IEA: Oil and gas firms investing less than 1% of funds in low-carbon transition

Of the investments collectively made by the world's largest public, private and state-owned oil and gas giants in 2018, less than 1% went towards low-carbon activities such as building renewable energy infrastructure or installing carbon capture, usage and storage (CCUS) technologies.

The report outlines how oil and gas firms could change their investment approaches in line with the Paris Agreement

The report outlines how oil and gas firms could change their investment approaches in line with the Paris Agreement

That is according to new analysis by the International Energy Agency (IEA), released to coincide with the World Economic Forum in Davos.

Entitled ‘The Oil and Gas Industry in Energy Transitions’, the report analyses the ways in which the oil and gas sector is adapting – and failing to adapt to - the global transition to low-carbon energy systems, both within their own operations and through their collaboration with external organisations.

With regards to investment, the report found that the average company has shifted just 1% of its annual funding away from “core” fossil-fuel-related projects and into “non-core”, low-carbon initiatives. Such initiatives include investment in renewable electricity generation, greener gas production, CCUS, startups in the “smart” or clean energy spaces, and infrastructure which would improve low-carbon energy distribution. 

It noted that even the most progressive oil and gas majors are allocating around 5% of their annual investment in these fields, concluding that a “much more significant change in overall capital allocation would be required to accelerate energy transitions”.

According to the report, many oil and gas firms are holding off investments in “non-core” areas due to uncertainty around technology maturity and payback time. The IEA is, therefore, encouraging oil and gas firms to invest in minimising emissions from their core operations while they develop longer-term strategies. The body is particularly keen to see a reduction in emissions related to getting oil and gas out of the ground and to consumers, which it claims accounts for 15% of the global sector’s annual GHG footprint.

It is also emphasising the role the oil and gas sector could play in scaling up renewable generation and CCUS technologies, given its global size and scope and its workforce’s expertise around areas such as energy policy and engineering.

“Scaling up these technologies and bringing down their costs will rely on large-scale engineering and project management capabilities, qualities that are a good match to those of large oil and gas companies,” the report states.

“For CCUS, three-quarters of the carbon dioxide captured today in large-scale facilities is from oil and gas operations and the industry accounts for more than one-third of overall spending on CCUS projects. If the industry can partner with governments and other stakeholders to create viable business models for large-scale investment, this could provide a major boost to deployment.”

On gas specifically, the report calls for businesses to ensure that investment in low-carbon hydrogen, biomethane and advanced biofuels accounts for a minimum of 15% of gas-related investment by 2030. The IEA has repeatedly maintained that electrification alone is not the solution to decarbonising energy systems on a global scale.

“With their extensive know-how and deep pockets, oil and gas companies can play a crucial role in accelerating deployment of key renewable options such as offshore wind, while also enabling some key capital-intensive clean energy technologies – such as hydrogen and CCUS – to reach maturity,” the IEA’s executive director Dr Fatih Birol summarised.

“Without the industry’s input, these technologies may simply not achieve the scale needed for them to move the dial on emissions.”

The oil and gas industry is estimated to account for more than half of the global greenhouse gas emissions associated with energy consumption, with some research suggesting that the sector is responsible for as much as 71% of global CO2 emissions.

The road to now

The publication of the oil and gas report comes shortly after the IEA published its first communique in a decade.

Following criticisms of the methodology behind the IEA’s World Energy Outlook – and the forecast’s implications for clean energy policy and industry – the communique commits the IEA to playing a “central role” in bridging the gaps between policy intentions and real-world impact, both through and beyond its work on the Outlook.

The IEA's oil and gas report echoes the findings of several other key pieces of research in this field to have emerged in recent months. CDP, for example, found that the sector’s 24 largest publicly listed firms spent just 1.3% of their combined capital expenditure (CAPEX) on low-carbon technologies and projects between January and October 2018.

Since that research was published, Carbon Tracker has analysed the ways in which oil and gas firms are failing to cap non-renewable production or to disclose climate-related financial risks in line with the Paris Agreement, despite many setting long-term intentions to align with its 2C trajectory.  Slow progress in these fields and in shifting investments, Carbon Tracker claims, will leave £1.8trn of assets across the sector stranded within a decade.

Given that ever more national governments are setting net-zero targets – now estimated to cover 40% of GDP globally – the UK’s oil and gas sector last year released a net-zero blueprint. Given that the blueprint did not contain time-bound, numerical targets to cap or decrease production, it was widely criticised by green groups.

-- FIND OUT HOW THE WORLD'S BIGGEST OIL AND GAS FIRMS ARE APPROACHING THE LOW-CARBON TRANSITION IN EDIE'S ANALYSIS--

Sarah George



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