Oil and gas companies are starting to pivot toward climate change, but how far should they pivot? They could diversify away from oil and gas production, or they could stay with business as usual and hope for a moonshot solution.

Originally published on Forbes.com on February 29, 2024

Oil and gas companies are starting to pivot toward climate change. But how far should they pivot? Should companies try to diversify away from oil and gas production to limit the carbon emissions they are responsible for? This is one bookend. Or should they strive to continue business as usual, hoping for a creative or even moonshot solution that leaps up out of nowhere before 2050 and removes all the emissions from the sky? This is the other bookend.

Here are four eminent voices from the oil and gas industry who weigh in on the subject.

Rystad Energy – the first bookend.

The final session of Rystad’s Energy Transition Marathon for 2023 was led by Rystad’s CEO, Jarand Rystad. He stated he was optimistic that net zero for 1.6 C degree could be achieved by 2050 (Figure 1).

The rectangular bands represent decarbonization sectors. The green band at the top is for solar, wind, and batteries and could be 10 Giga-tonnes (Gt) out of about 40 Gt to be decarbonized (this first band is a huge 25% of the total of 40 Gt). The second green band is 2 Gt due to EVs (cars, trucks, etc). Rystad thinks the green bands are achievable. The CEO opined that in 15 years we will have forgotten how to drive gasoline vehicles.

The dashed green band means a little more uncertainty in the following contributions: Rooftop solar 3 Gt; industry electricity 4 Gt; hydrogen in industry 2 GT; circular industry, meaning waste to energy, 2 Gt.

Then comes biomass and the reprocessing industry at 2 GT, which is colored green and more certain.

The yellow bands at the bottom of Figure 1 have perhaps a 50% probability of success, according to Rystad. These include fuels for aviation and shipping that will need a mix of hydrogen, biomass, and electricity to save up to 2 Gt of emissions. These yellow bands also include CCUS and DAC which together amount to 5 GT.

The last piece of the puzzle is about 10 Gt that comes via methane reduction from natural gas leaks in wellheads, pipelines, storage tanks, and refinery facilities. But some think this band should be green rather than yellow because in the past three years, methane has been fully recognized as a very damaging greenhouse gas while new methods of observation, including remote sensing and satellite detection, have come to the fore.

Another observation from Figure 1 is if the above numbers are not achieved, this would mean a 2050 temperature rising to something more like 2.0 C.

An updated comment by the CEO of Rystad in late 2023 is insightful. The only way to reach net zero by 2050 is first, by limiting CO2 emissions to 650 Gt by 2055 (the marathon race), and second, by reducing methane emissions by 30% by 2030 (the sprint).

Cumulative renewables would have to grow from 4 TerraWatts (TW) today to 11 TW by 2030. Although wind has fallen behind, solar has zoomed up, particularly in China, and Rystad believes the goal is still achievable.

For methane, there is optimism too because recently China put in place a plan for methane reduction and the EU agreed on methane-reduction laws.

Roger Pielke – the second bookend.

This analysis is based on global energy data collected by the Energy Institute Statistical Review of World Energy (formerly the BP Statistical Review). An independent analysis of the data has been done by Roger Pielke, who has many years of experience in energy-climate investigations.

Figure 2 shows that global renewable energy increased every year from 2010-2022. Fossil energy increased every year except in 2020 when the pandemic hit. But this was compensated by an equivalent increase in 2021. While this data testifies to a growing demand for energy globally, it does not indicate a transition from fossil energy to renewables has taken place.

To get to net zero by 2050 would require two things: First, fossil energy consumption must stop (to stop the emissions), and second, all this fossil energy must be replaced by renewable energies to meet the overall energy demand. A subtle key is that carbon emissions won’t stop unless fossil energy consumption stops, no matter how much renewable energies increase.

Pielke offers a startling equation: Achieving net-zero fossil fuels by 2050 would require the construction of 1 nuclear power plant per day (average 1.75 GW capacity) — starting today and continuing every day until 2050. Or the installation every single day of 2,000 wind turbines (3 MW is an average turbine). Pielke concludes it would be a gargantuan task to get off fossil energies by 2050.

To reach net zero by 2050 would require renewable energies to increase by about 22 ExaJoules (EJ) every year through 2050 (Figure 2). Simultaneously, fossil energies would have to decrease by about 18 EJ every year. The difference between 22 EJ and 18 EJ would account for growth in global energy demand.

One other scenario would reduce the height of the black bar in the right panel of Figure 2, by deploying carbon capture and storage (CCS) to remove and bury emissions from a fraction of the 18 EJ/year of fossil fuels consumed. This would allow some fossil energy consumption to continue.

But there is a caveat. Figure 1 says that CCS may be needed to save 5 GT maximum out of a total of 40 GT that needs to be decarbonized. This is 12.5% of the total. Rystad also argues that such an endeavor by CCS would mean a grandiose new CCS business that would have to grow by 20% year-over-year for every year until 2050 when the size of the business would exceed the present oil and gas industry – an impractical picture (Rystad Energy’s Energy Transition Marathon, 2021).

Recall that the oil and gas industry produces about 50% of global carbon emissions. For CCS to expand its removal fraction from 12.5% to 50% is completely implausible. CCS might be able to save a small fraction of fossil fuels (possibly 5%), but it won’t get anywhere near saving all fossil fuels.

International Energy Agency (IEA) – an anxious voice. 

The IEA was established in 1974 as an intergovernmental organization that collects data on global energy, analyzes it, and provides policy recommendations. Membership includes 31 countries and 13 association countries that together consume three-quarters of global energy.

A serious and confrontational report came out in November 2023, meaning confronting the oil and gas industry. Here are parts of the executive summary:

The oil and gas industry provides roughly 57% of global energy but about 50% of greenhouse gas emissions. The industry employs 12 million workers. But the total clean energy investments total a feeble 1% (more than 60% of this comes from four companies out of thousands). The IEA said the industry is a marginal force in transitioning to net-zero emissions.

The IEA sets up some hard goals for the oil and gas industry. One is, that they have to cut emissions from their operations by 60% by 2030 (Rystad said 30%). Another is, that they need to put more of their CapEx (capital expenditure) toward renewable energies. Now it’s a miniscule 2.5% but it should be pushed up to 50% by 2030.

Third, oil and gas should throw out the concept that CCS can remove all of the emissions from continuing oil and gas production. CCS won’t save the oil and gas industry, as stated above. IEA argues that over 30 Gt of emissions would have to be buried by 2050, but that this is ridiculous. The cost would be over $3.5 trillion/year every year until 2050. But this is equal to the entire oil and gas industry’s annual revenue in recent years. Note that Rystad stated that the industry would need to bury 4-8 Gt/yr of emissions every year and this would require an implausible 20% growth in CCS year-by-year for every year until 2050.

One of the more sobering scenarios from IAE is the return on capital. This was 6-9% for oil and gas over 2010-2022, while it was 6% for renewable projects – and these profit numbers are an obvious reason why oil and gas companies are reluctant to jump ship.

Production of oil and gas is needed for energy security during the transition, and presently the industry invests US $800 billion each year. But IEA says this would have to be half as much — only $400 billion — by 2030 to reach the 1.5 C scenario by 2050. More than this, a company will want to avoid production that has a long lead time because a steep energy transition may trip up the completion of long-term goals. An exponential rise in EV cars, trucks, and buses could bring on such a steep transition.  

Under existing policies, renewable energies are predicted to grow to 7,300 GW by 2028. 95% of this increase is solar and wind. By 2025, renewables will overtake coal as the main source of electricity. But it’s not enough – renewable growth up to 2030 will only be 2.5 times, not 3 times as desired at COP28.

BP – a deep dive into data-based analysis.  

BP has presented its highly regarded 2023 Energy Outlook (updated July 2023). In BP’s scenarios for the future, in Figure 3, the Russian war in Ukraine is likely to swing the pendulum away from New Momentum (business as usual) and toward the Paris goal of net-zero emissions by 2050. This scenario, called Accelerated, can be taken as BP’s best guess for the future. 

In contrast to the current enthusiasm in the US oil and gas industry, BP forecasts a drastic reduction in fossil energies from 83% now to 28% by 2050. Coal will fall the most, oil will fall, and natural gas may or may not fall. BP says natural gas is an X-factor because of an ever-rising demand for LNG around the world.

BP projects that renewable energies, such as wind solar, and batteries, will rise from 12% now to 58% by 2050. Side-by-side in 2050, fossil fuels will be at 28% with renewables at 58% — close to double the fossil fuels.

Since the war in Ukraine is still going on, two years after it started, the most likely BP prediction lies much closer to net zero by 2050 than it does to the business-as-usual case.

Takeaways.

Carbon emissions are reduced by stopping fossil fuel consumption not expanding renewable energies.        

Oil and gas companies are starting to pivot toward climate change, but how far should they pivot? At one bookend they could diversify away from oil and gas production. On the other bookend, companies could stay with business as usual and hope for a moonshot solution that removes all carbon emissions from the sky. There are risks at both ends of the bookshelf.

At one level, BP has recently decided to diversify less because the company’s stock market returns were lower than desired – the profit motive is still a concern. 

At another level, major oil and gas companies are betting big on CCS and hydrogen. These may be rewarding in the short term, but too impractical and expensive to save oil and gas in the long term.