Decarbonisation and the oil industry

Decarbonisation and the oil industry

In recent years, and particularly the last 12 months, the news has been filled with reports detailing the climate crisis facing the world. Greta Thunberg’s school strikes have hit a nerve; the wildfires in Australia have been the worst experienced to date; ever more rain and floods in the UK winter; Antarctic glaciers melting faster than ever and long-lasting droughts in the USA. There can’t be many, at least in the Western world, who are unaware that we are facing some serious global issues with our warming climate – as the World Economic Forum warned in January 2020 ‘the climate crisis is the biggest threat to the world’s economy’ (although this was before the current coronavirus situation). And the businesses involved in the exploration and production of fossil fuels, especially oil and gas, have found themselves subject to demonstrations and blockades as well as investors seeking to find other, more ethical, places for their money.

All this has led to a number of the oil majors publishing goals in which they are pledging to become carbon neutral or even net zero– from ENI making a commitment back in late 2018, Repsol’s announcement last December that it will be carbon neutral by 2050, Shell aiming to halve the greenhouse gas intensity of its emissions to BP’s recent ambitious plans to get zero emissions from its own operations as well as its upstream production by 2025 along with cutting the carbon intensity of its products. This latest statement on ‘reimagining energy’ is certainly a bold move although details on exactly how this may be delivered remain unclear for now.

This is all great news and will, of course, help reduce overall carbon and methane emissions and so work to ameliorate the impact of global warming. Unfortunately, though, this is a limited response from a small number of oil companies and doesn’t include the US majors – who appear still unconvinced by global warming – nor the NOCs (national operating companies) such as Saudi Aramco, Sonangol or Petrobras – companies that are not subject to the whims of investors nor climate change activists, all of which means they can continue to produce the fuels and products that we, the consumers, so desire to maintain, and enhance, our lifestyles.

What then does the future hold? Can we effectively decarbonise the world? Certainly these (relatively limited) moves from a subset of oil producers are helpful but does it encourage us, the consumers, to reduce our consumption? Or does it leave us simply feeling good whilst someone else is doing the difficult stuff for us?

These are not easy questions as they force us to interrogate our values and lifestyles. As we said in a previous blog, we will still need the petrochemicals (at least in the near term) – for packaging, fertilisers, synthetic rubbers and even products such as laundry detergents (needed even more now as the possibility of a coronavirus pandemic rears its head and we are encouraged to wash hands and clothes regularly).

In BP’s annual Energy Outlook last year they posited a range of scenarios for the future of oil and gas (see the review in our blog ) – from a base case that sees government policies and use of fossil fuels evolving in the much the same way as now through to something that they called ‘Rapid Transmission’ which was a more hopeful look at a faster reduction in the use of fossil fuels and improving efficiency of energy use. Other scenarios (e.g. those of the IEA) show similar thinking – we either remain on course to exceed the Paris agreement significantly or we manage a major shift to a lower carbon future and avoid the worst of global warming.

Whichever set of scenarios we examine, in all of those that offer a successful and sustainable future – and a healthy planet – it’s clear that we need to innovate, and quickly develop, products and methods that don’t add to the carbon burden. So the recent statements by BP’s new CEO (and from other companies) regarding their focus on low-carbon technologies are welcome and needed. It is, however, easier to say than to do.

And never more so than today with the oil price dropping rapidly in response to the latest OPEC meeting. With Brent crude trading at $38 or so – quite significantly below recent forecasts – does this mean that innovation and development from the oil sector will be delayed whilst they try to figure out how to survive the latest shock? After all, in previous such shocks they have tended to return to the basics but this may not be sufficient this time. Is it time for a revolution?

Written by Cathy Dunn, SAMI Principal

The views expressed are those of the author(s) and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

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