Oil majors are at the sharp end of the climate debate and face a bewildering balancing act to secure their futures.
It’s a Catch-22 situation: to meet ambitious emissions targets by investing in low-carbon technologies, they will have to rely on revenue from expanding their businesses in oil and gas, for which there is still growing global demand.
On one hand, they must satisfy the big investors who are rewarding companies with progressive climate policies and dumping heavy polluters; yet on the other, they can’t risk cutting the generous dividends that keep shareholders sweet.
How energy companies navigate this maze could determine the winners and losers in a lower-carbon future, and help govern whether the world can rein in warming. So no pressure, then.
The confusion has been thrown into stark relief this week at the World Economic Forum in the Swiss ski resort of Davos, where oil majors, state oil giants and ministers have been debating behind closed doors in their biggest gathering of the year.
While climate activists, notably Greta Thunberg, have called for all fossil fuel production to be halted to avert catastrophe, U.S President Donald Trump has decried “prophets of doom” and hailed the economic importance of oil and gas.
“It feels like we are at the epicentre of this debate. We sit right there between energy needs and climate change,” said Al Cook, executive vice-president of Norway’s energy giant Equinor.
“If you listen to Davos speeches, you’ve got some people who say only economic growth and energy matter. Others ask to stop oil and gas immediately. We need to find a way to balance this but the challenge is that you cannot always be popular with either side,” Cook told Reuters.
CLEAN ENERGY: FRACTION OF CAPEX
Repsol is at the vanguard of an industry climate drive, announcing this year that it plans to become carbon neutral by 2050. As a result, Norway’s wealth fund has doubled its stake in the Spanish energy firm.
Equinor has meanwhile launched a target to reduce emissions to near zero in Norwegian offshore production by 2050, and is co-investing in a $10 billion wind farm in Britain, the world’s largest.
French oil major Total this year announced investments into one of the world’s largest solar power plants, in Qatar. It also plans to open 20,000 power charging points in the Netherlands and invest in planting millions of trees in Peru.
Europe’s top oil firms have all set carbon reduction goals of various breadth. Shell has set out an “ambition” to halve “Scope 3” emissions by 2050 from fuels and products sold to customers rather than from its own operations.
Reuters reported this week that BP is also looking to significantly broaden its targets.
Companies might tout green credentials to satisfy sustainable investors and activists, but how can they pay the bill?
Fatih Birol the head of the International Energy Agency, the energy watchdog for industrialised nations, said the reality was that industry investments in clean energy represented a small fraction of their spending.
“Last year only 1% of total capex went into clean technologies. But those investments will grow as companies have to balance their short-term profit goals with long-term social licence,” he said.
“Some companies won’t need to borrow more, some companies may need to borrow more, but no company will stay unaffected by the energy transition.”
He said the industry would focus in coming years on reducing methane emissions from their own operations, which constitute 15% of all global greenhouse emissions.
“This part can be done relatively inexpensively,” he added. “The more expensive part will include carbon capture and storage, offshore wind and increased use of hydrogen.”
THE TRUMP EFFECT
Another major challenge to climate action is a lack of a global consensus.
In the United States, where Trump is encouraging oil and gas production and has exited the Paris climate deal, oil majors lag their European rivals on emissions goals. Chevron has set limited reduction targets while ExxonMobil has no targets.
A U.S. energy boom has helped make the country one of the world’s biggest gas flarers.
“No-one has been able to fill the previous political leadership role on climate change that was played by the U.S. in the past,” said Majid Jafar, chief executive of UAE-based Crescent Petroleum.
Jafar argues that if the world replaced all coal with gas, it would achieve the Paris climate target of by keeping global warming to well below 2 degrees Celsius. The problem is that the biggest coal consumers, China and India, will not be able to do that for years if not decades, he said.
“The efforts of the West will be futile without bringing on board Asia and Africa, which are driving the growth in energy demand and emissions,” he added.
Richard Herrington, head of earth sciences at London’s National History Museum also said a speedy energy transition may simply be impossible.
“If the UK were to turn tomorrow all of its cars into electric ones, we would need twice the world annual cobalt and half of annual copper production,” he said. “You can imagine what happens if you scale it up to the whole world.”
Source: Reuters (Reporting by Dmitry Zhdannikov; Editing by Pravin Char)
LONDON – There is no doubt that by the year 2100, the world will enjoy abundant cheap zero-carbon energy. Coal will be confined to museums, and oil and gas use will be dramatically reduced. Technological progress makes that inevitable, even if unassisted by government policy. But to prevent potentially catastrophic climate change, a zero-carbon global economy must be achieved by mid-century. That, too, is possible, but only with strategic vision and strong policy support.
Electricity will dominate the future global energy system. Currently, it accounts for only 20% of final energy demand, with direct fossil-fuel use still dominant in transport, heating, and heavy industry. But most economic activities can be powered by electricity, and many will be far more efficient once electrified.
For example, internal-combustion engines typically turn 60-80% of all the energy they use into wasted heat, and only 20-40% into kinetic energy to drive the vehicle. Electric engines, by contrast, are over 90% efficient. Moreover, they are so much simpler to produce that within five years the cost savings on engines will offset the cost of batteries, making electric vehicles cheaper than diesel or gasoline cars. Similarly, electric heat pumps can deliver more than three kilowatt-hours of residential heating for only one kilowatt of energy input; no gas boiler could deliver more than 0.9 kWh for the same input.
Although battery-powered electric engines will play a growing role in short-distance aviation and shipping, batteries will be too heavy to power long-distance flights or intercontinental shipping for several decades yet. But ship engines could burn ammonia rather than fuel oil – and ammonia can be a zero-carbon fuel if it is made from hydrogen produced by electrolyzing water, using electricity generated from renewable sources. In addition, synthetic jet fuel can be made from hydrogen and carbon dioxide extracted from the air. Hydrogen, whether used as a fuel or a key chemical input, will also play a major role in the decarbonization of heavy industrial sectors such as steel and chemicals.
Without assuming any fundamental technological breakthroughs, we could certainly build by 2050 a global economy in which electricity met 65-70% of final energy demand, and hydrogen, ammonia, or synthetic fuel met a further 12-15%. Bioenergy and fossil fuels would then need to meet only about 20% of total energy use – and applying carbon capture to this greatly reduced fossil-fuel use could then ensure a truly zero-carbon economy.
Moreover, such widespread electrification would deliver huge environmental benefits, eliminating the pollution, noise, and unwanted or wasted heat inevitably produced by burning fossil fuels in vehicles, gas boilers, and industrial processes.
Building this economy will require an annual global electricity supply of about 90,000 terawatt-hours, compared to 23,000 TWh today; all of that must be generated in a zero-carbon way. But this goal, too, is undoubtedly attainable. Every day, the sun radiates to earth enough energy to cover humans’ daily energy needs 8,000 times, and we could provide 90,000 TWh of solar electricity using less than 1.5% of Earth’s land surface (or less than 0.5% if its water surface could be used as well). Solar-energy costs have fallen by 85% in the last ten years, and in many locations solar power is already cheaper than coal; by mid-century, it will be cheaper still.
Wind-power costs also have declined fast, and nuclear fusion may be a commercially viable technology within two decades. Battery costs have fallen by more than 80% since 2010 and will likely more than halve again by 2030, while a recent report suggests that electrolysis costs will now most probably “plummet.” Furthermore, a wide array of other energy-storage and demand-management technologies promises to answer the key question for renewable power systems: what to do when the sun doesn’t shine and the wind doesn’t blow.
These developments make it inevitable that by 2100 the world will have an ample supply of cheap and totally clean energy. But it is not inevitable that we will avoid catastrophic climate change. Fossil-fuel use is still increasing, and global warming is currently on track to reach 3°C above pre-industrial levels by 2100, dramatically overshooting the target of well below 2°C set by the Paris climate agreement. And although solar and wind costs have plunged, we need to increase capacity at 3-4 times the current rate to have a feasible chance of producing 90,000 TWh of clean electricity by 2050.
The macroeconomic cost of such an effort is not at all daunting: the total incremental investment required to build a zero-carbon economy by 2050 amounts to about 1-1.5% of global GDP per year. But the required acceleration will not occur without forceful government policies.
Such policies must start by recognizing that massive clean electrification, plus large-scale hydrogen use, is the only route to zero-carbon prosperity. Governments should set challenging targets for increasing renewable (and in some cases nuclear) power capacity, while using auctions to secure private-sector delivery at the lowest possible cost. Road-transport strategies must aim to completely eliminate internal-combustion engines from our roads by 2050 at the very latest: this will require bans on the sale of new internal-combustion vehicles far sooner. In addition, carbon pricing is essential to make industrial decarbonization economic. Finally, governments must support new technologies with initial deployment subsidies of the sort that have helped to reduce rapidly the costs of solar photovoltaic technology, wind turbines, and batteries.
With such policies, the world could build a zero-carbon economy fast enough to limit climate change to a manageable extent. But without the right measures, a zero-carbon economy will come much too late.