Task Before Petroleum Industry On Road to Net Zero

By Yange Ikyaa

Oil and gas producers will now have to choose between adding to a growing climate crisis or finding ways to proffer solutions to the problem through cleaner approaches to energy generation and utilization. This is what a new report by the International Energy Agency (IAE) has said, while suggesting a number of ways through which the petroleum industry can be more responsible for making more positive contributions to emerging global trends of energy economics.

Titled “The Oil and Gas Industry in Net Zero Transitions” and released in November just before the COP28 Climate Summit in Dubai, the report analyses the implications and opportunities for the industry that would arise from stronger international efforts to reach energy and climate targets, especially in aligning with the goals of the Paris Agreement.

While the IEA maintains that the oil and gas sector is responsible for over half of global energy supply and employs approximately 12 million people all over the world, this same industry, it insists, represents only a marginal force in global efforts at ensuring a strategic transition to a cleaner global energy system. This allegation is made strong by statistics from IAE, which show that oil and gas companies currently account for just 1% of clean energy investments globally, and that 60% of that comes from just four companies.

Figures by the Energy Transitions Commission, a select group of global business leaders, show that energy transition initiatives will cost more than $100 trillion by 2050, and that would translate into $3.5 trillion annually and represent 1.3% of the projected global GDP for the period.

As it stands today, oil and gas multinationals are not showing enough willingness or ability to move beyond fossil fuels as urgent as the global climate crisis demands, with IEA stating that even under current policy settings, global demand for both oil and gas is set to peak by 2030.

However, according to Fatih Birol, who is IEA Executive Director, “with the world suffering the impact of a worsening climate crisis, continuing with business as usual is neither socially nor environmentally responsible.”

He also argued that “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.”

With scientists recommending that average global temperatures must not rise beyond 1.5 °C in order to save the earth from an irreversible climatic crisis, greenhouse gas emissions from the oil and gas industry must also decline by 60% by 2030 if the planet must get cooler and not hotter.

Stronger action to tackle climate change would mean clear declines in demand for both fuels, and if governments deliver in full on their national energy and climate pledges, demand would fall 45% below today’s level by 2050. But in more specific terms, IEA said that to achieve 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 have to decline by over 75% by 2050.

The point of hope in this possibility is the fact that intensity of oil and gas producers with the highest emissions is currently five-to-ten times above those with the lowest, showing the vast potential for improvements. Furthermore, strategies to reduce emissions from methane, which accounts for half of the total emissions from oil and gas operations, are well-known and can typically be pursued at low cost.

Unfortunately, while the global oil and gas industry encompasses a large and diverse range of players – from small, specialized operators to huge national oil companies, attention often focuses on the role of the private sector majors when talking about taking responsibility for preserving the planet’s climate from excessive extraction and use of fossil fuels, but these companies own less than 13% of global oil and gas production and reserves. This leaves a huge responsibility on the government-owned oil companies around the world and also on political leaders at the highest levels of government, who make decisions that affect everyone.

In the words of Birol, “the fossil fuel sector must make tough decisions now, and their choices will have consequences for decades to come, as clean energy progress will continue with or without oil and gas producers. However, the journey to net zero emissions will be costlier, and harder to navigate, if the sector is not on board.”

According to him, every company’s transition strategy can and should include a plan to reduce emissions from its own operations, according to the report. The production, transport and processing of oil and gas results in nearly 15% of global energy-related greenhouse emissions, which is equal to all energy-related greenhouse gas emissions from the United States. But as things stand, companies with targets to reduce their own emissions account for less than half of global oil and gas output.

Although oil and gas production is vastly lower in transitions to net zero emissions, there are no guarantees that fossil fuels will disappear, even in a 1.5 °C scenario. However, some investment in oil and gas supply is needed to ensure global energy security and provide fuel for sectors in which emissions are harder to abate.

The IAE insists that the $800 billion currently invested in the oil and gas sector each year is double what is required in 2030 on a pathway that limits warming to 1.5 °C. In that scenario, declines in demand are sufficiently steep that no new long-lead-time conventional oil and gas projects are needed. Rather, some existing oil and gas production would even need to be shut in.

In its report, the Agency posited that the current valuation of private oil and gas companies could fall by 25% from $6 trillion today if all national energy and climate goals are reached and by up to 60% if the world gets on track to limit global warming to 1.5 °C. This implies that in transitions to net zero, oil and gas is set to become a less profitable and riskier business over time.

Yet, opportunities still lie ahead despite these challenges, as IEA projects that the oil and gas sector is well placed to scale up some crucial technologies for clean energy transitions. It further argued that some 30% of the energy to be consumed by 2050 in a decarbonized energy system will come 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. The oil and gas industry invested around $20 billion in clean energy in 2022, or roughly 2.5% of its total capital spending. The report finds that producers looking to align with the aims of the Paris Agreement would need to put 50% of their capital expenditures towards clean energy projects by 2030, on top of the investment required to reduce emissions from their own operations.

This is because carbon capture, which is currently the linchpin of many firms’ transition strategies, cannot be used to maintain the status quo. If oil and natural gas consumption were to evolve as projected under today’s policy settings, limiting the temperature rise to 1.5 °C would require an entirely inconceivable 32 billion tonnes of carbon captured for utilization or storage by 2050, including 23 billion tonnes via direct air capture.

According to 1PointFive, an American company based in Texas, “net zero is a big challenge but we have some of the best teams and technologies working the problem—including construction of the world’s largest direct air capture facility.” It is developing what will be the world’s largest Direct Air Capture facility. The 500,000 tonne facility is expected to be operational in mid-2025.

An average football stadium’s volume is approximately 90 million cubic feet—that’s equivalent to approximately 4,700 tonnes of carbon dioxide. The Intergovernmental Panel on Climate Change (IPCC) estimates that up to 20,000 million tonnes per year (MTPA) of carbon dioxide needs to be removed from the atmosphere to achieve global climate targets by 2050. That means removing a stadium full of carbon dioxide every seven seconds. The amount of electricity needed to power these technologies would be greater than the entire world’s electricity demand today.