The world’s largest international oil and gas majors have changed their tune on medium to long-term strategies since the Russian invasion of Ukraine and the energy crisis last year.
All European majors continue to target net-zero emissions by 2050, but some of the biggest, including BP and Shell, have scaled back promises to cut back oil and gas production and have signaled they would be there to provide the world with fossil fuel energy as long as it needs it.
Considering that the world still depends on fossil fuels for more than 80% of its primary energy consumption, it’s not outrageous – from a business perspective – for companies with core oil and gas business to double down on continued extraction of oil and gas. They are hard pressed to reward shareholders in a cyclical industry with frequent booms and busts. But this decade Big Oil has also been hard pressed by the ESG movement from investors to commit to reducing emissions faster, including Scope 3 emissions from the products they sell.
Security Of Supply Precedes Emissions Reduction Amid Energy Crisis
Following last year’s energy crisis in the wake of the Russian invasion of Ukraine and upended global oil and gas flows, international majors have pivoted back to oil and gas production, saying that fossil fuels will continue to be critical for the energy system until it matures enough to run mostly on low-carbon energy.
Fossil fuel consumption as a percentage of primary energy remained steady at 82% in 2022, according to the 2023 Energy Institute Statistical Review of World Energy, a closely-watched annual report previously produced by BP.
At the same time, energy-related emissions continued to rebound strongly, reaching a record high of 39.3 billion tons of carbon dioxide equivalent in 2022, or a 0.8% increase over 2021. Emissions from energy consumption contributed 87% of total global emissions, according to the review. Related: Canada’s Inflation Accelerates As Gasoline Prices Rise
The International Energy Agency (IEA) said in its own CO2 Emissions in 2022 report in March that global energy-related carbon dioxide emissions increased by 0.9% to reach a new record high in 2022, although the pace of growth was lower than feared. Higher emissions from coal – which replaced some gas consumption due to the record gas prices last year – more than offset lower emissions from gas, while emissions from oil grew even more than emissions from coal, the IEA said.
Despite the record emissions, Big Oil defied environmentalists and ESG-minded investors by saying this year that oil and gas are too important energy sources to be easily dismissed in the energy transition.
Shell and BP said earlier this year that they would invest more in resilient oil and gas projects than previously planned and would pump more hydrocarbons for longer to meet the world’s needs.
“There is no one solution. It is critical that the world avoids dismantling the current energy system faster than we are able to build the clean energy system of the future,” Shell’s CEO Wael Sawan said on Capital Markets Day in June.
“Oil and gas WILL continue to play a crucial role in the energy system for a long time to come, with demand reducing only gradually over time. Continued investment in oil and gas is critical to ensure a balanced energy transition, because of the growing energy demand I just mentioned, as well as natural decline rates and severe underinvestment in recent years.”
Reducing global oil and gas production would be “dangerous and irresponsible” as the world still desperately needs those hydrocarbons, Sawan told the BBC a few weeks later.
Affordability Of Supply
Security, affordability, and sustainability of supply are key themes in debates as oil executives from companies, including Canada’s oil sands, Saudi Aramco, and the supermajors, are taking part in the 24th World Petroleum Congress in Calgary, Canada, this week. The main theme of the event is “Energy Transition: The Path to Net Zero.”
Big Oil hasn’t ditched net zero. But it hasn’t ditched oil and gas, either. On the contrary, recent statements from executives signal that companies would now be looking to develop more oil and gas resources with a focus on lower emissions and carefully plan their investments in low-carbon energies to create value for shareholders and not leave the world starving of conventional energy sources while it still needs them.
Affordability is also a part of the energy trilemma, and Richard Masson, chair of the World Petroleum Council in Canada and among the organizers of the event in Calgary, posed a very important question in an interview with Bloomberg,
“The question becomes, ‘How do we manage the transition without leaving people in energy poverty?”
The answer to this, according to the top oil executives this year, could be a carefully managed energy transition without “leave it in the ground” extremes or an “either-or” approach to energy investments until the world needs more oil and gas.
By Tsvetana Paraskova for Oilprice.com
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