Is oil and gas exploration over?
The International Energy Agency’s assertion that all oil and gas exploration must cease immediately has taken the climate debate to a crucial new stage. Over the past two years, the issue has shifted from street protest to the long-term aspirations of governments and businesses. Now we come to the difficult details. The question is whether the ambitious commitments to net zero by 2050, made by more than 100 countries around the world, can really be translated into reality.
The IEA is in some ways a surprising vehicle for the vivid message delivered last week. The Agency was created following the Arab oil embargo of 1973 to ensure the security of global supplies. Members were the oil-importing countries of the world, who agreed to elaborate arrangements to share resources in times of supply disruption. The agency has long advocated for more investment in oil and gas development to ensure adequate supplies. In recent times, however, under transformational leadership, the IEA has redefined energy security and extended its coverage to other fuels, and especially the unresolved climate risks associated with the increasing use of hydrocarbons. (For full disclosure, I have been an unpaid adviser on the Agency’s Global Energy Outlook for several years.)
The Agency has no formal powers, but its reputation for providing accurate and objective analysis gives it a powerful voice in the climate debate. Last week’s intervention is, on one level, simply a statement of fact. Oil and gas have already been found to be more than enough to match the maximum amount of consumption possible if the world is to keep emissions below the danger level. It’s no secret, but the amplification provided by the IEA poses a direct challenge to governments and businesses.
For countries that have committed to zero or comparable net reductions in their future emissions, the conclusion makes reading uncomfortable. The United States, Norway and, to a lesser extent, the United Kingdom all fall into this category. They will now have to justify why further exploration – in the North Sea or among the Permian Basin shale rocks – is still needed.
Likewise, companies that have embraced net zero will need to explain why they are still exploring around the world. Almost all major energy companies will now face new challenges from activists and activist investors.
Governments and businesses have strong lines of defense, starting with the fact that global demand for oil continues to rise. As long as the world’s population still uses gasoline to drive internal combustion engine vehicles and uses natural gas to power heating systems, hydrocarbons will be needed. The reality is that the transition in energy consumption has barely begun. The use of oil, gas and coal is increasing. The demand for each form of hydrocarbon is likely to be higher at the end of this year than it was at the end of 2019, and even higher over the next decade. Covid has caused an economic recession but not a structural transformation of the energy market. Hydrocarbons still represent 80% of the world’s energy needs. Renewable energies – led by wind and solar – are certainly growing, but hardly represent more than 5 percent of supply. In a market driven by demographic growth and the spread of prosperity, hydrocarbons will remain dominant for a long time.
Governments and businesses will argue that the calculation of the IEA is mathematically correct. Sufficient amounts of oil and gas have been found, given their climate promises. But the available resources are largely controlled by OPEC member states and Russia. Fragile and autocratic suppliers such as Saudi Arabia and Venezuela cannot be relied on to provide the secure energy supplies essential to modern economies. As long as consumers need oil and gas, the only answer is to find more diverse sources of supply, especially in the provinces that have been so important to the global market for the past 50 years, such as Alaska, the North Sea and the deep waters. water from the Gulf of Mexico – depleted. Hence the need for continuous exploration activity.
They will also remind us that most oil and gas producing and exporting countries have clearly failed to embrace the climate agenda and would no doubt be happy to return to a world in which they are the dominant suppliers with power. to impose embargoes or to set ever higher prices.
The suggestion to end exploration ignores the political challenges and insecurities of those who fear becoming dependent on others. Exploration will only cease when demand drops significantly. Achieving this goal should be at the center of climate policy.
The IEA has done a useful service, however, by reminding us of what needs to change if vague commitments to net zero are to be translated from rhetoric into reality. The fact that its call to end exploration risks being ignored testifies to the complexity and difficulty of the energy transition.