The increasing social and environmental pressures on many oil and gas companies raise complex questions about the role of these fuels in a changing energy economy, and the position of these companies in the societies in which they operate.
But the core question, against a backdrop of rising GHG emissions, is a relatively simple one: should today’s oil and gas companies be viewed only as part of the problem, or could they also be crucial in solving it?
This is the topic taken up by the International Energy Agency (IEA) in this report, which builds on a multi‑year programme of analysis on the future of oil and gas in the IEA World Energy Outlook (WEO) series.
This report The Oil and Gas Industry in Energy Transitions does not aim to provide definitive answers, not least because of the wide diversity of oil and gas companies and company strategies around the world. It does aim to map out the risks facing different parts of the industry, as well as the range of options and responses.
The report demonstrates that three considerations provide the boundaries for this analysis. First, the prospect of rising demand for the services that energy provides due to a growing global population – some of whom remain without access to modern energy – and an expanding global economy.
Second, the recognition that oil and natural gas play critical roles in today’s energy and economic systems, and that affordable, reliable supplies of liquids and gases (of different types) are necessary parts of a vision of the future.
And last but far from least, the imperative to reduce energy-related emissions in line with international climate targets.
The oil and gas industry faces the strategic challenge of balancing short-term returns with its long-term licence to operate. Societies are simultaneously demanding energy services and also reductions in emissions. Oil and gas companies have been proficient at delivering the fuels that form the bedrock of today’s energy system; the question that they now face is whether they can help deliver climate solutions.
The report highlights that this could be possible if the oil and gas industry takes the necessary steps. As such, it opens a way – which some companies are already following – for the oil and gas industry to engage with the “grand coalition” that the IEA considers essential to tackle climate change.
This effort would be greatly enhanced if more oil and gas companies were firmly and fully onboard. The costs of developing low-carbon technologies represent an investment in companies’ ability to prosper over the long term.
The report demonstrates that transformation of the energy sector can happen without the oil and gas industry, but it would be more difficult and more expensive. Oil and gas companies need to clarify the implications of energy transitions for their operations and business models, and to explain the contributions that they can make to accelerate the pace of change.
This process has started and company commitments to reduce emissions or emissions intensities are becoming increasingly common.
However, the industry can do much more to respond to the threat of climate change. Regardless of which pathway the world follows, climate impacts will become more visible and severe over the coming years, increasing the pressure on all elements of society to find solutions. These solutions cannot be found within today’s oil and gas paradigm.