In what industry observers say is the first purchase of green house gas emissions credits by a US oil company, Murphy Oil USA Inc. is purchasing credits for up to 210,000 tonnes of CO2 from TransAlta Corp., a Canadian energy company, to offset an increasing volume of Murphy's emissions.
�We think this is the first such transaction by an oil company,� said Evan Ard, spokesman for NatSource LLC, an energy brokerage firm in New York.
Murphy Oil is increasing production every year, given the growth in demand for oil products. Murphy�s volume of emissions of greenhouse gases has increased from its production facilities in the field and its two US refineries, but not as a percentage of output, explained Kevin Melnyk, spokesman for Murphy Oil. Murphy is voluntarily participating in the effort to reduce emissions of greenhouse gases on a global basis through the market-based approach of emissions trading.
�We believe the science is uncertain behind the Kyoto discussions. That being said, it (buying the credits) is the responsible thing to do,� said Melnyk. �This agreement is totally voluntary. There is no requirement.�
Prices of the carbon dioxide credit range from $1 to $3.50/ tonne, said Ard. �This is a pre-compliance market. The price is low now but will go up as the risk of not buying the credits increases on the buyers side.�
Right now, buyers of the credits risk not really needing the credits since no US laws require them yet. There is also the risk that credits bought now won�t be applicable in the future. Because the risk is higher on the buyer's side, there are fewer buyers in the market. Prices are pressured down. The market is not very liquid and is based only on bilateral trades.
�But when CO2 becomes a true commodity, it will become a true global market,� he said.
If someone increases production of a greenhouse gas in Kentucky, it can affect someone in Germany, he explains. As the rules and regulations become formalized the market will become more liquid and prices will probably range up to $20/tonne, he said.
NatSource, Arthur Andersen and French financial concern Credit Lyonnaise are setting up a trading platform for CO2 that is expected to be operational by the end of next year, said Ard.
Transalta has been actively buying and selling emissions credits in an effort to help meet Canada�s Kyoto obligations. In June, it bought 24,000 tonnes of CO2 from a German utility. In March of this year, TransAlta said it will reduce its net Canadian greenhouse gas emissions to zero by 2024 through new technology, renewable resources, emissions trading, and offsets. TransAlta owns and operates 8,000 Mw of generation plus transmission assets in Alberta.