Global oil producers are facing a complicated paradox on the path to a low-carbon energy future—how to provide the energy needed to meet forecast demand growth while striving for net-zero emissions over the same period.
Demand for energy is expected to grow by 20% by 2040 by some estimations, yet the net-zero carbon emissions deadline adopted by many from the Paris Agreement looms just a decade later.
“How are we going to do that?” asked Richard Lynch, senior vice president for technology at Hess at the SPE/AAPG/SEG Unconventional Resources Technology Conference (URTeC) in Houston this week. “That’s a huge question. Despite all the noise that we’re hearing about the end of oil and gas, oil demand is resilient and as a fuel source it is incredible, remaining a significant part of the energy mix for many decades to come. Unconventionals, whether it's tight oil and gas, anything from the shale plays, will be a significant source of meeting future energy demand and it’s going to warrant ongoing and significant investment. Technology and innovation are absolutely required to unlock the energy supply the world needs, but we are also required to do so in a sustainable way, and that’s going to take some breakthroughs that we don’t understand today.”
Around 2015, when things were heating up in the US shale plays, unconventionals were responsible for about 4.9 million BOE/D. By 2040, to meet anticipated demand, that number is expected to climb to 10.4 million BOE/D—more than doubling the supply from unconventionals alone.
“We will need sustained investment in tight oil over the next 2 decades to meet the demand and arrest the decline that we all experience every day in this world,” said Lynch. “We need economic, energy, and climate literacy and that’s by all stakeholders in the system.”
ConocoPhillips describes its path through the energy transition as the "triple mandate" that starts first with the recognition of the realization that hydrocarbons are here to stay.
The second piece is having the knowledge that it must meet demand, generate competitive returns, and return that capital to its shareholders.
“Last is, of course, we must take full accountability for the emissions that are related to our operations,” explained Kirk Johnson, senior vice president for Lower 48 and operations for ConocoPhillips. “And certainly, as the first US-based E&P to declare an ambition to be Paris-aligned and be net zero by 2050. We take full accountability for that and over the last 2 to 3 years we’ve radically intensified our focus on emission reductions. In doing so, just last year we increased our own targets to improve our emissions by 2030. Not just 35 to 45%, but we upped them to 40 to 50%, and we did that not only on our gross operating emissions, but we did that on our net-equity emissions.”
Predicted population growth over the next 2 decades will also challenge oil and gas companies’ emissions targets. With the number of people on the planet expected to grow by 20% by 2040, fresh demand from developing countries will stress planned emissions goals.
“Eighty percent of the world's population has never been on an airplane one time in their life,” said Ryder Booth, vice president, North American exploration and production, Mid-Continent business unit for Chevron. “In the US, for every 1,000 people, there’s 850 cars. In China, there's 225 to 250 cars for every 1,000 people. In India, there's 19. In Bangladesh, there’s four.”
Booth added, citing the UN, that 800 million people in the world today do not have access to any electricity, 2.6 billion individuals use wood chips, animal dung, or coal as a primary source of cooking fuels.
“No primary source of fuel has ever since systematically decreased over time,” said Booth. “We use more wood chips as fuel today than ever in human history. We use more coal in 2021 than ever in human history. You can take those facts and generate your own belief of where the world's heading from an energy mix [standpoint]. The need for oil and gas and low-carbon oil and gas has to be part of that story going forward.”
Booth added that low-carbon barrels should be incentivized by regulators because these are the barrels that should enter the market first. The higher-carbon sources should be held back until technological advances are made to turn those into low-carbon barrels.
There are several headwinds facing the energy transition that industry will need to overcome to achieve its emissions goals for the future. Today, those include unrest resulting from the Russian invasion of the Ukraine, unfavorable domestic oil and gas policies being forwarded by the current US administration, supply chain discomfort complicated by the global pandemic, and inflationary factors challenging pricing structures around the world.
“Expect a lot of volatility,” said Mark Berg, executive vice president, corporate operations for Pioneer Natural Resources. “Expect the unexpected. But the main thing that we should consider is always continuing to maintain our financial strength, competitiveness when it comes to attracting capital to our industry, and importantly, continuing to advance the technical capabilities of this industry.”
