January 28, 2020

What role will oil and gas businesses play in our low carbon future?

Oil and Gas contribution to low carbon transition

Big oil holds a significant slice of our global energy market and despite a worldwide spotlight on climate change, oil and gas will likely remain part of our energy mix for some years to come. Its dominant position in the energy market may be subsiding slightly, oil and gas businesses undeniably have a significant influence on the rate of movement and progress towards a low carbon energy system.

The year ahead is likely to be a challenging time for the oil and gas industry, with growing public opposition driven by rising environmental concerns, shareholder uncertainty and policy changes supporting clean energy and low carbon solutions. Within this transitional stage, oil and gas businesses clearly have a number of complexities to overcome.

While there may be a number of challenges, oil and gas continue to play an essential part in our existing energy mix. According to the Sustainable Development Scenario created by the International Energy Agency, oil and gas will inevitably play an ongoing and long-term role in our energy markets, despite a predicted decline in demand. Looking specifically at the U.S.A, India and China, the three largest emitters of greenhouse gases, natural gas represents an essential contribution towards the low carbon energy transition.

One of the main factors to consider for oil and gas businesses is being adaptive to change, particularly to the shift in policy and, especially, the movement in investor plans. We are currently experiencing a policy shift from one that traditionally supported oil and gas, to a focus on implementing rules that effectively deter investment into fossil fuels. 

We are experiencing a change in investor focus, a shift that has a considerable impact on plans for further decarbonisation. Investors are seeking cleaner alternatives and can clearly see the growth and opportunities in renewable energy, along with the rise of environmental and sustainable investment plans.

Oil and gas businesses are responding to these changes, and many have made significant investments into clean energy projects and emphasised their plans to diversify and expand beyond fossil fuels. Yet, many critics believe that based on revenue allocation, much more effort needs to be made, in terms of investment into low carbon generation. In order for oil and gas businesses to survive this rapid transition and be capable of supporting and playing a vital role for the future, they will need to implement a low carbon strategy that really focuses on a reduction of carbon emissions, whilst continuing to remain profitable.

We need the support of Big Oil to deliver a low carbon future

Despite a significant drive towards a low carbon future, many energy industry leaders believe that meeting our future carbon targets is unrealistic without further support from oil industry leaders. In the last year, oil and gas businesses have continued to invest billions into strategic plans to extract oil and gas from a range of locations worldwide despite the rising challenge of climate change. 

A recent report by Carbon Tracker stated that in 2018 ExxonMobil, Chevron, Shell and BP had collectively invested 30% of their budget into projects that deemed inconsistent with climate goals.  Andrew Grant, the author of the study, explains that many oil businesses are simply not accepting the climate targets and continuing to invest in projects that do not align with the Paris goals. The study focuses on individual projects, assessing whether they would be economically sustainable in a low carbon future. The findings were fairly negative, suggesting that very few leading oil and gas businesses intended to deliver investment plans that met global climate targets, and as a result could potentially risk losing significant amounts of money, if governments enforce stricter regulations on carbon emissions. 

Oil majors such as Shell have made considerable investments into clean energy projects but have equally announced a spend of $13 billion on a new natural gas project in Canada. Similarly, ExxonMobil recently confirmed it would invest over $2.5 billion in the first greenfield oil sands project in Canada for nearly five years. 

It has been a concern that many environmental and energy leaders have emphasised, which suggests that oil businesses are showing progress in clean energy and investing into new, innovative markets, but simultaneously maintain a stronghold in their conventional industries. Grant believes that investors need to take more control and challenge businesses on their investment into new fossil fuel projects. Grant, along with many other clean energy professionals believes that the most efficient way of managing shareholder value in this era of low carbon transition and climatic targets is to focus on lower end projects that are capable of generating the highest returns. 

Studies clearly show that in order for oil and gas businesses to survive they will need to diversify and show their commitment towards a low carbon future. Oil and Gas consist of some of the biggest businesses in the world, with a significant influence on our progress and transition towards a sustainable energy system. We need to eliminate the barriers between oil and clean energy, and focus on collaboration, and creating opportunities for big oil businesses to influence and drive progress towards a clean energy future.