The Edge

Can oil companies grow – and cut greenhouse gas emissions?

The great energy contradiction

1 minute read

It’s quite a conundrum. A diverse suite of stakeholders is increasingly angsty, wanting agitating for a strategy and action plan for the energy transition, and a target-driven reduction in greenhouse gas (GHG) emissions. Yet most companies plan to increase exposure to oil and gas production.

The call for action to cut carbon emissions is intensifying, a disparate lobby becoming highly effective in driving the debate. This month alone, two new fronts opened, leveraging media with compelling takes on the theme – scientific evidence of the dwindling insect population globally; schoolchildren on strike and protesting at the UK government’s inaction. The industry is getting it in the neck from a widening spectrum, among them academics, climate change experts and activists, lenders and investors, and now a vocal younger generation insisting on being heard.

Yet oil and gas companies are building rather than reducing their exposure to the sector. The downturn since 2014 has been a catalyst to revitalise portfolios, with the Majors set up for a period of sustained growth. We forecast these seven IOCs combined will produce 23 million boe/d by 2023, 3 million boe/d more than we’d forecast only a year ago. The higher volumes are a result of aggressive upstream portfolio repositioning and business development. The growth rate of 3% per annum to 2023 is astonishing considering the near halving of prices.

Are oil executives in denial? 

There might be a bit of that, as you’d expect from any legacy industry at the early stages of radical market change that could become an existential threat. But there’s also an opportunity – the world needs more oil and gas for a while yet. 

Demand growth over the next decade or two is driven by global GDP growth, which, in turn, will lift large numbers of people in the developing world out of poverty and into prosperity. With the best will in the world, renewables can’t do it all. It will be some time before a zero-carbon energy market is competitive on full-cycle costs and affordability, longer still before the necessary infrastructure and consumption side of the equation catches up.

We forecast oil demand will rise from 100 million b/d today to a peak of 110 million b/d in the mid-2030s in our base case. The growth rate slows with efficiency gains in ICE vehicles, and grinds to a halt before declining as electric vehicles start to compete on price. Things could move faster, but even in our accelerated carbon-constrained scenario, demand is still around 100 million b/d in 2040. BP’s new Energy Outlook has a similar view; though its more aggressive ‘Rapid Transition’ scenario sees demand dive to 80 million b/d by 2040. Gas, with its lower carbon intensity, will be a relative winner for the foreseeable future. Demand grows for at least the next two decades in any of our scenarios.


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There’s a fine line between delivering on that growth and keeping abreast of society’s changing attitude to carbon.

How can the industry do both?

First, strategies have to encompass practical steps to show annual progress in reducing emissions and carbon intensity. Environmental, social and governance metrics are becoming the norm.

Companies have a basic job to ‘fix the roof’, cutting CO2 or methane emissions out of the value chain, particularly in gas and LNG. Flaring is a low-hanging fruit that could allow monetisation of gas. Portfolio high grading has moved in the right direction, but most companies can do more. Selling or closing ‘dirty assets’ can be a powerful demonstration of intent.

New investment needs to be focused on lower carbon-intensive assets, lighter liquids and with gas a priority – though it’s not happening yet. The 3 million boe/d growth we forecast for the Majors is split 50/50 between oil and gas. Technologies that mitigate emissions, such as carbon capture and storage, need to be part of the strategy for the bigger companies. Some may also consider other carbon-sink strategies such as re-forestation. Zero carbon power production is already gaining traction. Not all E&Ps will have the stomach to embrace a full-on net carbon-neutral strategy. Most though will kow-tow to a minimum degree to keep onside with capital markets.

Second, more effective advocacy. Society is dependent on oil and gas for some time before twilight sets in. The industry needs to make the most of the positive contribution it can still make to future global economic growth.