When it comes to discussions on sustainability, there is rarely one that does not mention the oil and gas industry. And why would the industry not be discussed? After all, it contributes a large share of emissions—15% of total energy-related emissions can be attributed to oil and gas operations, based on estimates from the International Energy Agency. And emissions from the demand and supply of oil and gas, including drilling and transportation operations, must fall by 60% by the end of this decade. For that reason, a future with business-as-usual oil and gas is unacceptable. So, what is net zero for oil and gas?
Yet too often, discussions about this sector become polarized between two extremes—outright opposition demanding the end of oil and hyperbolic slogans like “Drill, Baby, Drill” promoting oil expansion. These views present oil and gas as a black-and-white issue and hinder a balanced discussion of the sector’s role in achieving net zero.
Thus, a dispassionate discussion is needed on what net zero means for oil and gas. After all, the sector employed 12 million people globally in 2023, and has invested in new technologies such as hydrogen and carbon capture and storage—technologies needed to reach net zero. Annual revenue from this sector was roughly $3 trillion; some of it goes to governments in taxes, funding national expenses, and some as returns to shareholders. This balanced view should not be mistaken for leniency—there is no denying that the industry must step up its actions to reduce emissions.
Let’s navigate the road between the extremes of “Drill, Baby, Drill” and the end of oil, the road of transition and hope. What is a net-zero future for the oil and gas industry, and where is greater action needed?
1. A Net-Zero Future Includes Some Oil And Gas, But The Hope To Be “The Last One Standing” Is Flawed
Like it or not, oil and gas will still be produced in a net-zero scenario. In scenarios limiting temperature rise to 1.5°C, around 24 million barrels of oil per day and about 900 billion cubic meters of gas are produced. Almost three-quarters of the oil is used in petrochemicals, and half of the gas is used for hydrogen production.
Many countries and companies hope their oil and gas will fill this residual demand. This last-standing narrative has been noted by several experts, including the International Energy Agency (IEA) in a special report on Oil and Gas Industry in Net Zero Transitions and a discussion on oil in the popular climate podcast Outrage + Optimism.
However, the hope of being the last one standing is not ideal because the market is expected to shrink significantly, particularly in transport, one of today’s biggest consumers of oil and gas. Demand for oil in transport—including cars, vans, heavy trucks, aviation, and shipping—is expected to fall drastically by 2050 in the IEA’s net-zero scenario. By then, 1.5 billion out of 1.6 billion cars are projected to be electric; 140 million out of 180 million trucks will be electric; and 85% of the shipping fleet will rely on low-emission fuels like hydrogen. Aviation, trucking, and shipping will be the transport sub-sectors with the highest contributions to emissions in 2050 in the net-zero scenario.
As demand declines, supply to this shrinking market will depend on variables like production costs, emissions intensity, and economic relevance. Falling demand also means that in the net-zero scenario, no new oil and gas projects are approved for development, and after 2030, many will not reach the end of their technical lifetime.
An example portfolio for a major oil company shifting toward net zero, according to the IEA, could focus on petrochemical feedstocks, primarily for plastics and industrial use. Around 14 million barrels daily are expected to be used as petrochemical feedstocks. Since the oil isn’t combusted in this use, it reduces emissions. Many other examples of portfolios such as this are showcased in the above report of the IEA, including those with a focus on clean energy.
2. Token Clean Energy Investments Fall Short Of Industry’s Potential
The oil and gas industry is involved in 90% of global carbon capture and storage technology. Carbon capture will play a significant role in all pathways that achieve the 1.5°C targets. This technology captures emissions and repurposes them for industrial uses such as chemical and synthetic fuel production.
It is tempting to be impressed by the big number above, but experts note that most oil and gas companies are watching the clean energy transition from the sidelines. The CCUS contribution is notable, but the industry’s clean energy investment remains small. Only 1% of global clean energy investment today comes from oil and gas companies, and more than 60% is from just four companies out of thousands of producers worldwide. These numbers are telling.
Oil and gas firms must set ambitious targets to shift capital toward clean energy. Estimates suggest that 50% of capital should be spent on clean energy investments.
3. Transition To Net Zero Requires Stronger Target-Setting By Oil & Gas Industry
Reducing emissions from operations is one of the most critical steps for the sector’s transition. Fewer than half of the 40 large oil and gas companies have set targets to reduce their Scope 1 and 2 emissions. In the net-zero scenario, the global average emissions intensity falls by more than 50% by 2030, and total emissions fall by over 60%, according to IEA guidance.
A report, Paris Misaligned, published last month by Carbon Tracker, identifies Spain’s Repsol and the UK’s Harbour Energy as ranking among the top in terms of the strength of their net-zero aligned targets. Organizations like the Institutional Investors group and the Science Based Targets initiative (SBTi) can be useful guides for companies in the sector to set targets.
The good news is that many oil and gas companies perform better on their targets to reduce methane emissions. Improvement in disclosure of methane could signal growing momentum, especially following announcements made at COP28 in Dubai, where many oil and gas companies came together to announce better monitoring of methane gas. Still, companies can show more leadership by including emissions from non-operated and midstream assets, which are currently underrepresented in targets.
As we look into a future of hope, transitioning a mammoth fossil-based sector such as oil and gas will not happen immediately. It is also important to recognize that sudden shocks to the oil and gas supply system without scaling up renewables to fill the demand gap can impact ordinary people’s lives. Remember the oil shocks of the 1970s or, more recently, the Ukraine war, which significantly affected household bills? That’s why we need more dispassionate discussions on what is net zero for oil and gas.