"I ask you to adopt a different way of thinking and be flexible." "We need to find a common ground" and take "a path that is wide enough for everyone," "an unconventional path." "What is needed now is pragmatism." And lastly, should the idea not be made clear enough, "We must look for ways and ensure the inclusion of the role of fossil fuels".
There is little that is deemed subliminal about the messages with which Sultan al-Jaber, president of COP28, spiced up his opening speech at the UN Climate Conference on the 30th of November. The UAE's Minister of Industry as well as CEO of the Abu Dhabi National Oil Company, as expected, can only play the devil's advocate and stand up for the Oil & Gas industry.
Then again, if the 28th Conference of the Parties has already delivered some surprises with the establishment yesterday, on November 30, of the Loss&Damage Fund, it is not necessarily the case that it will not also eventually disprove the catastrophic expectations regarding the phase-out from fossil fuels. Indeed, the "Oilers' COP," as it has been dubbed for months now, marks a real moment of truth for the oil and gas industry: if governments, as is to be hoped, keep their pledges on the energy transition, global demand for fossil fuels will see a drastic decline from 2030 onward, severely undermining the economies of the countries that depend on them.
It is what transpires from two reports released in the past days: the IEA's The Oil and Gas Industry in Net Zero Transitions special report, published about a week ago, and the Carbon Tracker think-tank's Petrostates of Decline study, of the 1st of December.
The fall of fossil fuels
“The oil and gas industry is facing a moment of truth at COP28 in Dubai. With the world suffering the impacts of a worsening climate crisis, continuing with business as usual is neither socially nor environmentally responsible. Oil and gas producers around the world need to make profound decisions about their future place in the global energy sector." More than a plea, the words that Fatih Birol, Executive Director of the International Energy Agency (IEA), chose to introduce the special report The Oil and Gas Industry in Net Zero Transitions, sound like a harsh warning.
In more than 200 pages of data and context, IEA scientists outline likely (and desirable) scenarios up to 2050 for fossil fuel energy production and consumption, taking stock of the (very poor) state of the green transition in the Oil&Gas sector. The document echoes a similar study published in January 2020. Since then, although just under four years have passed, much has changed: the pandemic and the global energy crisis linked to the conflict in Ukraine have driven investment in renewables, now up 40%, according to the IEA. According to forecasts based on current scenarios, this means that the fossil peak could occur before 2030. A completely unprecedented estimate that, Birol notes, if it does not guarantee a drastic drop in demand soon after the peak, should, nevertheless, alarm producers and economies of the so-called petrostates.
"The uncomfortable truth with which the industry must deal," writes the IEA Director, "is that transitions to clean energy generate much lower demand for oil and gas, which means scaling back oil and gas activities, not expanding them. There is no way around this."
If governments, states the report, fully maintained their current national energy and climate commitments, fossil demand would fall by 45% by 2050. Whereas if efforts were greater, meaning that if states pursued the net-zero goal to 2050, as would be necessary to limit global warming to 1.5° C, oil and gas consumption would decrease by as much as 75%.
The vulnerability of petrostates
As to what the decline in demand for fossil fuels will mean for economies that depend almost entirely on oil and gas revenues is clearly explained in the report Petrostates of Decline, published by the think-tank Carbon Tracker.
The report was disclosed on Friday the 1st of December, on the second day of the COP28 proceedings, and focuses on analyzing the economies of 40 countries, the so-called petrostates, which by 2040 could see Oil&Gas revenues shrink by almost half compared to expectations. Overall, there is mention of a reduction in revenues from the projected $17 trillion to $9 trillion. In the eye of the storm would be 28 states, which would lose more than half of their projected revenues, including the United Arab Emirates itself, which hosts the COP.
The Carbon Tracker report is largely based on IEA forecasts, noting, however, how OPEC (the Organization of the Petroleum Exporting Countries) holds a different view, forecasting a growth in oil demand to 116 million barrels per day by 2045. An opposite narrative supporting, unfortunately, ongoing investments in the oil industry. To give one example, ADNOC, the UAE state oil company of which al-Jaber is the CEO, which is already the world's tenth largest oil and gas producer, is planning to further and "enormously" increase production. "A folly that jeopardizes the future of humanity," commented UN analysts. Yet, according to Carbon Tracker's projections, madness also on a purely economic level.
Rather than making new predictions, the think-tank's analysis focuses on the vulnerability of countries overly dependent on oil and gas revenues, which in the 2030-2040 decade, under a "moderate" transition scenario (with a 1.8°C goal), could find themselves in serious trouble. Most of these are countries in Africa and Latin America where there is often also an unstable political situation, making this bad news from a geopolitical perspective.
The United Arab Emirates, which, the report says, "relies on oil and gas for 40% of government revenues, even though production revenues could be 60% lower than projected," is among those most at risk. Saudi Arabia, the world's largest oil exporter, is also in a similar situation. Then there are "as many as six African states that see more than 60% of their total budget at risk: Nigeria, home to 215 million people, Angola, Chad, Congo, Equatorial Guinea, and Gabon." Lastly, the troubled Venezuela is one of the countries at greatest risk: here, "public finances depend entirely on oil and gas revenues and these could be more than 80% lower than projected."
Oil&Gas, it's time to choose sides
To flee the foretold crisis, oilmen and petrostates have no choice but to take the energy transition seriously and start changing direction. Carbon Tracker analysts suggest that countries as a first thing should diversify their economies and invest in new sectors, which is quite obvious to those whose eyes are not coated with oil.
The whole oil and gas industry, both public and private, is addressed in the IEA's appeal/reprimand, which stresses that an industry that currently provides more than half of the global energy supply and employs nearly 12 million workers worldwide has so far been, "at best" a marginal force in the energy transition. "Oil and gas companies," states the report, "now account for only 1% of clean energy investments globally, and 60% of these come from just four companies" (i.e. Equinor, TotalEnergies, Shell, and BP).
Investments which are highly publicized by marketing, but shamefully small when you consider that compared to the $800 billion currently invested annually in Oil&Gas, the industry invests only $20 billion, or 2.5%, in renewable energy.
And even what is currently, for many Oil&Gas companies, the cornerstone of their sustainability and emission reduction strategies, namely carbon capture, needs to be decidedly downsized in its role. Fatih Birol is quite blunt about this: “It is necessary,” he says, “to abandon the illusion that capturing unrealistic amounts of carbon can be the solution." The IEA has done the math: "Limiting the temperature increase to 1.5 °C would require capturing 32 billion tons of carbon by 2050, a completely inconceivable figure" since "the amount of electricity needed to power these technologies would be greater than the current global electricity demand."
Having closed this loophole as well, there remains only one sensible solution: to truly start investing in renewables. Perhaps taking advantage of certain technological advantages that the Oil & Gas industry could indeed possess. According to the IEA report the sector is already "well-positioned to enhance some crucial technologies for transitions towards clean energy." In the scenario of a completely decarbonized energy system by 2050, approximately 30% of the energy, according to the IEA, will come from technologies that could be developed thanks to the skills and resources of the Oil & Gas industry, like hydrogen, offshore wind energy, and liquid biofuels.
In short, for the world of Oil&Gas, the time has come to choose which side to be on, and it would be better, even for a mere matter of self-interest, if the choice fell on the right side of history.
This article is also available in Italian / Questo articolo è disponibile anche in italiano