Oil and Gas companies must strive to eliminate downtime
As the third decade of the twenty-first century begins, the oil and gas industry faces resistance from a public concerned about fossil fuels’ environmental effects, increasingly skeptical shareholders, and policymakers attempting to meet both decarbonization targets and anticipated oil and gas demand. Oil and gas companies’ demand, economic, and social futures are increasingly in jeopardy as a result of a global energy transition. Despite these challenges, oil and gas remain an important part of the energy mix, especially in developing countries.
Despite these challenges, oil and gas remain an important part of the energy mix, especially in developing countries. Even as demand levels decline from current levels, the International Energy Agency’s Sustainable Development Scenario (SDS) and the Shell Sky Scenario—both aggressive
decarbonization forecasts—show that oil and gas will continue to play a long-term position. Natural gas, in particular, has the ability to remain an integral component of the low-carbon energy transition for decades in the United States, India, and China—the three largest greenhouse gas emitters—depending on the policy frameworks and technologies in place.
The oil and gas industry’s challenge is to not only engage with and adapt to an evolving policy and investment environment but also to change in ways that not only endorse but also contribute to and possibly lead efforts to decarbonize the energy system. Carbon pricing and the European Union’s Emission Trading Scheme are two examples of policies that are gradually shifting away from policies that have favored oil and gas production and toward policies that are beginning to disincentivize fossil fuels.
Many policymakers are promoting the use of alternative technology and fuels, especially renewable energy, in addition to disincentives. The organization of circular economies, in which products are reused or recycled rather than discarded at the end of their service life, is a third way of reducing carbon usage. Investors are also becoming a strategic driver of decarbonization action, as they become more aware of the hydrocarbon demand horizon and turn their emphasis to the environmental effects of oil and gas development through ESG-focused investing. As the potential energy mix takes shape, stranded asset risk is a major concern for investors. Oil and gas companies are responding by rethinking their
business models in a decarbonizing world and looking at where and how they do business. When it comes to interacting with decarbonization efforts in ways that enable them to participate in the decarbonizing economy, these businesses have a variety of resources at their disposal. Oil and gas companies should promote coal-to-gas switching and invest in infrastructure that enables electrification to meet end-user demand and support lower GHG upstream operations in areas where energy demand is rapidly increasing.
Companies may also use renewables and emerging technologies not only to hedge against demand risk or to decarbonize their production but also to exploit their supply chain and business development expertise to help low-carbon energy deployment in the overall energy transition. What oil and gas companies want to participate in the low-carbon energy transition will have an impact on how they are perceived.