One of the most impactful trends in investing over the last few years has been the rise of ESG investment considerations. While midstream energy infrastructure is not the first sector that comes to mind when thinking about ESG investing, investors may be surprised to find midstream names in many ESG portfolios.
Midstream companies have made strides in recent years to improve ESG reporting and environmental metrics, with a handful of names targeting net zero emissions by 2050, supporting the case for midstream as an ESG-conscious investment.
Midstream companies are already blending renewable fuels, purchasing renewable power, and reducing emissions. Additionally, midstream helps facilitate the consumption of natural gas and natural gas liquids like propane and butane domestically and overseas through exports, which is helping replace dirtier fuels such as coal or wood, according to Alerian.
Contrary to popular belief, pipelines may continue to be the cleanest and safest way to move vast amounts of energy, as opposed to more carbon-emissive methods like rail and truck.
Midstream companies will also play a significant role in achieving net zero emissions by 2050. A number of midstream companies are partnering with other energy companies to explore opportunities around hydrogen, carbon capture, and other initiatives related to the energy transition, according to Alerian.
Hydrogen is a clean technology that can utilize the infrastructure that midstream companies already have in place. Adding hydrogen to the mix and cutting back on methane can have a substantial impact on reducing CO2 emissions. Carbon capture, meanwhile, will be essential. Without CCUS technology, the IEA sees achieving decarbonization by 2050 as practically impossible.
Many midstream companies have also made ESG reporting a priority as they work to achieve environmental goals, with some companies, such as Enbridge Inc., tethering executive compensation to ESG goals.
Notably, even as the world transitions towards net zero emissions, oil and natural gas will continue to remain relevant within the global energy mix for years to come, making up roughly 48% of total the energy supply in 2030 as renewable energy sources grow and the world transitions away from unsustainable energy sources, according to the Net Zero by 2050 Scenario published by the IEA.
According to the US Energy Information Administration (EIA), petroleum and natural gas accounted for roughly 78% of the energy consumed in the United States in 2020.
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