IEA (2023), The Oil and Gas Industry in Net Zero Transitions, IEA, Paris https://www.iea.org/reports/the-oil-and-gas-industry-in-net-zero-transitions, Licence: CC BY 4.0
Oil and gas in net zero transitions
Summary
- Around 97 mb/d of oil and 4 150 bcm of natural gas were consumed globally in 2022. This resulted in just over 18 Gt CO2 emissions, around half of total energy-related CO2 emissions. Recent momentum in deploying clean energy technologies means that oil and gas demand peak before 2030 in the Stated Policies Scenario (STEPS), but the declines after these peaks are not steep enough to achieve the world’s climate goals.
- Net zero transitions require a huge acceleration in clean energy technology deployment and faster reductions in oil and gas use. In the Announced Pledges Scenario (APS), oil and gas demand decline by around 2% each year on average to 2050 (to 55 mb/d and 2 400 bcm) and in the Net Zero Emissions by 2050 (NZE) Scenario they fall by more than 5% each year on average to 2050 (to 24 mb/d and 920 bcm).
- Attention on the oil and gas industry often focuses on the large international oil and gas companies (the “majors”), but they own less than 13% of global oil and gas production and reserves. By comparison, national oil companies own more than half of production and close to 60% of reserves.
- Major challenges lie ahead for midstream infrastructure in net zero transitions. The refining sector reduces its output of traditional products like gasoline and diesel, and focuses more on petrochemical feedstocks and products like asphalt and bitumen. Global liquefied natural gas (LNG) trade sees strong near-term growth, but trade peaks in the APS before 2035 and the utilisation of export terminals drops; in the NZE Scenario, demand for LNG can be met in aggregate by plants already in operation.
- In the APS and NZE Scenario, investment in existing oil and gas assets continues, but with very different outcomes for new project development. In the APS, new oil and gas projects are needed, although in aggregate there would be no need for further oil and gas exploration. In the NZE Scenario, falling demand means that no new long lead time conventional oil and gas projects are approved for development and, after 2030, a number of projects are closed before they reach the end of their technical lifetime.
- Many producers have set out why they think their resources should be preferred for development in net zero transitions. Some say that they have the lowest production costs or emission intensities; others claim that they are a better option for energy security; and some indicate that new oil and gas developments are needed to improve welfare. In the demand environment of the NZE Scenario, any new oil and gas resource developments would need to be matched by production reductions elsewhere to avoid oversupply and fossil fuel lock‑in.
- Both over- and underinvestment in fossil fuels carry risks for secure and affordable transitions. Sequencing the decline in oil and gas investment and the increase in clean energy investment is vital to avoid damaging price spikes or supply gluts. At present, risks appear to be weighted more towards overinvestment than the opposite.