Montage of a Shell worker and a BPoil tanker
Shell and BP are among only nine of the biggest oil producers to have committed to addressing Scope 3 emissions, according to Carbon Tracker © Andrey Rudakov/Bloomberg; Miguel Perfectti/Alamy

In the years following the Paris climate agreement in 2015, some of the world’s largest oil and gas producers made commitments to cut their emissions as political and corporate leaders rallied around new efforts to slow global warming.

Eight years later, as politicians and executives prepare to meet in Dubai, the commitments remain in place — but the role of the hydrocarbons industry in the world’s shift towards clean energy has become more contested.

While the biggest oil and gas companies, particularly in Europe, are investing in greener products such as biofuels and renewables to lower their emissions, the energy crisis sparked by resurgent demand and Russia’s invasion of Ukraine has been used by some leaders to justify continued investment in fossil fuel production.

“Progress on emissions has stalled,” says Mike Coffin, a former BP geologist who is now head of oil, gas and mining at Carbon Tracker, a think-tank. “We’ve seen incremental progress from some people and some new net zero goals,” following on from initial targets, he notes, but very few commitments to cut production. “Decarbonising oil and gas producers basically means planning for production decline,” he argues.

An alternative view is that the perceived slowdown in progress is just a necessary recalibration in the move from the heady optimism of target setting to the reality of execution.

“It’s only really when you get into doing something that you understand the challenges,” says Joanne Salih, a partner in the energy and natural resources division at consultancy Oliver Wyman. “This is not a case of committing less, or stopping or stalling, it’s a time to make realistic plans and start implementing, and the oil and gas industry has a real part to play in that.”

Stagnation in climate ambitions across the industry: Carbon Tracker’s assessment of how well oil and gas companies measure up against the Paris emissions targets, top 10 by rank
RankCompanyScope 3 emissionsNet-zero by 2050Interim absoluteFull-equity share basisThird-party crudePotentially Paris-aligned
1EniYesYesYesYesYesYes
2TotalYesYesYesPartialYes
3RepsolYesYesYesPartial
4BPYesYesYesPartial
5ShellYesYesYes
6EquinorYesYesPartial
7OxyYesYesn.a.
8SuncorYesYesYes
9ChevronYesYes
10Conocon.a.n.a.Yesn.a.
Source: Carbon Tracker

Operational emissions

Decarbonisation efforts by oil and gas companies focus on reducing emissions in two categories: operational emissions released during production, known as scope 1 and scope 2; and lifecycle emissions released when the fuels are burnt, known as scope 3.

Given that drastic cuts in lifecycle emissions can only really be achieved by selling — and therefore burning — less fossil fuel, most producers have focused on scope 1 and 2.

In 2022, their production, transporting and processing of oil and gas produced the equivalent of 5.1bn tonnes of greenhouse gas emissions — which represented just under 15 per cent of all emissions from energy and industrial processes, according to the International Energy Agency. However, based on an IEA analysis of the 40 largest oil and gas companies, only about half of global oil and gas production comes from companies that have declared targets to reduce their scope 1 and 2 emissions. And “only a fraction” of those targets match the pace of reductions needed, it adds. The IEA estimates that the industry’s scope 1 and scope 2 emissions will have to fall by more than 50 per cent this decade for the world to be on track to achieve net zero global emissions by 2050.

The picture across the industry is mixed. In Europe, Italy’s Eni has pledged to reduce its scope 1 and 2 emissions to net zero by 2035, while BP and Shell are targeting 50 per cent declines by 2030. By contrast, in the Gulf, the world’s biggest oil producer Saudi Aramco is only seeking a 15 per cent decline by 2035 and that is on a “carbon intensity” basis — meaning it aims to reduce the average amount of emissions for each unit of energy produced, rather that absolute emissions. This will make it easier for Aramco to increase overall production and still hit its target.

The state-owned Saudi Arabian giant is spending billions of dollars on increasing its maximum production capacity from 12mn barrels a day of crude oil to 13mn b/d by 2027.

Companies can cut their scope 1 and 2 emissions by reducing methane leakage, eliminating the flaring of excess gas on site, powering oil and gas production facilities with green electricity, installing carbon capture and storage (CCS) technology, and expanding the use of green hydrogen to power refineries.

Of these, cutting methane emissions is a main agenda item at COP28. Methane is the principal component of natural gas and a potent contributor to global warming, accounting for about 30 per cent of the global temperature rise since the industrial revolution.

Sultan al-Jaber — who is both president-designate of COP28 and head of the Abu Dhabi National Oil Company (Adnoc) — is pushing for fossil fuel-intensive companies to join a “Global Decarbonization Alliance” and commit to “near zero” emissions of methane from their operations by 2030. More than 20 companies are in talks to join the body, he told the FT in October. If it comes about, the alliance will be presented as a major achievement by the United Arab Emirates.

Coffin says he welcomes the initiative but warns it should not distract from the thornier problem of scope 3 emissions. “Yes, it is a step in the right direction but that is not all you need to do,” he notes.

The Minister of Industry and Advanced Technology in the United Arab Emirates (UAE) and COP28 UAE President-Designate, Sultan Ahmed al-Jaber
Sultan al-Jaber: president-designate of COP28 and head of the Abu Dhabi National Oil Company © John MacDougall/AP

Supply and demand

While the industry’s operational emissions are significant, the IEA estimates they are only 15 per cent of the lifecycle emissions of gas and 20 per cent of oil. That means as much as 85 per cent of the industry’s carbon emissions are produced when its products are burnt by consumers. But, so far, only nine of the world’s largest oil and gas producers have committed to address scope 3 emissions, according to Carbon Tracker: Eni, TotalEnergies, Repsol, BP, Shell, Equinor, Occidental Energy, Suncor and Chevron.

And it says only Eni’s targets can be judged to be “potentially Paris-aligned” as they include interim goals to cut emissions in absolute terms before 2050, and cover all of Eni’s products.

Female motorist filling car with diesel at petrol station
Demand for fossil fuels remains high © Alamy

The difficulty with scope 3 emissions is one of responsibility — specifically the question of who is responsible for cutting fossil fuel demand. While some companies have responded to political, social and employee pressure to commit to reducing supply, industry executives say those actions have not been accompanied by government interventions to cut demand.

“As long as society believes that, by starving [fossil fuel] supply, you will somehow force demand to come down as well, that is not a sustainable way of tackling the energy transition,” said Ben van Beurden, former Shell chief executive, shortly before stepping down last year. “Supply needs to adjust but it needs to adjust to less demand.”

In 2023, however, oil demand is on track to average 102.2mn b/d — its highest ever annual level, according to the IEA. In response, energy companies — including those with more ambitious emissions-reductions targets — have become more likely to argue in favour of continued investment in oil and gas than they were a few years ago.

“We firmly believe we need to continue to invest in today’s energy system . . . at the same time, we are investing heavily in our transition growth engines, businesses that help the world pivot to a net zero scenario,” said Anja-Isabel Dotzenrath, head of gas and low-carbon energy at BP, at an FT energy conference in October.

BP slowed the pace of its planned retreat from oil and gas in a strategy update in February but still has one of the most aggressive transformation plans in the sector. The UK-listed energy major has pledged to cut its oil and gas output by 25 per cent by 2030, compared with 2019 levels — down from a previous target of a 40 per cent decline. This remains one of the only hard commitments to reduce production in the industry. At the same time, BP says it will increase spending on its five “transition” businesses — biofuels, convenience, charging, renewables and hydrogen — from 30 per cent of capital expenditure in 2022 to 50 per cent by the end of the decade.

Maarten Wetselaar, chief executive of Spanish oil and gas group Cepsa and a former Shell director, agrees that growing energy demand means the sector cannot stop producing fossil fuels until renewable alternatives exist to replace them. Still, he says companies like his have an important role in driving the green energy transition.

“We should expect the industry to do it, to lead in building these new green value chains, particularly on the molecular side — biofuels, hydrogen,” he says. “I don’t think it will happen without the oil and gas industry stepping up behind it.”

Last year, he launched a new strategy to pivot the Spanish group from fossil fuels to greener forms of energy and committed to invest at least €5bn — equivalent to 60 per cent of the group’s total capital expenditure — on new low-carbon business, such as green hydrogen and biofuels, by 2030.

Policies and incentives

Saudi Aramco has no plans to reduce output, though. Instead, it is betting that by cutting scope 1 and 2 emissions, it can provide the “lowest-carbon” barrel of oil in the industry and find a market for its vast resources for as long as possible.

Similarly, Adnoc has earmarked $150bn in capital expenditure over the next five years, largely focused on expanding its oil and gas production. Last November, it established a new “low-carbon solutions and international growth” division under executive director Musabbeh Al Kaabi. Then, in January, it said it would spend $15bn on decarbonisation projects between 2023 and 2030, to include investments in clean power, CCS, electrification of its oil and gas operations, and elimination of flaring.

“We see a world where all sources of energy will be required,” Al Kaabi told the FT this year. “If there is a way that we can maintain fossil fuels while minimising the emissions, I think that’s a more pragmatic way to address climate change.”

In total, national oil companies are likely to invest $1.8tn in upstream oil and gas developments and expansions over the next 10 years, according to an analysis by US-based non-profit the Natural Resource Governance Institute.

The biggest US oil companies are following a similar playbook. ExxonMobil last month announced plans to acquire US oil producer Pioneer for $60bn, while Chevron has agreed a takeover of Hess for $53bn, in two of the biggest oil and gas deals this century. In both cases, the companies are acquiring rather than shedding fossil fuel production, betting that larger, more efficient operations will make them more resilient if oil prices fall as demand weakens. ExxonMobil and Chevron are also investing heavily in CCS in the hope of proving capturing and storing carbon emissions can be executed at scale.

“To believe that we can just simply reduce the production of oil and gas, whilst simultaneously facing rising demand and with no clear alternative, will result in the shocks that we’ve seen over the last couple of years,” says Salih at Oliver Wyman. “What we’re having now is a far more measured and logical conversation about what it really takes to make this happen.”

Part of the solution, energy executives say, is legislation like President Joe Biden’s Inflation Reduction Act, which has encouraged green investment in the US. In Europe, carbon pricing and consumption mandates mean there are more restrictions on oil and gas than in the US but fewer incentives to invest in alternatives. “We don’t have good supply incentives in Europe and we don’t have good demand incentives in the US,” says Cepsa’s Wetselaar.

The argument goes that, as the availability of low-carbon alternatives increases, oil and gas will be naturally replaced over time. But the risk is this does not achieve emissions cuts fast enough, warns Carbon Tracker’s Coffin.

“At the last few COPs, we’ve got phasedown of fossil fuels, but clearly we need the global community to get behind a phaseout of fossil fuels over time and planning for a decarbonised energy system,” he says.

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