Oil and gas companies are facing a critical challenge as the world increasingly shifts towards clean energy transition, and failure to address growing calls to reduce greenhouse gas emissions could threaten their long-term social acceptability and profitability, the International Energy Agency said Tuesday.
The oil and gas industry now needs to make clear what clean energy transitions mean for it – and what it can do to accelerate clean energy transitions, the IEA said.
Doing nothing not an option
"Whatever path the world follows in its efforts to limit the rise in global temperatures, intensifying climate impacts will increase the pressure on all industries to find solutions. While some oil and gas companies have taken steps to support efforts to combat climate change, the industry as a whole could play a much more significant role through its engineering capabilities, financial resources and project management expertise," according to the IEA said in its Oil and Gas Industry in Energy Transitions report released this week.
“No energy company will be unaffected by clean energy transitions,” said Fatih Birol, Executive Director of the International Energy Agency. “Every part of the industry needs to consider how to respond. Doing nothing is simply not an option.”
The landscape of the oil and gas industry is diverse, meaning there is no single strategic response but a variety of approaches depending on each company’s circumstances, IEA said.
“The first immediate task for all parts of the industry is reducing the environmental footprint of their own operations,” Dr Birol said. “As of today, around 15% of global energy-related greenhouse gas emissions come from the process of getting oil and gas out of the ground and to consumers. A large part of these emissions can be brought down relatively quickly and easily.”
Tackling methane
IEA has said that cutting methane leaks to the atmosphere is "the single most important and cost-effective way" for the industry to bring down these emissions.
Apart from methane emissions reduction, IEA has also pointed to other possibilities to lower the emissions intensity, such as eliminating routine flaring and integrating renewables, and low-carbon electricity into new upstream and LNG developments.
“Also, with their extensive know-how and deep pockets, oil and gas companies can play a crucial role in accelerating deployment of key renewable options such as offshore wind, while also enabling some key capital-intensive clean energy technologies – such as carbon capture, utilisation and storage, and hydrogen – to reach maturity,” Birol said. “Without the industry’s input, these technologies may simply not achieve the scale needed for them to move the dial on emissions.”
Only 1% of Capex directed to non-core areas
"Some oil and gas companies are diversifying their energy operations to include renewables and other low-carbon technologies. However, average investment by oil and gas companies in non-core areas has so far been limited to around 1% of total capital spending, with the largest outlays going to solar PV and wind.
"Some oil and gas companies have also diversified by acquiring existing non-core businesses – for example in electricity distribution, electric-vehicle charging, and batteries – while stepping up research and development activity. But overall, there are few signs of the large-scale change in capital allocation needed to put the world on a more sustainable path," IEA said.
Despite taking a small percentage of the total capex, oil companies' expenditures by the oil and gas industry in renewables have picked up gradually over time.
Per IEA, the largest outlays have been made in solar PV, with some companies (e.g. Eni, Shell) developing projects directly and others (e.g. BP, Total) owning major stakes in subsidiaries. Offshore wind is another growth area (e.g. Equinor, Shell, CNOOC) and benefits from considerable synergies – 40% of the full lifetime costs of a standard offshore wind project have overlap with the offshore oil and gas sector.
Also, IEA has said that an essential task is to step up investment in fuels – such as hydrogen, biomethane and advanced biofuels – that can deliver the energy system benefits of oil and gas without net carbon emissions.
"Within 10 years, these low-carbon fuels would need to account for around 15% of overall investment in fuel supply if the world is to get on course to tackle climate change. In the absence of low-carbon fuels, transitions become much harder and more expensive," IEA said.
“The scale of the climate challenge requires a broad coalition encompassing governments, investors, companies and everyone else who is genuinely committed to reducing emissions,” said Dr Birol. “That effort requires the oil and gas industry to be firmly and fully on board.”
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