The oil and gas industry’s place in the energy transition

Source: press release/report, 20 January 2020

illustration: IEA
illustration: IEA

The recent oil and gas industry report from the International Energy Agency (IEA), The Oil and Gas Industry in Energy Transitions – Insights from IEA analysis, includes a strong argument for how the industry needs to adapt to take part in ensuring that international climate targets are met. The World Energy Outlook special report published earlier this month, in addition to outlining current oil and gas industry modes of operations, asserts that the industry must become more involved in energy transition efforts.

As Dr Fatih Birol, IEA Executive Director, explains, “No energy company will be unaffected by clean energy transitions. Every part of the industry needs to consider how to respond. Doing nothing is simply not an option.”

Taking into consideration that global demand for energy will grow due to population growth and economic expansion – as well as providing energy to areas without access to energy – the report recognises that oil and gas must continue to provide “reliable supplies of liquids and gases”, with an emphasis on lower-carbon choices. Moreover, the industry must work to reduce its own emissions to comply with international targets.

One important take-away from the report is that oil and gas companies – whether national or international oil companies (NOCs/INOCs) as well as independents and majors – have the know-how and expertise to significantly contribute to the energy transition.

The report asserts that, “the oil and gas industry will be critical for some key capital-intensive clean energy technologies to reach maturity.”

“The resources and skills of the industry can play a central role in helping to tackle emissions from some of the hardest-to-abate sectors. This includes the development of carbon capture storage and utilisation (CCUS), low-carbon hydrogen, biofuels, and offshore wind. Scaling up these technologies and bringing down their costs will rely on large-scale engineering and project management capabilities, qualities that are a good match to those of large oil and gas companies.”

For example, three-quarters of the CCUS activity takes place at large-scale oil and gas operations, making this a natural focus for partnerships, both in terms of economic support and shared expertise.

As a means to “manage transition risks”, the IEA report points to oil and gas companies shifting from “oil and gas” to “energy”:

“Some large oil and gas companies are set to make a switch to ‘energy’ companies that supply a diverse range of fuels, electricity and other energy services to consumers. This means moving into sectors, notably electricity, where there is already a large range of specialised actors and where the financial characteristics and scale of most low-carbon investment opportunities are (with the partial exception of offshore wind) a long way from traditional oil and gas projects. Electricity provides long-term opportunities for growth, given that it overtakes oil in accelerated energy transitions as the main element in consumer spending on energy. It also opens the door to larger and broader reductions in company emissions, relieving social pressures along the way, although investors will watch carefully the industry’s ability to balance diversification with expected returns and dividends.”

In Norway, Equinor has been travelling this path for some time, investing in and developing power generation from offshore wind as well as the company’s long-term experience with carbon capture and storage.

More recent is this week’s announcement from Lundin Petroleum is another case in point. Not only will Lundin implement its Decarbonisation Strategy, “to reduce its carbon footprint to the lowest possible levels, through an effective combination of emissions reductions, energy efficiency, targeted research and development and carbon capture mechanisms,” the company will consider a name change to “Lundin Energy”.

The accelerated energy transition is picking up momentum.

Read more about the The Oil and Gas Industry in Energy Transitions report at the IEA website.