Oil and gas producers face pivotal choices about their role in the global energy system amid a worsening climate crisis fuelled in large part by their core products, according to a major new special report from the International Energy Agency (IEA) that shows how the industry can take a more responsible approach and contribute positively to the new energy economy.
The Oil and Gas Industry in Net Zero Transitions analyses the implications and opportunities for the industry that would arise from stronger international efforts to reach energy and climate targets. Released ahead of the COP28 climate summit in Dubai, the special report sets out what the global oil and gas sector would need to do to align its operations with the goals of the Paris Agreement.
Even under today’s policy settings, global demand for both oil and gas is set to peak by 2030, according to the latest IEA projections. Stronger action to tackle climate change would mean clear declines in demand for both fuels. If governments deliver in full on their national energy and climate pledges, demand will fall 45 per cent below today’s level by 2050. In a pathway to reaching net zero emissions by mid-century, which is necessary to keep the goal of limiting global warming to 1.5 °C within reach, oil and gas use would decline by more than 75 per cent by 2050.
Yet the oil and gas sector – which provides more than half of the global energy supply and employs nearly 12 million workers worldwide – has been a marginal force at best in transitioning to a clean energy system, according to the report. Oil and gas companies currently account for just 1 per cent of clean energy investment globally – and 60 per cent of that comes from just four companies.
“The oil and gas industry is facing a moment of truth at COP28 in Dubai. With the world suffering the impacts of a worsening climate crisis, continuing with business as usual is neither socially nor environmentally responsible,” said IEA Executive Director Fatih Birol. “Oil and gas producers around the world need to make profound decisions about their future place in the global energy sector. The industry needs to commit to genuinely helping the world meet its energy needs and climate goals – which means letting go of the illusion that implausibly large amounts of carbon capture are the solution. This special report shows a fair and feasible way forward in which oil and gas companies take a real stake in the clean energy economy while helping the world avoid the most severe impacts of climate change.”
According to the IEA, every company’s transition strategy can and should include a plan to reduce emissions from its own operations. The production, transport and processing of oil and gas results in nearly 15 per cent of global energy-related greenhouse emissions – equal to all energy-related greenhouse gas emissions from the United States. Furthermore, the industry’s own emissions need to decline by 60 per cent by 2030.
At the same time, some investment in oil and gas supply is needed to ensure the security of energy supply and provide fuel for sectors in which emissions are harder to abate, according to the report. However, always keeping in mind that declines in demand are going to be sufficiently steep that no new long-lead-time conventional oil and gas projects will be needed.
The report has also underlined some opportunities, for example, the fact that the oil and gas sector is well placed to scale up some crucial technologies for clean energy transitions. In fact, some 30 per cent of the energy consumed in 2050 in a decarbonised energy system comes from technologies that could benefit from the industry’s skills and resources – including hydrogen, carbon capture, offshore wind and liquid biofuels. However, this would require a step-change in how the sector allocates its financial resources.