The report, titled The Energy Transition and Oil Companies’ Hard Choices, was issued by the UK’s Oxford Institute for Energy Studies as part of its Energy Insight series. The report examines the growing global pressure on oil producers to find innovative ways to reduce their carbon footprint while remaining profitable and attracting investment that will underwrite further technological development.
Toward a lower-carbon energy system
The report projects that significant demand for oil and natural gas will continue well after 2050, although this demand growth is inconsistent with meeting Paris Agreement targets using currently available and economically feasible technologies. On the other hand, there is growing political, societal and financial market pressure to accelerate decarbonization.
There is growing global pressure on oil producers to find innovative ways to reduce their carbon footprint while remaining profitable and attracting investment.Oxford Institute for Energy Studies
"Some observers may conclude that international oil companies (IOCs), and hydrocarbon-rich countries and their national oil companies (NOCs), need take no action as demand for their products inexorably grows,” the report notes. “However, the pressure to decarbonize will increase and is already affecting IOCs and investment decisions. Companies that underestimate society’s desire for cleaner energy risk losing societal license to operate, competitiveness, the ability to attract and keep talented personnel, and access to capital.”
In particular, concerns over the energy mix transition are escalating the cost of capital for new long-term projects such as oil sands and offshore developments.
Investing in the future
The energy industry is already well into the transition. Many IOCs have been adapting their strategies, increasing investment in low-carbon technologies, reducing the carbon intensity of their activities, and adjusting their portfolios – for example, increasing their share of natural gas or renewables. Regarding innovation and technology, the vast majority of investment is aimed at improving efficiency and emissions intensity. IOCs are well positioned to advance clean technology: they have financial strength, experience in managing and executing large projects, managing risk, and integrating new technologies with existing assets, infrastructure, and technical expertise.
Currently the pace of change is seen to be slow – but research, development and commercial-scale deployment of new technologies is a long-term and often costly commitment. As the Canadian Association of Petroleum Producers (CAPP) contends, governments at all levels must create the right fiscal and economic environment to enable further technological development. In addition, the energy industry in general (including Canada) has not been effective in spreading the word about technological advances already made, and the enormous effort to improve environmental performance – especially emissions reductions – through innovation and collaborative networks.
Canada: Ahead of the curve
Canada’s upstream energy industry leads the pack when it comes to developing innovative technologies that reduce overall environmental footprint. The oil sands industry is a prime example. Through Canada’s Oil Sands Innovation Alliance, companies have developed and shared more than 1,000 technologies worth in excess of $1.4 billion. COSIA is also co-sponsoring the Carbon XPRIZE, a multi-million-dollar competition to find innovative ways to recover carbon dioxide and turn it into usable products.
There are also initiatives like the industry-led Petroleum Technology Alliance Canada (PTAC), which funds and facilitates collaborative research and development projects in both natural gas and oil, as well as the Clean Resources Innovation Network (CRIN), a Canada-wide network of industry, governments, entrepreneur innovators and investors working together to accelerate commercialization of technology and innovation.
The global energy transition is a multi-decade journey, requiring multi-decade leadership. Emphasizing the importance of new low-carbon technologies and how IOCs are playing a leading role in this space can reassure investors and convince wider society that IOCs are part of the solution.
The report concludes, “If the world is going to be using oil and natural gas for decades, it is necessary for the industry to do everything it can to make projects as efficient and profitable as possible. Improved profitability will also gather more capital to fund decarbonization technologies.”