Who Will Provide the World’s Oil and Gas for the Next 30 Years?By Niels Versfeld | Wed, 07/07/2021 - 12:58
Publicly traded oil and gas companies, especially the supermajors, have been under increasing pressure to not just reduce emissions but to stop investment in oil and gas all together. The International Energy Agency (IEA) itself recently called for the end of all investment in oil and gas projects immediately. Exxon, not considered a climate leader, was forced by an activist hedge fund to add additional climate-focused directors, while being a climate leader did not protect Shell from being ordered by the Dutch courts to legally reduce greenhouse gas (GHG) emissions more aggressively. Pressed to change their businesses quickly, these public companies have started selling oil and gas projects, especially assets with high GHG intensities. Taken together, many conclude that public markets have succeeding in forcing oil and gas companies to reconsider fossil fuels and move to renewables.
However, these events have left me wondering who will produce the oil and gas the world keeps consuming? None of the developments listed above addresses fossil fuel demand. Rather, they aim to restrict supply. As figure 1 shows, the IEA itself predicts that oil and gas demand will continue to increase even if renewables exponentially grow. Compounding that, while renewables have increased from 8.7 percent to 11.2 percent of final energy consumption in the last 10 years, fossil fuels have remained fixed at 80 percent. In an optimistic scenario wherein the developed world was to stop oil and gas consumption and switch to renewables by 2050, is it plausible to think that all countries, especially those that have not had the benefits of energy-rich development, will stop consuming fossil fuels? Clearly, oil and gas will continue to be consumed by the world until at least 2050. Shouldn’t public oil and gas companies, which must be transparent and responsive to society’s demands, play a part in that oil and gas production?
I fear the opposite is occurring. Shell, among others like BP, has been selling oil and gas assets in order to meet these accelerated timelines. They have not been closing these facilities, they have been selling them to private companies or National Oil Companies (NOCs). While many private and national operators maintain strong ESG practices, the fact that these companies have less stringent disclosure requirements makes it difficult to assess their performance in a meaningful way. From the point of view of our company, an energy services company that focuses on top-tier operations, this is a concerning trend. As suppliers to the international market, we have seen that large, public, multinational oil and gas producers often improve market standards beyond national regulations. Additionally, many public companies require additional environment, social, and governance (ESG) reporting, thus increasing transparency and accelerating continuous improvement.
Public oil and gas companies are responding to society’s demand for reduced impacts from oil and gas activities. These progressive actions should be encouraged not punished. The purpose should be to reduce GHGs as fast as we can, not merely switch who is producing oil and gas. While renewables are key to the energy mix of the future, it will take significant investment over the next 30 years to get there. As the Economist’s recent cover page highlights, the supply chain for renewables is already under considerable strain. To compound that, any future scenario sees oil and gas being a part of the mix until at least 2100.
Norway as a country is more than willing to fill this gap. “We will supply energy to the world as long as the demand exists," Petroleum and Energy Minister Tina Bru told a press conference. "The government will therefore maintain an oil policy that facilitates profitable oil and gas production in the framework of the Norwegian climate policy and our climate goals." The Club of Rome said that Norway is “ignoring science,” but that is not true. Norway is a climate leader and knows that oil and gas needs to be produced responsibly since it will be consumed. Publicly traded oil and gas companies also know that they can contribute toward the sustainability of oil and gas production over the next 30 years.
Closer to home for me, a consortium of five public Canadian companies, many of which have bought assets from exiting supermajors, have joined together to reduce emissions to net zero by 2050. The technologies and knowledge created by these public companies can then be exported around the world. These are the initiatives that we need within oil and gas and are initiatives often pushed forward by publicly traded oil and gas companies.
While I believe the intentions of all involved were noble, I fear these recent developments will actually result in less progressive environmental performance. I for one think that public oil and gas companies have a key role to play in the energy transition. Who do you think should provide oil and gas to the world for the next 30 years?