, Saudi Arabia

    Hassan M. El-Houjeiri

  4. Center for Population Health Sciences, School of Medicine, Stanford University, Stanford, CA, USA

    Alice Milivinti

  5. Research and Advanced Engineering, Ford Motor Company, Dearborn, MI, USA

    James E. Anderson, Timothy J. Wallington & Robert De Kleine

  6. Department of Economics, Ca’ Foscari University of Venice, Venice, Italy

    Valerio Dotti

  7. Institute of Networked Energy Systems, German Aerospace Center (DLR), Cologne, Germany

    Patrick Jochem

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Contributions

M.S.M., G.B. and A.R.B. developed the carbon model and linked the economic and environmental data. G.B., A.M., V.D., H.M.E., M.S.M. and P.J. developed the economic model. M.S.M., G.B., A.R.B., J.E.A., T.J.W., R.D.K. and H.M.E. contributed on the broader implications of the study. M.S.M., G.B., A.M. and H.M.E. contributed to improve the manuscript displays. M.S.M. organized and processed the material and wrote the paper.

Corresponding authors

Correspondence to Mohammad S. Masnadi or Adam R. Brandt.

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Competing interests

Work at Stanford University on this project was primarily funded by Ford Motor Company through a gift to Stanford University. Other funding at Stanford University was provided by Aramco Americas. Some co-authors are employed by industry. Every effort was made to maintain independence and accuracy in this work. Industry collaborations were vital to obtaining and accurately analysing the detailed oilfield financial data used in this study.

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Peer review information Nature thanks Kausik Chaudhuri, Sujit Das and the other, anonymous, reviewer(s) for their contribution to the peer review of this work. Peer reviewer reports are avilable.

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Supplementary information

Supplementary Information

This Supplementary Information file contains the following five sections: (1) theoretical economic model; (2) empirical economic model; (3) shadow prices; (4) life cycle analysis; (5) limitations and future research.

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Masnadi, M.S., Benini, G., El-Houjeiri, H.M. et al. Carbon implications of marginal oils from market-derived demand shocks. Nature 599, 80–84 (2021). https://doi.org/10.1038/s41586-021-03932-2

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