One of the more provocative but less publicized initiatives introduced at the recent United Nations Climate Change Conference in Glasgow was an international effort to end oil and gas exploration and production.
The Beyond Oil and Gas Alliance, created by Denmark and Costa Rica, officially launched its program at COP26 in November with a statement timed to coincide with the climate meeting.
“BOGA is a first-of-its-kind alliance of governments determined to set an end date for their oil and gas exploration and extraction and curtail new licensing or undertake other significant measures that contribute to the joint goal of aligning oil and gas production with the objectives of the Paris Agreement,” the alliance stated.
Other full participants in the alliance, called “core members,” are France, Greenland, Ireland, Quebec, Sweden and Wales. Those members “are committing to end new concessions, licensing or leasing rounds and to set a Paris-aligned date for ending oil and gas production,” BOGA stated.
Listed as “associate members” were New Zealand, Portugal and California. BOGA described its associate members as having “taken significant concrete steps that contribute to the reduction of oil and gas production, for example subsidy reform or an end to international public financial support for oil and gas exploration and production abroad.”
Andrea Meza, Costa Rica’s minister of environment and energy, said, “The Beyond Oil and Gas Alliance raises the bar from climate action. If we want to address the climate crisis, we need a managed but decisive phase-out of oil and gas production. I am delighted that new members are joining forces with Costa Rica and Denmark to set a date for the end of fossil fuel production.”
An ‘Outside-In’ Perspective
BOGA’s announcement met with skepticism about its potential effect on world oil and gas output. Doubters noted that most of the alliance’s members currently produce little or no crude oil and natural gas.
Bloomberg News reported, “Current signatories to the alliance represent a negligible proportion of global fossil-fuel stocks. That’s raised questions about BOGA’s clout and of how likely it is to get major producers on board.”
An exception is Denmark, which produced more than 100,000 barrels of crude oil per day in 2019 and has been the European Union’s largest producer. Denmark has since banned new North Sea oil and gas exploration and committed to ending existing production by 2050. California, an associate BOGA member, also has significant crude output, recently producing more than 350,000 barrels per day.
While BOGA membership might be limited in both scope and overall production levels, many energy companies around the world are now “signing on to these global (climate action) pledges,” noted Jim Crompton, professor of practice in petroleum engineering at the Colorado School of Mines.
“That’s where the rubber meets the road. Will the companies be able to do what the politicians are proposing?” he said.
Crompton, who holds both a master’s degree in geophysics and an MBA, had a more than 40-year career in the energy industry, including almost 37 years with Chevron. His specialty area is data and the information value chain.
Competing Market Signals
He observed that much reaction to oil and gas production today reflects an outside-in approach, with people outside the energy industry – some with very little energy knowledge – making judgments about the industry.
The BOGA group “does represent an outside-in view of what the problem is. There’s a lot of outside-in criticism, or setting policies, today,” he said.
Traditionally, oil and gas prices have been the major market signal telling the energy industry what to do, when to produce more or produce less, explained Crompton. But today, “you have a new voice coming into the market equation, which is this environmental voice that says we have to pay attention to global warming,” he observed
“For once, the price signal, which has always been the biggest signal, is now not the only signal they’re listening to,” he said.
One result has been an imbalance in matching energy supply with demand. Crompton said recent supply shortages around the world have been described as the first energy crisis of the energy transition.
“You hear it all over the place. The rising price of natural gas, particularly in Europe. The shortage of coal in China and India,” he noted. “All of a sudden the switch has flipped from off to on. The economy has recovered, demand has recovered, but supply hasn’t recovered as much.”
“Demand is not yet modified while supply has a lot of extra burden placed on it. You have the market responses of a scarce supply, and the supply isn’t scarce because the resources aren’t there,” Crompton said.
“Now you have an extra factor, when they come in and say, ‘We don’t want you to produce everything you’re capable of producing.’ You’ve got this other factor coming in a little heavy-handed now,” he added.
Recent events show that suppressing or putting obstacles in the way of energy production without moderating demand can lead to sharply higher prices, shortages and market disruption. But it’s easier for politicians to go after energy producers than energy consumers, Compton noted.
“It’s really hard for politicians to say to consumers, the voters, ‘Clamp down your demands,’” he said.
Energy supply transitions have taken place again and again throughout history, he observed, and those transitions have typically taken many decades. Now, “the politicians are saying, ‘Let’s do this in 10 years.’ And we’ve never done it that fast before.”
Subsidies and Supply-Side Climate Action
Maintaining sufficient supply to meet energy demand is relevant to BOGA because the alliance describes itself as supply-side oriented.
“To date, the issue of phasing out oil and gas production – that is the supply-side of the equation – has not received sufficient attention in the global climate discussions. BOGA seeks to change this,” the Alliance’s website reads.
In addressing supply and demand in energy and climate action, “for society overall, there has to be some kind of balance. Hopefully, we are moving in that direction,” said David Dismukes, professor in the Department of Environmental Sciences at Louisiana State University and executive director and director of policy analysis at the LSU Center for Energy Studies.
“The real key in the balance is cost efficiency,” he said.
Dismukes described a three-step approach toward modifying energy demand, using energy-efficient appliances as an example.
“First is setting up systems and incentives to encourage consumers to make the right choices,” he said. “The second thing is standards. You can just go in and increase standards every year.”
“The third one is just technology,” he added, because “technology keeps improving.”
Climate activists have suggested changing economic subsidies to affect energy supply, calling for reduced oil industry subsidies and increased renewable energy subsidies, but subsidies are often inefficient, according to Dismukes.
“That’s kind of the paradox of a lot of these programs. They don’t have any apparent economic benefits,” he said.
“How do we spend those dollars? We’ve spent billions of dollars subsidizing nuclear energy. Do we have any nuclear plants to show for that?” he asked.
And in regard to subsidized wind farms and solar installations, “in many instances, those stand on their own. Why are we paying a higher subsidy today than we were a decade ago?” he said.
Two major reasons for government energy subsidies are to maximize domestic energy production and to make energy more affordable for low-income citizens. That can make subsidies difficult to dislodge.
It’s hard to imagine a country wanting to reduce energy production or to make energy more expensive for its poorest citizens, although “that’s what they’re doing with the (Biden administration) infrastructure bill and ‘Build Back Better.’ They’re including things in there that are going to raise up energy prices, and they’re going to be regressive,” Dismukes said.
Crompton said the energy industry today “is being whipsawed.” As an example, he cited recent investor demands that U.S. unconventional energy producers demonstrate provable and sustainable profitability, “so they have taken on the mantle of fiscal discipline and not production growth.”
As the world moves toward a different energy mix and rebalances energy demand and supply, “it may take years and a lot of trial and error for the market to work out,” he said.
“What this boils down to is making a guess on winners and losers,” Dismukes noted. “Sometimes you bet on the right horse, and sometimes you don’t.”
Economics and Engineering
Crompton said the first round of discussions around global warming and the energy transition involved climate scientists and climate activists, while the second round now primarily involves politicians.
Is climate action actually more of an engineering problem?
Yes, Crompton answered, and also an economic problem.
“To really make this happen, to meet the goals, in my view, there has to be a much bigger role for engineers and economists,” he said. “To date, the engineers haven’t been asked.”