Moving on from oil

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Moving on from oil

At the height of the Covid-19 emergency, the CEOs of some of the world’s biggest oil and gas companies, reiterated their commitment to an emissionsreduction manifesto announced in 2014. The twelve members of the Oil and Gas Climate Initiative declared that the pandemic would not deter their efforts towards accelerated transitions to lower carbon energy.

The public statement was not a cloud of hot words in a climate of global turbulence: the risks to fossil-centric energy production have been evident to the industry for the last decade, at least.

The CEO of the world’s biggest asset manager, BlackRock, advised clients in 2020 that the corporation would make sustainability a central consideration in investing, keeping an eye on oil and gas companies.

The investor community has a crucial role to play in the speed and intensity with which the industry shifts from hydrocarbons. That said, more than half of global oil and gas production is controlled by national governments, not companies. In this scenario, efforts by investors need to be matched with policies.

The EU Commission, for example, set out strict goals to reach netzero emissions across the Single Market economy by 2050. While the European Green Deal was officially launched in 2019, the EU Parliament had been pushing in its direction for years.

European oil majors, in fact, responded with their own decarbonisation strategies. Shell has committed to cut 30 percent of its carbon footprint by 2035; Total plans to place a fifth of its capital investments in clean energy projects over the next decade; Repsol expects a net-zero output by 2050.

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BP took a majority stake in a major European solar power operator and invested in an Israeli battery-charging project. ExxonMobil is focusing on biofuels and recently announced a breakthrough with its algae-based research.

Their competitors in the US have taken a less aggressive approach, betting on another decade of strong demand for oil. Indeed, in February 2021 Brent crude reached $60 for the first time in a year amid restrictions on supply. Some analysts are predicting it to keep rising.

But that is not to say that American oil and gas companies are being complacent. Chevron, ExxonMobil, and Occidental vowed to reduce a minimum of 20 kilogrammes of CO2 equivalent per barrel by 2025. Climate experts, however, believe that bolder targets can be set while applying them to baseline emissions, rather than a company’s overall output.

Even before consumers start burning through oil and gas products, the process of extracting resources and distributing them accounts for 15 percent of the industry’s greenhouse emissions. Part of the solution lies in developments such as carbon capture technologies and renewables. Total started investing early in new technology such as solar photovoltaics and has ventured in wind and hydropower too. BP took a majority stake in a major European solar power operator and invested in an Israeli battery-charging project. ExxonMobil is focusing on biofuels and recently announced a breakthrough with its algae-based research.

Such capital investments indicate a general transition towards a greener future for oil and gas companies, but the contrast in strategies by the main players suggests that the road ahead is still being laid.

Big oil is oftentimes seen as a stumbling block in the shift to more sustainable energy production. But with the right investment, policies, and technology they can become the single most important force in achieving global ambitions of net-zero emissions.