The oil and gas sectors face ‘pivotal choices’ about their future role in the global energy system, given advancements in green alternatives, the International Energy Agency (IEA) has said in a new report.
In its report, The Oil and Gas Industry in Net Zero Transitions, the IEA outlines what the global oil and gas sector will need to do in order to align with the goals of the Paris Agreement.
Falling demand
It claims that global demand for oil and gas is set to peak by 2030, with increased efforts to tackle climate change resulting in clear declines in demand for both fuels.
If governments deliver in full on their national energy and climate pledges, demand would fall 45% below today’s level by 2050, the IEA said. If the pathway to achieve net zero emissions by 2050 is achieved, oil and gas use would decline by more than 75% by 2050.
At the same time, however, the report states that the oil and gas industries have been a ‘marginal force at best’ in terms of transitioning to clean energy – oil and gas companies account for just 1% of clean energy investment globally, and 60% of that comes from just four companies, it added.
A moment of truth
“The oil and gas industry is facing a moment of truth at COP28 in Dubai,” commented IEA executive director Fatih Birol. “With the world suffering the impacts of a worsening climate crisis, continuing with business as usual is neither socially nor environmentally responsible.
“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.”
To meet the 1.5°C target, the industry must reduce its own emissions by 60% by 2030, the IEA said.
Although oil and gas production decreases significantly in the shift to net zero emissions, it will persist, even in a 1.5°C scenario. Some investment in oil and gas supply is necessary for energy security and to provide fuel for sectors with challenging emission reduction prospects.
Advancing to clean energy
There are opportunities for the industry in advancing key technologies for clean energy transitions. Around 30% of the energy consumed in a decarbonised energy system in 2050 could come from technologies like hydrogen, carbon capture, offshore wind, and liquid biofuels, benefiting from the industry’s skills and resources.
However, realising these opportunities requires a substantial change in how the sector allocates financial resources. In 2022, the oil and gas industry invested approximately $20 billion in clean energy, representing about 2.5% of its total capital spending. To align with the Paris Agreement goals, producers must direct 50% of their capital expenditures toward clean energy projects by 2030, in addition to investments needed to reduce emissions from their operations.
“The fossil fuel sector must make tough decisions now, and their choices will have consequences for decades to come,”Birol added.
