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Oil and gas companies need to start planning for production cuts of 50 percent and more by the 2030s. That is, if they want to become aligned with Paris Agreement targets, said financial think tank Carbon Tracker in a new report this week.
The report said oil and gas majors were still spending billions on oil and gas production and new projects. However, these investments are inconsistent with the 1.5-degree scenario outlined in the Paris Agreement. What’s more, the report’s authors said, even Big Oil majors with net-zero commitments were investing in new production. And with this, they are risking the future of these projects.
“Oil and gas companies are betting against the success of global efforts to tackle climate change,” said Mike Coffin, head of oil, gas, and mining at Carbon Tracker and one of the authors of the report.
“If they continue with business-as-usual investment they risk wasting more than a trillion dollars on projects which will not be competitive in a low-carbon world. If the world is to avert climate catastrophe, demand for fossil fuels must fall sharply,” Coffin added. “Companies and investors must prepare for a world of lower long-term fossil fuel prices and a smaller oil and gas industry, and recognise now the risk of stranded assets that this creates.”
Earlier this year, the International Energy Agency called for the suspension of all new oil and gas exploration by the end of this year if the world was to succeed in its energy transition efforts. Yet not much later, the agency called on OPEC to boost oil production as prices skyrocketed amid a strong rebound in oil demand.
This, according to most forecasts, is a temporary thing, and over the longer term, demand for oil will decline inexorably as the world moves to low-carbon energy systems.
As a result, according to Carbon Trackers, the oil industry needs to choose between risking having much of its assets stranded or reducing production voluntarily to avoid this risk.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.