Foreword

Transforming the oil and gas industry: Who’s first?

Rapid electrification of energy and growth in renewables will significantly reduce emissions in the coming decades, but fossil fuels will still be needed to supply half of the world’s energy in 2050, according to our 2020 Energy Transition Outlook.

Where there is demand for oil and gas, there will be a future for the oil and gas industry. The question is what type of future that will be. Without greater efforts to decarbonize, our forecasts show a future in which the world misses the 2°C limit for global warming under the Paris Agreement. 

Pressure is mounting on the oil and gas sector to address the climate change crisis, and this is coming from all sides: from society and governments, from investors, and also from people within the industry. We see the sector increasingly putting the energy transition at the centre of its agenda, but climate change and ambitions to reduce it are outpacing action. Our forecasts show that world emissions will remain stubbornly high until the mid-2030s and that deep decarbonization of the world’s energy system is still 15 years away. 

“The oil and gas industry needs to prepare for an energy system that does not accept the release of carbon emissions." 

The technologies needed to accelerate the energy transition are available today, but they need to scale, and sooner. 

On one side, the world has started down the path to much greater use of renewables and battery storage, which will enable further electrification of sectors such as transport, manufacturing and heat in the home. On the other side, natural gas will still be the world’s largest energy source at mid-century, and technologies to decarbonize it are yet to take off. 

We forecast that hydrogen and carbon capture and storage (CCS) will be a catalyst for deep decarbonization after 2035, removing carbon from natural gas – before or after combustion – to reach hard-to-abate sectors. This could transform the oil and gas industry into the decarbonizer of hydrocarbons and the world’s supplier of carbon capture and storage. It could transform the sector so that it is an essential contributor to realizing climate ambitions, rather than to missing them. 

The problem is that CCS won't move down the cost learning curve unless the industry significantly increases its roll-out of the technology, but we don’t foresee this happening until the costs have come down or a carbon price exceeds the cost of the technology. Hydrogen faces a similar issue. It relies on CCS for blue hydrogen, and on the cost of electrolyzers falling to produce green hydrogen at scale. We forecast that both will happen in order to realize the hydrogen economy, just not until the 2040s. 

“Someone needs to go first: if a major country or region sets a carbon price high enough to make large-scale CCS a reality, others will follow." 

Decarbonized and green gasses would have a bright future following such a transformation, with hydrogen and CCS complementing renewable electricity, battery technology and alternative low-carbon fuels to provide societies with a secure, affordable supply of clean energy. 

Forming partnerships among government, industry, and associations will be crucial in scaling innovation and technologies for decarbonization. Working together to make hydrogen and CCS safe, effective, and commercially viable will give the oil and gas industry the certainty it needs to manage new risks and accelerate its transformation towards a low-carbon future. 

We encourage all stakeholders to help shift the mindset and the timeline, from preparing for deep decarbonization in the coming decades to starting to realize it today. Someone needs to go first, and there really is no time to lose.

- Liv A. Hovem

CEO, DNV GL - Oil & Gas

;