The world is headed to a net-zero emissions future, but we’re not ready to abruptly leave oil and gas behind. As we’ve seen with recent fuel price surges, inflation and other global events, it’s essential to have a plan in place as we transition away from traditional fossil fuels. Without widespread usage of renewable energies, a smooth transition will be impossible. And it’s likely oil and gas use will never go entirely to zero. In fact, even as oil and gas companies face increasing pressure to make a transition into a net-zero world, most visions for the transition estimate that petrochemical demand and the ubiquitous use of oil and gas in transportation will mean there will continue to be a significant demand for both long into the future.
There will be a fine line to walk when it comes to phasing out of oil and gas while maintaining a stable economy, and we can’t do it without a well-defined plan from the industry and lawmakers. Some things that may ease the transition include the increased use of clean hydrogen fuel cells as well as carbon capture and offsetting, but these options all need to be explored in considered, strategic ways. Oil and gas companies will need to be transparent and vigilant in the measures they take to reduce their emissions as they take steps toward a net-zero future. The transition can go smoothly, but not without detailed plans and cooperation from the industry leaders.
Instead of labeling oil and gas companies as the enemy of a net-zero world, it’s time to discuss how they can play a crucial role in making the change to a decarbonized planet. Policies, technologies and financial markets are all being influenced by these goals, and oil and gas companies have an opportunity to actively participate and become a part of the solution.
It will be key to find ways for oil and gas companies to be active participants in the transition to net-zero energy systems rather than simply attempting to cut them out of the picture entirely. They have resources and investments that can help non-fossil energy advancements, and will be instrumental in making the switch go smoothly. Still, the pressure is on these companies to evolve and help with the ambitious global goal of net-zero emissions by 2050. More and more, there is a global awareness of environmental issues and a public desire to make sustainability and net-zero emissions a reality.
While there tends to be a rosy outlook on how smoothly the overall transition to net-zero will be, things like the war in Ukraine and its ripple effect on gas prices around the world show how volatile and fragile the oil and gas market can be, as well as its continuing influence on our daily lives. It also illustrates the dangers posed from an attempted net-zero transition that doesn’t go as well as planned. Even the most ambitious net-zero 2050 plans recognize the continued use of oil and gas, particularly in developing countries. BP’s Net-Zero by 2050 plan still accounts for 25 million barrels per day of oil demand, largely due to transportation needs. The International Energy Agency (IEA) projects a similar scenario, with 24 million barrels per day of oil demand in a Net-Zero 2050. So oil and gas companies will be critical to the process, and many have already pledged to make big emissions reductions in the coming decades. Some of these are limited to scope 1 and scope 2 emissions, others entail scope 3 emissions covering the full supply chain through consumer usage.
Some questions we will have to address include how oil and gas companies can contribute positively and productively to the transition to net-zero, how the ambitious net-zero plans can accommodate and include oil and gas companies into their vision, what the industry’s options are for how the can participate in the process, and what policies and technologies need to be established and developed along the way to make it all possible.
Financial considerations are obviously paramount in an industry transition as large as this one. The risks are high for oil and gas companies, as well as countries with stranded assets. It will also be important to make sure there is no lack of necessary resources as oil and gas production is reduced while alternative energies are increasing. One need look no farther than their local gas station to see the effects of high demand with reduced supply, a very real threat if the net-zero transition is not handled properly. Another effect of moving away from oil and gas is the reduced participation of countries that historically have held much power in the oil industry, and the kind of political instabilities that can result in this loss of power should be kept in mind as we plan for a net-zero future. And, there will need to be consideration for the risks of high-emissions assets still being used instead of being decarbonized or retired completely.
We will have to lean heavily on oil and gas companies to help with these concerns, as their participation is crucial for the success of a net-zero future. They have many options for how they can help bring positive change. From a science and technology standpoint, greenhouse gas (GHG) emissions solutions are an obvious place to start, particularly the reduction of methane emissions. Once methane emissions are reduced, carbon capture, utilization and storage (CCUS) technologies will play a key role. Companies will also need to play an active role in transitioning toward a hydrogen-based fuel industry, developing new renewable energy technologies, and developing a meaningful, long-term system (backed by clear policies and transparent cooperation among oil and gas companies) of carbon offset and removal. With time and effort, these things can help transition from scope 1 and scope 2 emissions reductions to the critically important scope 3 emissions reductions.
Reconciling a growing demand for policies and actions leading to net-zero with the very real gas and oil crisis we’re seeing now around the world will require delicate and careful action. It will neither be simple nor easy to reduce emissions and usage of fossil fuels, but it is of the utmost importance in order to achieve net-zero by 2050. In order for this to be accomplished, there are three major steps required for oil companies, governments and financial markets.
We’ll need clear net-zero policies and plans from both governments and oil and gas companies to start. Pledges are one thing, actions taken to achieve those pledges is something else entirely. The industry must do their part to support government legislation that helps us achieve a net-zero future.
Oil and gas companies will need to show active and aggressive participation in reducing greenhouse gas emissions. Policymakers will need to work together help make this happen to reduce scope 1 and scope 2 emissions.
Finally, the financial sector will play a key role in all of this. Financial investments in the oil and gas industry will help pave the way to net-zero, not only by helping to develop important new technologies, but by continuing to invest an appropriate amount in gas and oil to help ensure the transition goes smoothly.