Carbon Brief takes a dive into the International Energy Agency’s (IEA) latest report on the future of oil and gas. It has been launched to coincide with the start of COP28, which IEA chief Dr Fatih Birol described as a “moment of truth” for the sector.
Fossil fuels are set to take centre stage at COP28 in Dubai, a city built on decades of oil extraction. Dozens of nations say they want the event to yield a global commitment to reducing fossil-fuel use.
COP28 president Sultan Al Jaber, who is also chief executive of the Abu Dhabi National Oil Company (Adnoc), has said cutting fossil-fuel supply is “inevitable and essential”. Doing so would require oil companies such as his to radically change their business models.
In its new report, the IEA lays out the role such companies could play in this transition. It also punctures many of the narratives that the oil industry has formed in recent years concerning its climate action – or lack of it.
‘Central to the solution’
Al Jaber has stressed that oil companies are “central to the solution” for climate change. The IEA agrees that the net-zero transition will be “more costly and difficult” without oil companies on board, but says a “step change” is required.
Oil majors such as Shell and BP have made much of their low-carbon investments. Yet, in 2022, the IEA says the industry channelled just 2.7% of its capital spending into clean energy. (It notes that Adnoc says it invests in clean energy, but has not revealed how much.)
Many spend nothing at all. More than 80% of oil and gas is produced by companies with no plans to invest in clean alternatives. State-owned firms such as Adnoc, which account for more than half of global production, have been particularly hesitant.
The IEA says oil industry spending on low-carbon alternatives could be brought in line with the agency’s “net-zero by 2050” scenario, if it increases to around 50% of capital expenditure by 2030. However, this would require shareholders and governments to accept lower returns, something there “does not appear to be a large appetite [for]”.
No ‘status quo’
Many oil-and-gas companies plan to cut emissions from their operations and drilling sites – rather than those from burning their products. Adnoc, for example, intends to be a “net-zero” company by 2045.
Yet these efforts are lacking in sufficient ambition, according to the IEA. It says less than 2% of oil-and-gas production is covered by an emissions target that aligns with the agency’s net-zero scenario.
There are also question marks over how oil companies are cutting their emissions.
The report stresses that relying on the still-emergent technology of carbon capture and storage (CCS), as many oil companies appear to be doing, cannot be “a way to retain the status quo”. It says the $3.5tn annual cost of scaling up CCS enough to maintain production while hitting climate targets is equivalent to the industry’s entire revenue.
The IEA also cautions against reliance on carbon offsets, which three-quarters of oil companies with emissions targets have stated they will use.
‘Last ones standing’
Oil companies often emphasise the world’s “need” for fossil fuels and, indeed, the IEA sees a small amount of oil and gas extraction necessary even as companies “evolve their portfolios”.
Still, the IEA reiterates that its net-zero pathway means no new oil-and-gas fields. In fact, it says new developments since it first issued this warning in 2021 mean some would now have to be closed early.
Various oil companies clearly intend to be the “last ones standing” – extracting oil long into the future. To them, the IEA issues a warning: “Many producers say they will be the ones to keep producing throughout transitions and beyond. They cannot all be right.”
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