Investment in Oil and Gas Currently Almost Double Level Required in the Net-Zero Emissions Scenario in 2030 – IEA

The International Energy Agency (IEA) has said that investment in oil and gas in currently almost twice the level required in the Net-Zero Emissions scenario in 2030.

According to IEA, this is a pointer that fossil fuel may continue to be used for a longer period, which would impact on the  target of keeping the global temperature at 1.5 °C.

The international energy watchdog stated this in its World Energy Outlook 2023, which was released recently.

It, however, pointed out that reducing investment in oil and gas would not be enough to achieving Net-Zero 2050 target, adding that there is a need to increase investment in clean energy.

The IEA emphasized on the importance of accelerating clean energy projects in emerging and developing economies outside China, stressing that investment  needs to increase by more than five times.

“The end of the growth era for fossil fuels does not mean an end to fossil fuel investment, but it undercuts the rationale for any increase in spending.

Until this year, meeting projected demand in the STEPS implied an increase in oil and gas investment over the course of this decade, but a stronger clean energy outlook and lower projected fossil fuel demand means this is no longer the case.

However, investment in oil and gas today is almost double the level required in the NZE Scenario in 2030, signalling a clear risk of protracted fossil fuel use that would put the 1.5 °C goal out of reach,” IEA said.

“Simply cutting spending on oil and gas will not get the world on track for the NZE Scenario; the key to an orderly transition is to scale up investment in all aspects of a clean energy system.

The development of a clean energy system and its effect on emissions can be reinforced by policies that ease the exit of inefficient, polluting assets, such as ageing coal plants, or that restrict the entry of new ones into the system.

But the urgent challenge is to increase the pace of new clean energy projects, especially in many emerging and developing economies outside China, where investment in energy transitions needs to rise by more than five times by 2030 to reach the levels required in the NZE Scenario.

A renewed effort, including stronger international support, will be vital to tackle obstacles such as high costs of capital, limited fiscal space for government support and challenging business environments.”

Although demand for fossil fuels has remained strong in recent years, IEA said there is decline in the deployment rate of new assets that use fossil fuels.

“Although demand for fossil fuels has been strong in recent years, there are signs of a change in direction.

Alongside the deployment of low-emissions alternatives, the rate at which new assets that use fossil fuels are being added to the energy system has slowed.

Sales of cars and two/three-wheel vehicles with internal combustion engines are well below where they were before the Covid-19 pandemic.

In the electricity sector, worldwide additions of coal- and natural gas-fired power plants have halved, at least, from earlier peaks.

Sales of residential gas boilers have been trending downwards and are now outnumbered by sales of heat pumps in many countries in Europe and in the United States,” it said.

“Policies supporting clean energy are delivering as the projected pace of change picks up in key markets around the world.

Thanks largely to the Inflation Reduction Act in the United States, we now project that 50% of new US car registrations will be electric in 2030 in the STEPS. Two years ago, the corresponding figure in the WEO-2021 was 12 percent.

In the European Union in 2030, heat pump installations in the STEPS reach two-thirds of the level needed in the NZE Scenario, compared with the one-third projected two years ago. In China, projected additions of solar PV and offshore wind to 2030 are now three-times higher than they were in the WEO-2021.

Prospects for nuclear power have also improved in leading markets, with support for lifetime extensions of existing nuclear reactors in countries including Japan, Korea and the United States, as well as for new builds in several more.”

IEA also said that global energy crisis may mark the beginning of an end for fossil fuel era, noting that in its Stated Policies Scenario (STEPS), the share of coal, oil and natural gas in the global energy mix would drop to 73 percent by 2030.

“A legacy of the global energy crisis may be to usher in the beginning of the end of the fossil fuel era: the momentum behind clean energy transitions is now sufficient for global demand for coal, oil and natural gas to all reach a high point before 2030 in the STEPS.

The share of coal, oil and natural gas in global energy supply – stuck for decades around 80 percent – starts to edge downwards and reaches 73 percent in the STEPS by 2030. This is an important shift.

“However, if demand for these fossil fuels remains at a high level, as has been the case for coal in recent years, and as is the case in the STEPS projections for oil and gas, it is far from enough to reach global climate goals,” it stated.

While acknowledging that pressures have eased up a bit on energy crisis, IEA noted that the markets are still volatile, citing Russia-Ukraine war and the lingering conflict in the Middle-East.

“Some of the immediate pressures from the global energy crisis have eased, but energy markets, geopolitics, and the global economy are unsettled and the risk of further disruption is ever present.

Fossil fuel prices are down from their 2022 peaks, but markets are tense and volatile. Continued fighting in Ukraine, more than a year after Russia’s invasion, is now accompanied by the risk of protracted conflict in the Middle East.

The macroeconomic mood is downbeat, with stubborn inflation, higher borrowing costs and elevated debt levels.

Today, the global average surface temperature is already around 1.2 °C above pre-industrial levels, prompting heatwaves and other extreme weather events, and greenhouse gas emissions have not yet peaked.

The energy sector is also the primary cause of the polluted air that more than 90 percent of the world’s population is forced to breathe, linked to more than 6 million premature deaths a year. Positive trends on improving access to electricity and clean cooking have slowed or even reversed in some countries,” it stated.

It revealed that since 2020, investment in clean energy has risen by 40 percent, adding that more than $1 billion per day is being spent on solar deployment.

“Against this complex backdrop, the emergence of a new clean energy economy, led by solar PV and electric vehicles (EVs), provides hope for the way forward. Investment in clean energy has risen by 40% since 2020.

The push to bring down emissions is a key reason, but not the only one. The economic case for mature clean energy technologies is strong. Energy security is also an important factor, particularly in fuel-importing countries, as are industrial strategies and the desire to create clean energy jobs.

Not all clean technologies are thriving and some supply chains, notably for wind, are under pressure, but there are striking examples of an accelerating pace of change. In 2020, one in 25 cars sold was electric; in 2023, this is now one in 5. More than 500 gigawatts (GW) of renewables generation capacity are set to be added in 2023 – a new record.

More than USD 1 billion a day is being spent on solar deployment. Manufacturing capacity for key components of a clean energy system, including solar PV modules and EV batteries, is expanding fast.

This momentum is why the IEA recently concluded, in its updated Net Zero Roadmap, that a pathway to limiting global warming to 1.5 °C is very difficult – but remains open,” IEA said.

Position of oil majors

Speaking early this year, 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.

Shell is currently planning to cut 200 jobs in its Low-Carbon Solutions Division in 2024. This represents about 15 percent of the workforce in the division.

“We are transforming our Low Carbon Solutions (LCS) business to strengthen its delivery on our core low-carbon business areas such as transport and industry,” the company told Reuters.

Shell is also scaling back its hydrogen business. This is not unconnected with Sawan’s determination to increase oil and gas production output and boost company’s profits.

Unlike Shell, BP and TotalEnergies, their U.S peers – Chevron and ExxonMobil – are working on increasing their fossil fuels production with acquisition of oil companies.

Chevron few days ago disclosed that it has “entered into a definitive agreement” with Hess Corporation to acquire all of the outstanding shares of the company in an “all-stock transaction valued at $53 billion.”

According to Chevron,  “Under the terms of the agreement, Hess shareholders will receive 1.0250 shares of Chevron for each Hess share. The total enterprise value, including debt, of the transaction is $60 billion.”

Also, ExxonMobil Corporation disclosed early this month that it has entered a definitive agreement to acquire Pioneer Natural Resources,  an all-stock transaction valued at $59.5 billion.

“Under the terms of the agreement, Pioneer shareholders will receive 2.3234 shares of ExxonMobil for each Pioneer share at closing. The implied total enterprise value of the transaction, including net debt, is approximately $64.5 billion,” ExxonMobil said in a statement.

While energy transition remains a priority in the policies of many oil majors, their focus appears to be on profits and sustaining their businesses, which seems to be the reason for inconsistency in the implementation of policies on carbon emissions