The pathway to a net zero future for the oil and gas industry

By Mark Venables, Editor Oil and Gas Technology

As each month ticks by the media reports on our failure to cap the global temperature rise to 1.5oC grow and the associated commentary becomes more frantic. It is clear that the oil and gas sector has a significant role to play on both sides of this equation. It cannot be denied that the operations to extract fossil fuels and its subsequent use contribute to global warming but on the other hand the success of the world’s economy is inexorably linked to fossil fuels.

A new report released by the IEA in May examines the immediate steps the oil and gas industry needs to take to significantly reduce its emissions footprint and help move the world closer to meeting its international energy and climate goals. The new report – Emissions from Oil and Gas Operations in Net Zero Transitions – aims to inform discussions in the run-up to the COP28 Climate Change Conference in Dubai in November. It is part of a broader World Energy Outlook special report being released this year examining the role of the oil and gas industry in net zero transitions.

The production, transport and processing of oil and gas emitted the equivalent of 5.1 billion tonnes of CO2 in 2022. In the International Energy Agency’s Net Zero Emissions by 2050 Scenario, the emissions intensity of these activities falls by 50% by the end of the decade. Combined with the reductions in oil and gas consumption in this scenario, this results in a 60% reduction in emissions from oil and gas operations to 2030.

The report identifies five key levers to achieve this reduction, including: tackling methane emissions; eliminating all non-emergency flaring; electrifying upstream facilities with low-emissions electricity; equipping oil and gas processes with carbon capture, utilisation and storage; and expanding the use of low-emissions hydrogen in refineries.

Around $600 billion spending is required this decade to achieve the cut in oil and gas emissions. This is only a fraction of the record windfall income that oil and gas producers accrued in 2022. Many of the measures also generate additional income streams by avoiding the use or waste of gas meaning they can quickly recoup the upfront spending required.

Tackling methane emissions is the most important measure to limit emissions from the industry’s operations. It is also one of the most cost effective and impactful measures to cut emissions across the economy and limit near term global warming. Earlier this year, the IEA released the latest update to its Global Methane Tracker, which found that methane emissions remained stubbornly high in 2022 despite the headwinds of the global energy crisis.

Tackling scope 1 and 2 emissions from oil and gas is one of the most viable and lowest cost options to reduce total GHG emissions from any activity to 2030. Around USD 600 billion upfront spending is required over the period to 2030 to achieve the full 50% reduction in the emissions intensity of oil and gas operations. This is 15% of the windfall net income the industry received in 2022. Many of the measures also lead to additional income streams by avoiding the use or waste of gas meaning they can quickly recoup the upfront spending required. . For facilities implementing these measures, the average cost of producing oil and gas would increase by less than USD 2/boe.

Several companies have to date announced targets to reduce their scope 1 and 2 emissions. These vary markedly in their scope and timelines for implementation. Only a fraction of these commitments matches the pace of decline seen in the NZE Scenario and most plan to use offsets to achieve their targets. Forward - leaning companies need to recognise the need to move faster than the global average reduction in emissions and build a broader coalition of companies willing to play their part.

To build public confidence in actions being taken, a consistent approach is needed to monitor, report, and verify emissions from oil and gas activities. This should be based on robust measurements to improve the accuracy, availability, and transparency of emissions data.