Carbon implications of marginal oils from market-derived demand shocks

Expanded use of novel oil extraction technologies has increased the variability of petroleum resources and diversified the carbon footprint of the global oil supply(1). Past life-cycle assessment (LCA) studies overlooked upstream emission heterogeneity by assuming that a decline in oil demand will displace average crude oil(2). 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. Here the non-linear relationship is revealed between carbon emissions reductions and oil demand reductions, which depends on the magnitude of demand drop and the global oil market structure.

Automated summary

The expanded use of novel oil extraction technologies has diversified the global oil supply's carbon footprint. Past life-cycle assessment studies have overlooked upstream emission heterogeneity and assumed that a decline in oil demand will displace average crude oil. The study reveals a non-linear relationship between carbon emissions reductions and oil demand reductions, depending on the magnitude of demand drop and the global oil market structure.