The oil industry is facing an uncertain future. The global economy is in the midst of a multidecade transition to cleaner fuel sources to reduce its carbon emissions profile. Many countries and companies have set ambitious goals of achieving net-zero carbon emissions by 2050.

While that suggests fossil fuels have no future, energy companies are exploring ways to produce oil and gas without the associated emissions. They hope that producing net-zero or carbon-neutral oil and gas will allow fossil fuels to have a role in fueling the economy in the future.

A person looking at icons representing falling carbon dioxide emissions.

Image source: Getty Images.

What is net-zero oil and gas?

Oil and natural gas are hydrocarbons. As such, they emit carbon dioxide and other greenhouse gases when burned as fuel sources. Scientists believe that those associated greenhouse gases are contributing to climate change. With growing concerns about how much climate change could impact the economy in the future, it's leading governments and companies to accelerate their transition to lower-carbon fuel sources.

The oil and gas industry believes that it can go from being one of the contributors to this problem to providing an economical solution. Driving that view is the industry's belief it can reduce and offset the emissions profile of its operations and the usage of its end products to net out at zero.

Oil companies are taking several sets to cut the emissions produced via their oil and gas operations. For example, they're reducing the amount of natural gas they flare, utilizing solar energy to power oil fields and infrastructure, and installing technology to capture methane emissions. These initiatives could enable many oil companies to achieve net-zero emissions from their oil and gas production businesses in the coming years.

In addition to that, several companies are investing in carbon capture and storage projects. These facilities would extract carbon dioxide from the atmosphere and store it in underground formations. Oil companies believe that they could eventually capture enough carbon dioxide to completely offset the emissions produced in their products' associated usage.

A sign that says carbon neutrality straight ahead.

Image source: Getty Images.

What energy companies are focusing on net-zero oil?  

A growing number of energy companies are taking steps toward producing net-zero oil. One of the leaders is Occidental Petroleum (NYSE:OXY). The company launched Oxy Low Carbon Ventures to utilize its long-standing, industry-leading expertise to lower carbon emissions. The company has a long history in carbon storage as it's a leader in using carbon dioxide for enhanced oil recovery. This process utilizes carbon dioxide (produced naturally or captured from an industrial source) to increase a legacy field's oil production by injecting it underground, increasing field pressure, and boosting the production rate. Occidental aims to leverage this expertise to capture more carbon from industrial and atmospheric sources and inject it underground for storage in legacy oil and gas fields or other naturally occurring subsurface locations.

For example, Occidental Petroleum recently agreed to assist LNG developer NextDecade (NASDAQ:NEXT) in reducing the carbon emissions profile of its Rio Grande development in Texas. Occidental will receive carbon dioxide from that site and permanently store it in an underground formation in the Rio Grande Valley, where there's ample capacity for storing carbon dioxide. This agreement would support NextDecade's proposed carbon capture and storage project associated with Rio Grande LNG, capturing and storing more than 5 million tonnes of carbon dioxide per year, making it one of the world's greenest LNG projects.

Oxy Low Carbon Ventures is also developing the world's largest direct air capture system that should extract 1 million metric tons of atmospheric carbon dioxide per year. The company will use this carbon dioxide in its enhanced oil recovery business, enabling it to produce lower carbon oil.

Oil giant ExxonMobil (NYSE:XOM) is also taking steps to clean up its carbon emissions profile. The company launched ExxonMobil Low Carbon Solutions earlier this year. The initial focus of that business unit will be to support the development of up to 20 new carbon capture and storage projects worldwide. Exxon is already a leader in carbon capture and storage as it currently captures 9 million tonnes per year, the equivalent of planting 150 million trees. Exxon plans to invest $3 billion through 2025 on low carbon solutions.

U.S. oil producer EOG Resources (NYSE:EOG) is also taking steps to clean up its emissions profile. The company set the goal of eliminating natural gas flaring from its operations by 2025. Further, it established the ambitious goal of reaching net-zero emissions by 2040. EOG Resources is allocating more of its capital budget toward environmental projects to reduce its emissions. For example, it's working on a closed-loop gas capture system, which will reinject gas into existing wells to reduce its methane emissions. It's also utilizing solar to power more of its field operations. 

The goal of these investments is to produce oil and gas with net-zero emissions. Occidental Petroleum took the first step this year, delivering the world's first shipment of carbon-neutral oil. It captured and stored enough carbon dioxide from an industrial source to completely offset the greenhouse gas emissions produced in the production and combustion of this 2 million barrel shipment. That's the first step toward its ambitious target of delivering 100% net-zero oil by 2050. 

Only time will tell if this is the right strategy

Energy companies are taking different approaches to the energy transition. Some are pivoting their businesses toward renewable energy. However, others like Occidental Petroleum, ExxonMobil, and EOG Resources aim to make fossil fuels cleaner. It's not clear if that strategy will pay long-term dividends given the preference toward emissions-free energy sources like wind and solar and emerging options like green hydrogen. That means investors shouldn't make big wagers on the survival of the oil sector until it's clear that net-zero oil and gas will play a prominent role in fueling the global economy in the future. 

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.