Global oil industry gets a dose of reality

Society will no longer put up with dithering to move as far away from fossil fuels

As young climate activists, frightened for their futures, met with world leaders at the United Nations Climate Action Summit, oil and gas industry executives were conferring to grapple with the stark, existential choice their industry faces.

In some countries, like Britain and the US, natural gas together with renewables is displacing coal. But the oil and gas industry overall faces a tough road ahead. The global economy must reach net-zero emissions by 2050 at the latest. This is not a dream or an ideology. It is an imperative.

The consequences of not reaching that goal are so threatening to life on this planet that we cannot even contemplate the possibility of failure.

And yet oil and gas companies plan to spend $50 billion to extract new reserves of fossil fuels. That expenditure ignores the inevitable reality of the carbon-constrained future already underway.

The shelf life of these companies in their current form may be more than five years — but is certainly no more than 30. Roughly one third of global oil demand is estimated to come from cars, which we need to electrify within the next 10 to 15 years.

And natural gas, currently playing a major role in power generation, faces increasing competition from renewables, which have a predictable marginal cost: zero. They also have zero emissions and rising public demand for them, and will soon be buttressed by their own competitive battery storage capacity.

Markets have started their flight not only from coal, but also from oil and gas. Only one oil company, Exxon Mobil, is among the 10 most valuable global companies by market capitalisation. FTSE Russell recently reclassified oil and gas companies on the London Stock Exchange as “non-renewable”. This matters because investors use the FTSE classifications to determine whether to divest from certain polluter stocks. The giant Norwegian sovereign wealth fund recently agreed to dump an estimated $5.7 billion in oil and gas investments. The European Investment Bank — the world’s largest multilateral lender and the biggest provider of climate finance — has proposed ending the financing of fossil fuel infrastructure, including for gas, after 2020.

And a $20 billion Danish pension fund is removing the top 10 major oil companies from its portfolio because their long-term business models are incompatible with the Paris climate agreement.

Another threat to the oil and gas industry is the negative stigma that has made it unattractive as a career choice for many young people. Any industry depends on fresh thinking and new capacities, and oil and gas may find it increasingly difficult to attract or retain that vital asset. Unless the industry can reinvent itself quickly it may follow the path of electric utilities. They failed to appreciate the depth and speed of the energy transition; now they find themselves struggling.

The global climate strikes and the Climate Action Summit make this an auspicious moment for the oil and gas industry’s Climate Initiative to lead the transition of their industry. If it is to continue beyond 2050, it can no longer be an emitter of greenhouse gases or sell products that are.

The shelf life of these companies in their current form may be more than five years — but is certainly no more than 30. Roughly one third of global oil demand is estimated to come from cars, which we need to electrify within the next 10 to 15 years.

Commitment

In the short term, oil and gas companies must prove their commitment to net-zero emissions by 2050. To do so, they should eliminate methane emissions and withdraw from direct or indirect lobbying efforts against climate change regulation.

The industry must also stop building new capacity and instead finance substantial reforestation around the world. Planting billions of trees is one way to tackle the climate crisis. The world’s forestland can expand by nearly a third — an area roughly the size of the US — without affecting cities or agriculture.

At the same time, leadership by governments is critical. As the industry prepares itself for the low-carbon world by investing in clean innovation and retraining workforces, governments must set the long-term path.

Some governments already have concrete plans, but many more must do likewise. Those plans will need to ensure that the price of fossil fuels reflects their true cost for the planet and society, which means ending fossil fuel subsidies and taxing pollution. New training and educational programmes are also essential for workers as the industry transitions to a cleaner future.

We need to unite behind the science that tells us the world is warming dangerously from the burning of fossil fuels and put the carbon back where it belongs: in biomass and in the soil.