The Cop28 summit in the UAE will be a “moment of truth” for the oil and gas industry with the energy transition agenda set to dominate discussions at the event, the executive director of the International Energy Agency has said.
Globally, clean energy investments stand at about $1.8 trillion, with the share of the oil and gas industry amounting to only 1 per cent of the total, according to a new IEA report released on Thursday.
The industry invested about $20 billion in clean energy last year, or roughly 2.5 per cent of its total capital spending.
“I believe the industry could and should be doing [more] if it generally wants to be a part of the solution,” Dr Fatih Birol told The National.
Energy transition is set to take centre-stage at Cop28, as world leaders take stock of the progress made so far under the 2015 Paris Agreement aimed at limiting global temperatures to 1.5ºC above pre-industrial levels.
“The Cop28 presidency [is] making a lot of efforts in order to come up with some concrete results,” Dr Birol said.
To align with a 1.5 °C scenario, emissions by oil and gas companies need to be cut by more than 60 per cent by 2030 from the current level and the “emissions intensity” of their operations must reach near zero by the early 2040s, the IEA said.
“During the extraction of oil and gas, producing it and refining it … emissions account for about 15 per cent of the global emissions,” Dr Birol said. “We think the first thing that they should start [with is] cutting their own emissions.”
The adoption of technology is also key to support the sector in reducing emissions, the report said.
These include hydrogen and hydrogen-based fuels; carbon capture, utilisation or storage (CCUS); offshore wind; liquid biofuels; biomethane; and geothermal energy.
The oil and gas industry is currently involved in 90 per cent of CCUS capacity in operation around the world, according to the IEA.
“Oil and gas companies are already partners in a large share of planned hydrogen projects that use CCUS and electrolysis,” it said.
“CCUS and direct air capture are important technologies for achieving net zero emissions, especially to tackle or offset emissions in hard-to-abate sectors.”
However, the IEA also warned against “excessive expectations and reliance” on carbon capture or storage.
If oil and natural gas consumption were to evolve as projected under the current policy settings, this would require an “inconceivable” 32 billion tonnes of CCUS by 2050, including 23 billion tonnes through direct air capture.
It would also require $3.5 trillion in annual investments from today through to midcentury, an amount equal to the entire industry’s annual average revenue in recent years.
“I think is this is an important technology and it can play an important role in the emissions reduction in some specific sectors. But the idea that the oil and gas producers can carry on doing what they do, while diverting some emissions through massive deployment of CCUS is, I will say, a fantasy. It will never happen. The numbers don't add up,” Dr Birol said.
“It is important to understand that CCUS … can play a role in some specific sectors such as iron, steel, cement and others. But to see it to fix all the problems of oil and gas industry, in my view, is a mere fantasy.”
The IEA report reinforces the need for Cop28 to be an "inflection point in the world’s efforts to tackle climate change and keep 1.5 [°C] within reach", said Adnan Amin, chief executive of Cop28.
"The world must deliver an ambitious decision on the global stocktake and give the world some good news," he said.
He reiterated that an energy transition requires the participation of the energy industry.
"We believe the oil and gas industry can do more. That is why I have been calling for the oil and gas industry to align around net zero by or before 2050 and zero out methane emissions by 2030. They must decarbonise their own businesses and support the global transition," Mr Amin said.
Looking ahead, while oil and gas production is vastly reduced in net-zero transitions, it does not disappear, the IEA said.
Even in a 1.5°C scenario, some 24 million barrels per day of oil will need to be produced in 2050 (with three-quarters to be used in sectors where the oil is not combusted, notably in petrochemicals), as well as some 1,000 billion cubic metres of natural gas, roughly half of which will be used for hydrogen production.
The IEA expects global demand for oil and gas to peak by 2030 amid rising adoption of renewable energy technology and electric vehicles.
The current annual investment in the oil and gas sector of $800 billion is “double” what is required by 2030 in the 1.5°C scenario, the IEA said.
But with geopolitical instability and rising demand, some investment in the production of fossil fuels would be needed to ensure the security of energy supply.
“First of all in terms of oil, we have in many producing countries, significant amount of spare production capacity, and in terms of natural gas, huge amount of LNG [liquefied natural gas] wave coming in 2025 from Qatar and United States,” Dr Birol said.
“As IEA, we don't say to companies, even in a net zero world … stop investing in oil and gas tomorrow, they will continue to invest in the existing fields because even in a net zero vertical, we will still use oil and gas, but the consumption of oil and gas, together with coal of course, need to decline if we want to reach the Paris goal.”