Oil and gas producers are confronted with crucial decisions regarding their role in the global energy system, given the escalating climate crisis primarily driven by their fundamental products. A recent report from the IEA emphasises the industry’s potential to adopt a more responsible stance and actively contribute to the emerging energy landscape.

Titled ‘Oil and Gas Industry in Net Zero Transitions,’ the report meticulously examines the ramifications and possibilities for the sector in the context of heightened international endeavours to achieve energy and climate objectives. Released in anticipation of the COP28 climate summit in Dubai, this special report outlines the necessary steps for the global oil and gas sector to align its practices with the aims of the Paris Agreement.

Even with the current policy framework, the latest projections from the IEA indicate that global demand for both oil and gas is poised to reach its peak by 2030. However, more decisive measures to combat climate change would result in significant declines in demand for these fuels. If governments fully fulfil their national energy and climate commitments, demand is projected to plummet to 45% below today’s levels by 2050. In a trajectory aimed at achieving net zero emissions by the mid-century, a crucial step for staying on track to limit global warming to 1.5 °C, the use of oil and gas would decrease by over 75% by 2050.

Despite playing a vital role in supplying over half of the world’s energy and employing nearly 12 million workers globally, the oil and gas sector has, at best, played a marginal role in transitioning to a clean energy system, as highlighted in the report. Currently, oil and gas companies contribute merely 1% to global clean energy investments, and a significant 60% of that investment comes from just four companies.

IEA executive director Fatih Birol said: “The oil and gas industry is facing a moment of truth at COP28 in Dubai. With the world suffering the impacts of a worsening climate crisis, continuing with business as usual is neither socially nor environmentally responsible.

“Oil and gas producers around the world need to make profound decisions about their future place in the global energy sector. The industry needs to commit to genuinely helping the world meet its energy needs and climate goals – which means letting go of the illusion that implausibly large amounts of carbon capture are the solution. This special report shows a fair and feasible way forward in which oil and gas companies take a real stake in the clean energy economy while helping the world avoid the most severe impacts of climate change.”

The global oil and gas industry comprises a broad spectrum of participants, ranging from small specialised operators to massive national oil companies. While attention often centres on the major players in the private sector, they collectively own less than 13% of global oil and gas production and reserves.

The report emphasises that each company’s transition strategy has the capacity and responsibility to include a comprehensive plan for mitigating emissions from its operations. Currently, the production, transportation, and processing of oil and gas contribute to nearly 15% of global energy-related greenhouse emissions—an amount equivalent to the total energy-related greenhouse gas emissions from the United States. However, companies with established targets to reduce their emissions represent less than half of the global oil and gas output.

To align with a scenario targeting a 1.5 °C temperature increase, the industry must witness a 60% reduction in its own emissions by 2030. Notably, the emissions intensity of the highest-emitting oil and gas producers is presently five to ten times greater than that of the lowest emitters, highlighting substantial room for improvement. Additionally, well-known strategies to curtail methane emissions, responsible for half of the total emissions from oil and gas operations, are available and can typically be implemented at a low cost.

Even in the transition to net-zero emissions, oil and gas production is expected to persist, particularly in a 1.5 °C scenario. The report underscores the need for some investment in oil and gas supply to ensure energy security and provide fuel for sectors where emissions reduction is challenging. However, not all oil and gas companies will sustain their output, necessitating consumers to convey clear signals about the direction and pace of their transition, enabling producers to make informed decisions on future investments.