IEA Bombshell report fuels debate on oil and gas industry climate goals

A landmark report from the International Energy Agency (IEA) this week put the cat among the pigeons by saying it sees no need to invest in new fossil fuel developments if the world is to fight effectively against global warming.


Get valuable insights into the energy transition of the global oil and gas industry from ACCELERATE, the free weekly newsletter of Upstream and Recharge. Register here today.

The proposal was part of the Paris-based agency’s “ Net Zero by 2050 ” report outlining what it believes are the steps needed to keep global temperature increases below 1, 5 degrees Celsius above pre-industrial levels by mid-century.

The IEA has said a global energy sector with net zero emissions is achievable within 30 years, but warned the path is “narrow” and will require “an unprecedented transformation in the way energy is produced. , transported and used around the world ”.

While not a recommendation, the report states: “The oil demand trajectory… means that no exploration for new resources is required and, other than fields already approved for development, no new oil fields. is not necessary. “

Dave Jones of the Ember climate think tank said, “The implications of this sentence are far-reaching: it really is a knife in the fossil fuel industry.”

The IEA added, however, that “continued investments in existing sources of oil production are needed.”

In the IEA scenario, oil demand will never return to its 2019 peak of around 100 million barrels per day, dropping to 72 million b / d in 2030 and 24 million b / d in 2050 .

The demand for gas will increase until the mid-2020s, when it peaks at 4,300 billion cubic meters before falling to 3,700 Bcm in 2030 and 1,750 Bcm in 2050.

The IEA has said that Opec‘s share of a sharply reduced global oil supply could drop from around 37% in recent years to 52% in 2050, a higher level than at any time in the history of the United States. oil markets.

The report was released on the day that shareholders at Shell’s annual general meeting overwhelmingly supported the company‘s new energy transition strategy in an advisory vote.

Stopped developments: This week’s landmark Net Zero by 2050 report from the International Energy Agency has left the oil and gas industry in shock, with new project spending in the spotlight. Photo: Image RYTIS DAUKANTAS / AMONT

Shell aims to increase its investments in low-carbon energy in the coming years, but at least three-quarters of its spending will continue to be spent on oil and gas.

The IEA scenario predicts that annual global investment in fossil fuel supply declines steadily from about $ 575 billion on average over the past five years to $ 110 billion in 2050, with investments in upstream being limited to maintaining production in existing fields.

As companies forecast billions of dollars in spending on highly profitable oil and gas projects – and some countries, including Norway, consider new licensing rounds – a sudden halt in new investment in fossil fuels seems unlikely.

Norwegian state-controlled energy giant Equinor told Upstream the report underlines the importance of a ‘robust’ oil and gas portfolio, even in global scenarios with lower energy demand .

Equinor said the report could be an important contribution to its own energy transition strategy, but declined to say whether it could affect oil and gas investment plans.

“We are browsing the report and do not wish to comment on such details today,” a spokesperson said.

Norwegian Oil and Energy Minister Tina Bru said the report shows the world has a “formidable challenge” to meet its climate goals.

However, she said the IEA document is a “road map for the whole world, and … each country has different circumstances”.

Redburn analysts said of the report: “At first glance, the outlook for oil and gas companies is rather bleak.”

However, they added: “The [report] is designed to show what it would take to reach net zero by 2050. It has been again resolved to produce this result in order to stimulate debate and political action, but it is not a forecast in the sense of traditional of the term. “

Ed Crooks, vice chairman of consulting firm Wood Mackenzie, said: “It is true that in a world aligned with the Paris climate goals, there is unlikely to be a need for new net oil production. But that doesn’t mean there won’t be a need for new developments or exploration. “

New oil projects could outperform existing sources with lower carbon intensity and lower costs, and gas will be needed to replace coal for power generation and as a feedstock for “blue” hydrogen, he said. Crooks said.

Radical report: Fatih Birol, Executive Director of the International Energy Agency Photo: AP / SCANPIX

The prospect of the lack of further exploration sparked an icy reaction from US industrial groups.

“The IEA itself regularly recognizes that half of the technology for achieving net zero has yet to be invented,” said Stephen Comstock, vice president of corporate policy at the American Petroleum Institute.

“Any path to net zero must include continuous innovation and the use of natural gas and oil, which remain crucial to move coal to developing countries and enable renewables.”

The National Offshore Industries Association (NOIA), which supports the goals of the Paris Climate Treaty, said the IEA’s roadmap puts efforts to reduce global warming above all other concerns.

“Climate and emissions solutions must balance society’s environmental, social, economic and energy needs. These needs are correlated. Progress in one cannot come at the expense of another need, ”said NOIA President Erik Milito.

“The IEA is trying to establish a profitable and economically productive path to net zero. It’s an ambitious task, but a partnership with the offshore energy sector would be an important step towards a more low-carbon future. “

The IEA has recognized that “the contraction in the production of oil and natural gas will have far-reaching implications for all countries and companies that produce these fuels.”

The report, intended to guide the next round of UN climate talks in November in Glasgow, Scotland, was requested by the chairman of those talks, former UK business secretary Alok Sharma.

Previous Crypto Liquidations Rampant As Market Experiences Worst Crash Since March 2020
Next Latest coronavirus: Travel to Orange List countries involves 'costs and hassle', warns UK Transport Secretary