Executive viewpoint

Oil and gas (O&G) companies have possibly the greatest capability of any global actor to reduce global emissions over the next decade, yet they are rarely included when discussing climate solutions. Instead, they are treated as adversaries in this pursuit, creating massive inefficiencies that are compounding emissions.

There is greater agreement than ever before on the need to reduce carbon emissions, including within energy companies, but the risk is that everyone thinks a climate solution should be a silver bullet – one mutually exclusive solution that checks all the boxes. This is dangerous thinking when dealing with a complex, ever-changing world that can benefit immediately from multiple incremental solutions.

Avoiding wrong assumptions. Progress by experts in all emissions reduction avenues—renewables, batteries, cement and O&G, is required every single day to solve a problem of this scale. We’ve already seen this mutually exclusive thinking hurt progress on emissions historically. Decades of articles have been written on how nuclear energy wasn’t equipped to solve climate change, because it was “too slow.” As we look at the existing clean reactors 20 years later, countries are extending their lives, wishing in many instances that they had more. Everyone working on nuclear now should be commended, as it will certainly be needed. Let’s not make this same wrong assumption with O&G, assuming that certain types of improvement are less positive—the industry can reduce emissions tomorrow if included in today’s discussions.

Two massive emission reduction opportunities are available for everyone today. One, the O&G industry has the ability to immediately reduce global coal emissions by increasing natural gas production and transportation, to allow for economic substitution from coal globally. And two, the sector can further reduce emissions across its own supply chain in significant ways. This second one should be a given, to all who argue that the energy supply chain is a major cause of emissions. This can’t be argued without also agreeing that efficiency changes to that supply chain are some of the lowest-hanging fruits to substantially reduce emissions.

These incremental benefits cannot be discussed without recognizing the engineers that worked on fuel economy while being told it didn’t matter, because internal combustion engine (ICE) cars needed to be removed entirely, to be serious about climate change. Those engine efficiency benefits are very likely the largest emissions reduction we have achieved globally to date.

O&G demand to remain high. Despite the desire to reduce our reliance on conventional fossil fuels, global O&G demand will remain high for the foreseeable future, even increasing, as we transition to more renewable energy sources. Never has this been more evident than in the midst of this Covid-19 pandemic—even during a year of lockdowns, the world still consumed approximately 90 MMbopd. This level of demand, with few travelling or commuting, is a good example that oil is used in everything from surgery equipment to protective masks.

Not only is regular demand increasing in the near term, but fossil fuel products are likely required at increased levels to achieve the energy transition. The metals mining supply chain is estimated to represent between 10% and 15% of global oil demand. This will only increase as battery metals are mined for the global electric vehicle supply chain but not yet put into use. This past year has shown everyone the multi-year lag in even highly efficient supply chains. As long as this energy form is required on the demand side, it seems odd that the goal of providing it efficiently is a polarizing issue.

It is a disconnect to argue that the supply chain is one of the largest emissions offenders, but then not agree that small efficiency changes would, therefore, likely be some of the largest emissions benefits we can realize today. A great example of this inefficient thinking is blocking pipelines across North America, which results in increased trucking and rail, or worse for countries that then ship crude across the world to make up for any shortfall.

The U.S. gas example. In the U.S., shale gas has provided a clean-burning alternative to coal faster than activists could have imagined. Declining production costs and an ability to provide consistent baseload power have perfectly positioned natural gas for victory. Now, coal plants in the U.S. are voluntarily retiring ahead of schedule, due to competition from natural gas. In fact, coal generation is declining faster in the United States than in the European Union.

This same playbook could, and needs to be, applied globally. Asia’s cold winters, open household windows (geared at reducing Covid spread) and cryptocurrency mining have all contributed to increased energy demand. This led to record LNG prices this winter, and Asia continues to turn to coal to plug this gap economically—more new coal plants were permitted in Asia in the last year than currently exist in all of Europe. To combat this regrettable trend, the industry should increase natural gas production to ensure it remains affordable and capable of competing with coal in a dynamic global market.

Environmental activists, political leaders, and influential industry players committed to reducing global emissions should be commended for their honest efforts to positively impact the environment for future generations. Changes are being made, and impacts are being seen—not from one magic bullet or from one industry, but from a combination of approaches and a multitude of players. O&G companies have the ability and desire to make a powerful, positive impact on emissions, and they should join the discussion. As a note, I work every day in making oil and gas more efficient. This is both disclosure and a transparent commitment that is important.