🔬 Research summary by Shannon Egan, our Quantitative Research Methods Intern.
[Original paper by Greenpeace]
Overview: The tech giants Amazon, Microsoft, and Google have each set ambitious targets for climate action, including the rapid adoption of renewable energy. Yet their contracts with oil and gas producers are absent in the accounting of company CO2 emissions, even though these projects often enable more fossil fuel extraction. The support that these tech companies provide through cloud computing infrastructure and data analytics could cause global increases in emissions and accelerate the pace of climate change.
Cloud computing is dominated by three American firms: Amazon (AWS), Microsoft Azure, and Google Cloud, who combine for 61% market share of the estimated $130 billion USD industry. These providers are the go-to source for computing needs across industries; the oil and gas sector is no exception.
In this report, Greenpeace unearths Amazon, Microsoft, and Google’s major contracts with oil and gas producers. Among these contracts are some of the biggest names in the industry: ExxonMobil, Chevron, and Suncor are highlighted in particular. These partnerships raise the question: Can the tech companies really honour their climate commitments while being entrenched in the fossil fuel business?
Actors in the oil and gas industry are investing heavily in cloud computing infrastructure and artificial intelligence (AI) systems for data analytics, with spending expected to grow from 2.5 billion USD in 2020 to 15.7 billion USD by 2030. Cloud computing’s “Big Three” (Amazon, Microsoft, and Google) seem eager to accept this work. While digital innovation could make the oil extraction process more efficient and decrease the emissions per barrel, we should still be wary of the consequences for climate change. The motives of the oil and gas companies are ostensibly to boost overall production, typically implying an increase in global emissions as more fossil fuels are removed from the ground to be burned.
How can Big Tech help Big Oil?
It is first important to understand: 1) What parts of the oil and gas business can benefit from technological innovation, and 2) What kind of services are the tech companies providing?
Oil and gas production can be roughly divided into 3 stages: upstream, midstream, and downstream (See Figure 1).
The upstream phase includes exploring for new wells; a highly uncertain process that requires building 3D models of rock formations beneath the earth’s surface, usually with very limited data. Machine learning (ML) is used to fill in incomplete datasets by extrapolating complex patterns from more detailed data. Meanwhile, cloud computing supports seismic testing by allowing data to be stored and analyzed in real-time. These contributions can increase the likelihood of identifying new wells, but ML, in particular, requires a lot of existing data. To facilitate these analytics, stakeholders in the oil and gas industry have developed a common database known as the Open Group Open Subsurface Data Universe (OSDU) Forum. Amazon, Microsoft, and Google are all members of OSDU, and likely draw from this database to train their ML algorithms.
The midstream phase also permits interesting applications of technology, particularly through constructing an “Internet of Things” (IoT): a network that processes data from the many physical devices from the well to the customer, coordinating their behavior in real-time. For example, such a network could monitor pipeline pressure and temperature to achieve the optimal flow rate, or quickly identify when a spill has occurred. These measures help improve the efficiency of transportation, but also contribute to increased takeaway capacity: the total amount of fossil fuel product that can be transported from the extraction site towards consumers. Takeaway capacity is often the limiting factor on production; implying that if this is increased, so too will consumption.
Impact on CO2 emissions
This leads to an important question: how will the tech sector’s involvement in the fossil fuel industry affect global emissions? To get an idea, we focus on one particular contract for which information is available. XTO Energy, a subsidiary of ExxonMobil, will apply Microsoft-developed cloud computing, ML, and IoT technology to their operations in the Permian Basin, Texas. According to a Microsoft press release, their interventions could increase production by as much as 50,000 oil-equivalent barrels per day by 2025. This represents an additional 3.4 million metric tons of CO2-equivalent emissions per year (according to Greenpeace’s estimate), about one-third of the annual CO2 emissions of Luxembourg.
These numbers are especially striking when compared to the ambitious climate commitments that Microsoft has set, which are summarized alongside Amazon and Google in Figure 2. Their goals include powering 100% of their operations on renewable energy by 2025, including their supply chain and energy used to manufacture devices; becoming “carbon negative” by 2030, and even purchasing enough carbon offsets to compensate for all historical emissions by 2050. Including additional emissions generated by oil and gas industry contracts would make these targets much more difficult to achieve. The additional emissions estimated for Microsoft’s contract with XTO amount to 21% of the tech firm’s total carbon footprint. In contrast, the same margin is only 5% of ExxonMobil’s expected production in 2025, for the Permian basin alone.
Between the lines
The process of oil and gas production is full of interesting technical problems that can be tackled with cutting-edge data analytics and cloud computing. This, along with the potential earnings, has attracted the biggest firms in the tech world to the industry.
The Greenpeace Oil in the Cloud Report does an excellent job of exposing and determining the nature of partnerships between tech and fossil fuel industry players. However, its call for Amazon, Microsoft, and Google to phase out all of their contracts with “Big Oil” may be misguided. Other companies would inevitably step in, and we cannot impose a global ban on digital innovation in the oil and gas industry. Instead, we need to devise appropriate incentive structures to ensure that this innovation does not lead directly to increased fossil fuel consumption. For this, solutions that work at the level of the entire industry will be the most effective, such as cap-and-trade or carbon taxation policies. However the public should also put pressure on Amazon, Microsoft, and Google to 1) keep track of and disclose how much “additional” fossil fuels were extracted as a result of their technology, and 2) commit to offsetting the resulting emissions for as long as their solution is in use.