Oil Majors Plan for Low-carbon Future

Take a look at many of the major energy companies’ websites and you’re likely to see a “New Energies”-section with an outlined commitment for ultimately achieving “net zero” carbon emissions.

“As the world confronts an energy transformation, the global energy system is being reimagined and the role of oil and natural gas is not entirely clear,” explained Morgan Bazilian, professor and director of the Payne Institute for Public Policy at the Colorado School of Mines, which has helped lead the nation’s energy system for about 150 years.

The Payne Institute recently hosted a forum on the “Perspectives on the Future of Oil and Gas,” and welcomed executives from Equinor, Shell and BP to share scenarios of what the energy world might look like in 30 and 50 years as countries and companies strive to achieve net zero emissions.

“There is a lot of uncertainty in what the energy landscape will be,” Bazilian said. “It’s an important time to come to grips with this uncertainty as people are making business decisions about it every day.”

Shell, for example, has increased the number of employees in its New Energies sector from 60 to 800 in the past two years, said Wim Thomas, chief energy adviser for Shell. The hiring boom signifies “a very clear vision of where we want to go,” said Thomas, who is responsible for long-term global energy scenarios.

However, when looking at the world’s energy leaders, none have agreed on a clear path forward.

Challenges

For net zero to be achieved by the second half of this century, many obstacles must be addressed, including the most pressing: a growing population and subsequent growing need for energy; the commitment to eliminate energy poverty currently experienced by approximately 1 billion people; a recent slowing in energy efficiency; and a lack of global consensus on how to collectively achieve net zero goals.

“We have a definite lack of leadership in this arena,” said Eirik Waerness, Equinor’s senior vice president and chief economist who is responsible for macroeconomics, energy and commodity market analysis, at the recent forum.

“Eighty percent of the world’s energy is fossil fuel,” he said. “We need to get out of that. We need everything we can think of and more.”

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Take a look at many of the major energy companies’ websites and you’re likely to see a “New Energies”-section with an outlined commitment for ultimately achieving “net zero” carbon emissions.

“As the world confronts an energy transformation, the global energy system is being reimagined and the role of oil and natural gas is not entirely clear,” explained Morgan Bazilian, professor and director of the Payne Institute for Public Policy at the Colorado School of Mines, which has helped lead the nation’s energy system for about 150 years.

The Payne Institute recently hosted a forum on the “Perspectives on the Future of Oil and Gas,” and welcomed executives from Equinor, Shell and BP to share scenarios of what the energy world might look like in 30 and 50 years as countries and companies strive to achieve net zero emissions.

“There is a lot of uncertainty in what the energy landscape will be,” Bazilian said. “It’s an important time to come to grips with this uncertainty as people are making business decisions about it every day.”

Shell, for example, has increased the number of employees in its New Energies sector from 60 to 800 in the past two years, said Wim Thomas, chief energy adviser for Shell. The hiring boom signifies “a very clear vision of where we want to go,” said Thomas, who is responsible for long-term global energy scenarios.

However, when looking at the world’s energy leaders, none have agreed on a clear path forward.

Challenges

For net zero to be achieved by the second half of this century, many obstacles must be addressed, including the most pressing: a growing population and subsequent growing need for energy; the commitment to eliminate energy poverty currently experienced by approximately 1 billion people; a recent slowing in energy efficiency; and a lack of global consensus on how to collectively achieve net zero goals.

“We have a definite lack of leadership in this arena,” said Eirik Waerness, Equinor’s senior vice president and chief economist who is responsible for macroeconomics, energy and commodity market analysis, at the recent forum.

“Eighty percent of the world’s energy is fossil fuel,” he said. “We need to get out of that. We need everything we can think of and more.”

Looking 30 years into the future, Waerness sees three scenarios for achieving the milestones of the Paris Agreement, yet explained that only one is likely realistic. Published by Equinor in 2019, the first assumes global, benign competition in the world for technology development and sharing. The second assumes worldwide rivalry, a lack of trading and trust, an increase in the use of coal and no drive for reducing carbon emissions. Equinor’s “Renewal” scenario, however, is a rapid, yet realistic transition, Waerness said.

In response to a November 2019 International Energy Agency report, which stated that in 2018 energy efficiency improvement was at its lowest rate since 2010, Waerness said the energy efficiency rate must be tripled.

Other changes in the Renewal scenario that, according to Equinor, must swiftly be made include:

  • A rapid change in carbon pricing and fuel efficiency standards
  • Massive subsidized investments in renewable electricity
  • More than half of cars being electric by 2030
  • An 80-percent reduction in coal demand, despite growing populations in India and China
  • A solid growth in biofuels and 80 percent more nuclear energy by 2050
  • Putting into operation 1 million tonnes of CO2 storage capacity every week to get to 1.5 billion tonnes by 2050

Yet if these changes are made, the world will still need as much oil in 2050 as it did in the 1970s – about 50 million barrels a day, Waerness said.

“This means massive investments in new oil supplies,” he said. “If we want sustainable development, it’s an enormous challenge. It’s possible, but things have to change and they have to change very rapidly. Whether we succeed or not, it is not determined in Baltimore or Berlin or Brussels, but in Beijing and Bangalore.”

Thomas agreed that the “Renewal” scenario is doable.

He recommends that countries stop outsourcing their manufacturing to developing countries with large populations.

“When we outsource manufacturing, we push increased levels of CO2 to China and India,” he said, adding that it is unfair to transfer emissions and then not want to help those countries fund the reduction of their carbon footprints. “China and India need to leapfrog ahead with technology to reduce CO2 emissions and develop wind and solar energy sources,” he said.

Shell’s ‘Sky’ Scenario

In the “Sky” scenario published by Shell in 2018, carbon emissions would be halved by 2050 and reach net zero by 2070. Among other technology fixes, reforestation the size of Brazil would need to take place worldwide.

North Americans must halve their energy consumption per capita by 2050. There must be accelerated growth in electrical consumption, with homes and cars far less dependent on fossil fuels in the next 2.5 decades, Thomas said. “But we need the supply before the demand can follow,” he added.

“The footprint of renewables is bigger than the fossil fuel industry, and that certainly becomes an issue,” he said. “The Netherlands already has enough windmills and yet would need 20 times more than they have today.”

More changes that would need to occur include:

  • Natural gas being replaced by biofuels
  • Additional carbon capture and sequestration projects
  • A global market consisting of solely electric cars by 2030
  • 95 percent of buildings converting to electric power
  • 40 to 50 percent of industry converting to electric power
  • 25 percent of heavy transport converting to electric power in a best-case scenario

Thomas stated that Shell doesn’t want to wait for globally agreed legislation to provide a framework for moving forward.

“We think it’s time that the industry take the lead,” he said.

Looming Uncertainty

As the energy transformation takes place, Michael Cohen, head of oil analysis and chief U.S. economist for BP, emphasized that natural gas will be needed during the transition.

“How do we provide more energy while reducing carbon? Renewables will increase, but natural gas will remain an important part of the mix,” he said.

“We are not on a sustainable path,” he said. “Last year we saw some of the strongest growth in energy and emissions than we’ve seen in several years. CO2 is continuing to rise.”

On its way to becoming the third most populous country, Nigeria uses 7 gigajoules of energy per head. Cohen compared that amount with 95 gigajoules per head in China and 287 gigajoules per head in the United States.

While 80 percent of the population consumes less than 100 gigajoules per head, this number needs to drop to 60 percent, Cohen said.

An October 2018 report issued by The Intergovernmental Panel on Climate Change asserted that net anthropogenic CO2 emissions must decline by about 45 to 50 percent from 2010 levels by 2030. Yet, to effectively achieve that, much of the abatement must come from power stations, industry and buildings, Cohen said.

He estimates that oil demand in 2040 will be 80 million barrels a day. “We still need investments in new oilfields,” he said.

While scenarios for the energy transformation can be useful guides, the uncertainty of how the world will progress is what looms.

Cohen left his audience with a foreboding question:

“All of these climate models bring with them a great amount of uncertainty. It’s really not clear what oil demand will look like,” he said. “If we need to be resilient in all outcomes in terms of what the world is going to look like, what is the danger that we might misallocate capital in the future, and how do we keep attracting capital when investors want pure exposure?”

The answer, undoubtedly, will be ever-unfolding.

Comments (7)

Discussions on how the petroleum industry addresses climate change should become routine
I greatly appreciate that the EXPLORER is presenting more discussions related to climate change, including this piece on how the petroleum industry should approach a low carbon future. Hopefully, there will be many more discussions not only of how the industry should lower greenhouse gas emissions but also how the industry’s personnel and infrastructure should adapt to the physical realities of a warming climate. In addition to articles in the EXPLORER, I hope the AAPG Bulletin and the journal of Environmental Geosciences become common outlets for technical papers that address the nitty-gritty aspects of how the industry moves to a low-carbon future while still helping to provide the world’s energy needs.
Show moreefdxuczdxr
2/14/2020 2:40:46 PM
The need for rebranding in order to adapt to the new century.
I strongly advocate for positive change in all petroleum-related societies, including AAPG. As Nick mentioned below, our membership is decreasing quickly, young members are becoming "rarer" to meet, and AAPG's budget keeps shrinking year after year, threatening the continuity of our education programs. The reason is not only a decrease in graduate recruitment worldwide but also a global shift against oil and gas, especially among young people. Do we want AAPG to be an old society with only grey-haired people that will ultimately close down due to lack of members, or we want it to be a progressive international society that truly represents the geoscientists worldwide and their challenges? The latter can only be achieved by a change in our bylaws. We should clearly and openly state that climate change is a fact and is threatening our global health and wellbeing. But we should also own the narrative by providing solutions. As an association, we have the collective responsibility to inform people scientifically and advise governments because we know better how the earth works and what are the challenges that we face. This should be primarily a discussion between members on the one hand and with the outside world on the other. We cannot accomplish this unless we rebrand our identity, restructure AAPG to decrease governance and costs, and start focusing more on communication. We should design more programs to help the 21st-century geoscientist and empower them, not shut them up. The list provided by Edith Newton Wilson is a great place to start. Once we rebrand our identify and start focusing on the geoscience challenges of the 21st century, then we will start to attract more members who would feel more aligned with our new scope of work and who would benefit from our new activities and narratives. I do not see a bright future of AAPG unless we adapt and become truly international, focusing on integrated energy solutions, with a core focus on subsurface science.
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2/14/2020 5:30:23 AM
Kudos for your open minds and thoughtful comments
Thank you, Mary, Meredith and Nick (and Jim!), for keeping us focused on the need for positive change. In a shameless plug for the EMD/DEG luncheon, and in direct connection to the contents of this article, may I offer that if you would like to have an open and science-based discussion of policy, Tuesday, June 9, at ACE in Houston will be the place to do so! Get your ticket to hear featured lunch speaker, Morgan Bazilian, as he addresses "The Coming Energy Transformation: Drivers, Consequences, and implications for geopolitics." You must be in the room to be part of the conversation!
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2/12/2020 12:11:21 PM
Recent AAPG Bulletin E&P note, James Rine
I recommend reading the recent Bulletin E&P note by James Rine, entitled: "How action on climate change could benefit United States natural gas producers, but not without federal mandates." His "inspiration" for writing this is "AAPG's lack of meaningful discussions on how the industry should address both the physical and political threats related to climate change." Reflecting on Nick's previous comment, AAPG and its officers must be the leaders on how to get out of the pitbull's mouth, so to speak. I think we are being shredded by (my perceived) crushing of discussion on climate change and what the AAPG members want to do. If the majority want to be chewed up, if that is what members want, then so be it. But let members know what is going on with that survey on our climate change statement and what the plan is.
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2/12/2020 10:56:23 AM
For everyone's consideration
If you're affiliated with the Association, did you participate in the AAPG climate survey? I did, and I would like to see the outcome of that effort. How would you feel about AAPG openly discussing an updated climate change statement? I think such statements should be evergreen and routinely discussed. If you're opposed to the idea of openly discussing an updated climate change statement, why are you opposed? Help me understand. Would you also be opposed to an updated climate change statement being published in the Explorer for the purpose of open debate? In my mind, submissions to any AAPG periodical should not be denied just because they may make someone uncomfortable. Science is often uncomfortable. Personal and professional bias should not trump sound data and methods. We are all tasked by the Code of Ethics to "endeavor to cooperate with others in the profession and [ . . .] encourage the ethical dissemination of geological knowledge." To me, this includes civil scientific discourse. Best, Meredith Faber, President-Elect DPA
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2/12/2020 10:50:37 AM
Does AAPG want a plan for a low-carbon future?
Does AAPG even wish to have a plan to promote a low-carbon future or just be dragged along by both world events and other technical groups such as the SPE (who is setting the bar in petroleum-related technical discussion and objectives)? I do not know that answer, but I suspect we are like the stuffed animal in the mouth of a pitbull, praying that there is something left when the pitbull tires of us and moves on because we are not relevant. regards, Mary Barrett, Immediate past-president, DEG
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2/12/2020 10:19:51 AM
Is AAPG planning for a low-carbon future?
As evident from the AAPG annual reports its membership dues are down 30% since 2013 and financial losses are amounting to $5.6 million since 2014. This clearly shows that business as usual is not delivering on either membership or revenue growth. The US Bureau of Labor Statistics shows that the number of geoscientists in oil & gas extraction is down by more than 40% since 2008. Hiring of recent graduates by the oil & gas sector is also at a decade low. According to the AGI Geoscience Workforce Program, the trend is projected to continue in the coming decade with the geoscience in oil & gas extraction expected to decline with an additional 9.4%. What is the Executive Committee doing to address this continued decline of AAPG? Where do they see the future for geoscientists? BP, Chevron, CNPC, ENI, Equinor, ExxonMobil, Oxy, Pemex, Petrobras, Repsol, Saudi Aramco, Shell and Total collectively account for 30% of global oil & gas production and invested $6.3 billion in low carbon technologies and R&D in 2017. Clearly they see the need for change and the business opportunity presented by the energy transition. How is AAPG preparing itself to tap into the same opportunities? Finally, AAPG's 1999 position statement stated that it did "not support the supposition of human-induced global climate change". AAPG revised its position in 2007, accepting human activity as at least one contributor to carbon dioxide increase, but stating its members are "divided on the degree of influence that anthropogenic CO2 has" on climate. As reported in the Explorer in 2018, the EC had again created an ad-hoc committee to review and update the AAPG climate change statement, coordinated by Dr. Edith Wilson, the current president of the EMD. To date no updated climate change statement has been produced by AAPG. It has also been half a year since the EC conducted a climate survey and we have yet to see any results. What is taking so long? Kind regards, Nick Lagrilliere AAPG Advisory Councilor
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2/12/2020 3:53:38 AM

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