About $600bn Spending is Required to Achieve Cut in Oil and Gas Emissions this Decade – IEA
To achieve cut in oil and gas emissions this Decade, about $600 billion is required, says International Energy Agency (IEA).
This figure, IEA says, is only a fraction of the record windfall income that oil and gas producers accrued in 2022.
IEA disclosed this in a new report titled “Emissions from Oil and Gas Operations in Net Zero Transitions”, which was released last week.
The report examined 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.
It aims to inform discussions in the run-up to the COP28 Climate Change Conference in Dubai in November, and forms 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.
Currently, oil and gas operations account for nearly 15 percent of energy-related greenhouse gas emissions. According to IEA, the industry has the ability and resources to cut down its emissions.
The energy watchdog revealed that 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 percent by the end of the decade. Combined with the reductions in oil and gas consumption in this scenario, this results in a 60 percent reduction in emissions from oil and gas operations to 2030,” the agency said.
The report identified 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, as levers to achieve reduction in the oil and gas industry.
“Around USD 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,” IEA stated in the report.
While some major oil and gas companies have made announcements to reduce their emissions, not much has been achieved. IEA is advocating for much more broader collaborations and synergies to achieve emissions reduction across the industry.
“Oil and gas companies accounting for just under half of global oil production today have announced plans to reduce emissions from their operations. A far broader coalition – with much more ambitious targets – is needed to achieve meaningful reductions across the oil and gas industry and beyond,” the agency added.
Windfall income
IEA believes that oil and gas companies have the financial resources to bring down emissions in the industry. Despite recessionary fears and drop in the prices of oil and gas products, producers have been recording mouthwatering revenues.
- For instance, in its 2023 first quarter financial report, American energy giant, ExxonMobil reported $11.43 billionn net profit, compared to $5.48 billion a year ago.
- Also, Chevron, another American energy giant, recorded uptick in net profit in the first quarter. The company recorded $6.57 billion net profit. This represents 5 percent rise in net profit.
- Similarly, BP reported underlying replacement cost profit (net profit) of $4.96 billion for the first quarter. This is higher than $4.8 billion it reported in the fourth quarter, but lesser than $6.2 billion for the first quarter of 2022.
- Italian energy giant, Eni, recorded €4.6 billion of adjusted EBIT and €2.9 billion of adjusted net profit in the first quarter. “Q1 2023 adjusted profit before tax of €5.0 bln was only 5 percent lower than Q1 2022 despite a 20 percent fall in crude oil price and a 42 percent drop in gas price,” the company said in its financial highlights.
Despite Refinitiv, a data analytics firm, forecast of $8.6 billion adjusted earnings for Shell Plc, the company reported $9.6 billion for the first three months of 2023. This is higher than $9.1 billion it posted as adjusted earnings over the same period in 2022 and $9.8 billion for the last three months of the year.
Cutting oil and gas production is not healthy’
Countries, particularly in Europe, are reactivating abandoned coal fire plants and nuclear power plants. This development indicates that countries are prioritizing their energy security over achieving Net-Zero target, and oil and gas companies are taking advantage of increasing demand for energy.
No wonder they are reluctant to take drastic measures to cut down emissions in the industry. Speaking recently, the new Chief Executive Officer of Shell Plc, Wael Sawan, noted that cutting oil and gas output would not be good for consumers.
“I am of a firm view that the world will need oil and gas for a long time to come,” Sawan said in an interview with Times Radio as reported by Bloomberg. “As such, cutting oil and gas production is not healthy.”
“We’ve seen of course through 2022 the fragility of the energy system,” Sawan said. “To see prices start to skyrocket, that’s not healthy for anyone, particularly consumers,” he added.
Shell’s position is similar to that of BP, which announced in February that it has scaled back plans to cut carbon emissions. The energy giant is one of the first oil majors to set target to cut emissions to net zero by 2050. BP had pledged to cut its emissions by between 35 and 40 percent by 2030.
However, the company has now reversed this target, and has adopted a modest target of a 20-30 percent cut, adding that it needs to keep investing in oil and gas to help meet the world energy demands.
The global carbon emissions are projected to rise to about 39 gigatonnes per year (Gtpa) in 2025, according to Rystad Energy research and analysis.
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Rystad says many countries as a measure to ensure energy security, adopted more carbon-intensive fuels in 2022, because of the ongoing Russia-Ukraine war, which it noted, led to record high in carbon emissions.
With increasing demand for energy amidst bumper revenues for oil and gas companies, cutting down emissions will continue to be taken with lavity by these companies. As profit-oriented businesses, it is unlikely that they will adopt aggressive approach to emissions reduction in near terms.
