By - Jim Vess

Oil companies need to investment more in the global energy transition, IEA says

Energize Weekly, January 29, 2020

The oil and gas industry needs to be major player in the global transition to cleaner energy, in part to maintain its social license to operate, but barely 1 percent of its capital investment is going to alternative technologies, according to the International Energy Agency (IEA).

“The transformation of the energy sector can happen without the oil and gas industry, but it would be more difficult and more expensive,” the IEA said in a report.

The agency said that while the fossil fuel-based companies are focused on near-term returns, they are failing to look at the long-term picture in which efforts to reduce greenhouse gases and move to cleaner forms of energy will play a major role in the economy.

“No energy company will be unaffected by clean energy transitions,” Fatih Birol, IEA executive director, said in a statement. “Every part of the industry needs to consider how to respond. Doing nothing is simply not an option.”

In the last five years, large oil companies have doubled their spending on new projects outside the core oil and gas business as a share of total capital expenditures, but that still added up to just 0.8 percent of all investments.

In 2019, oil companies spent $1.1 billion on photovoltaic solar, $400 million on onshore wind projects and $400 million on offshore wind projects, $100 million on carbon capture-storage technologies and $100 million on biofuels.

The leading companies are spending closer to 5 percent of their capital investments outside the core business with the largest outlays in solar and wind, while some have also invested electricity distribution, electric vehicle charging and battery storage.

“A much more significant change in overall capital allocation would be required to accelerate energy transitions,” the IEA said.

A first step would be for the industry to reduce its own environmental footprint as oil and gas operations account for 15 percent of global energy-related greenhouse gas emissions.

Emissions could be cut 30 percent by 2030 through a combination of capturing fugitive methane emissions, cutting flaring, using carbon capture technologies at refineries, efficiency improvements and integrating renewables into upstream and liquefied natural gas developments, the IEA said.

Beyond that, Birol said oil companies with “their extensive know-how and deep-pockets” could play a key role developing capital-intensive clean energy technologies, such as carbon capture, energy storage and hydrogen fuels, as well as accelerating the deployment of wind and solar.

“Without the industry’s input, these technologies may simply not achieve the scale needed for them to move the dial on emissions,” Birol said.

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