A moment of truth for the oil and gas energy transition

Oil and gas producers need to start contributing more positively to a new energy economy and embrace the shift to a clean energy transition, emphasises a new report from the IEA.

This urgent call to action comes in the Oil and Gas Industry in Net Zero Transitions report released by the International Energy Agency, which states oil and gas companies are actually "deepening the climate crisis".

It's a special report released ahead of COP28 in Dubai and focuses on what the industry needs to do to align itself with Paris Agreement targets.

The oil and gas sector, states the report, has been a "marginal force at best in transitioning to a clean energy system", with oil and gas companies currently accounting for just 1% of clean energy investment globally.

“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.”

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Industry recommendations

The Oil and Gas Industry in Net Zero Transitions report recommends that every company’s transition strategy must include a plan to reduce emissions from its own operations. However, currently, companies with targets to reduce their own emissions account for less than half of global oil and gas output.

To align with a 1.5 °C scenario, the industry’s own emissions need to decline by 60% by 2030. The report recommends strategies to reduce emissions from methane, which are well known and can typically be implemented at low-cost.

Also, the report emphasises the need for change in the allocation of financial resources. The oil and gas industry invested around $20 billion in clean energy in 2022. To align with Paris Agreement goals, the sector would need to put 50% of their capital expenditures towards clean energy projects by 2030.

The report acknowledges that some investment in oil and gas must persist to provide energy security and fuel hard to abate sectors, but 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.

Despite the increased risk and decreasing profitability associated with the sector, the IEA emphasised the opportunities associated with embracing a new energy economy. The sector is well placed to scale up clean technologies, and has the skills required for development and deployment of hydrogen, carbon capture, offshore wind and liquid biofuels.

Weighing carbon capture

The report notes that carbon capture cannot be used to maintain the status quo.

The reports states: "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 utilisation or storage by 2050, including 23 billion tonnes via direct air capture.

"The amount of electricity needed to power these technologies would be greater than the entire world’s electricity demand today."

Birol added that the time has come for the oil and gas sector to make tough decisions. However, the global energy transition will be much more difficult to navigate without its involvement and commitment.