Big Oil plans to spend nearly US$5 trillion in capital expenditure over the next decade, much of which would go into adding new production. Yet this money will also bring the world farther from the Paris Agreement climate targets, a report from energy industry-focused nonprofit Global Witness warns.
The organization analyzed a report compiled by the International Panel on Climate Change last year and then compared the data with the spending plans of the oil and gas industry. What it found was that investment in any new oil and gas field development was “incompatible with limiting warming to 1.5°C.”
This is the lower target set in the Paris Agreement for the rate at which the Earth warms. The higher and preferable target is 2°C, but it is the less realistically achievable one. The 1.5°C target, however, may be achieved if a lot of things change fast, the IPCC report concluded last year.
Yet Global Witness did not stop there. The organization also calculated that current oil production should be cut by 9 percent and gas production should be reduced by 6 percent if the 1.5°C goal is to be achieved. It also noted in its report that all of the energy industry’s US$4.9-trillion capex planned for the next ten years was “incompatible with limiting warming to 1.5°C.”
The argument runs as follows: if the world is to limit the rise in the average global temperature to 1.5°C, work must be done to reduce its reliance on oil and gas. If this work is successful, all these trillions Big Oil plans to spend on production expansion will be the worst spent money ever. If the work on limiting the rise of temperatures fails, the planet will continue heating up at unacceptably high rates with a slew of adverse consequences hitting mankind.
The report’s finding will undoubtedly serve as yet another argument for activist investors in the energy industry to use as a tool to pressure the companies in their sights into doing more to reduce their carbon footprint.
Speaking of carbon, Global Witness also takes aim at carbon capture and storage technologies that the energy industry has been using to varying degrees as a means of reducing the abovementioned footprint. According to Global Witness, it’s pretty pointless: a lot of the carbon captured currently in the industry is used in the extraction of more oil and gas, which clearly goes against the environmental grain.
However, the organization notes there may be something good in carbon capture and removal… if it is done on a much larger scale. Whether such a scale of utilization for the technology is possible remains to be seen, which is why Global Witness is not counting on it as a reliable way to advance the Paris Agreement goals.
The energy industry could hardly be counted on to take things into its own hands and voluntarily reduce its investment plans for new production. Whatever the climate goals of governments, the world’s population is growing and with it demand for energy. For now, energy comes mainly from oil and gas, and coal as well, in many poorer parts of the world. Renewables have yet to become competitive everywhere.
But there is a silver lining. If governments manage to find a way to press energy companies into reducing their spending programs especially on new production, they will have to. Oil and gas prices will rise sharply as a result—demand for energy is blind to the source of that energy—and renewables will become more appealing in places where oil and gas are still cheaper.
By Irina Slav for Oilprice.com
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