This blog post originally appeared in the May/June 2024 edition of Oilfield Technology magazine, titled ‘Playing the right role,’ with minor adjustments made for house style.
The energy transition toward cleaner, less carbon-intensive sources is real. Oil and gas are not going away any time soon. That may sound like a contradiction, but it is more like a description.
While fossil fuels are projected to see potential declining demand in coming decades, they will still be a significant part of the energy mix. That will be the case even in scenarios where the world substantially accelerates progress toward net zero.1
Climate policy is focused on reducing greenhouse gas (GHG) emissions to achieving the 1.5°C pathway which was set out in the 2015 Paris Agreement and reaffirmed in the COP 28 UAE Consensus in December 2023.2 However, it is just as important to ensure access to an affordable, reliable, and competitive global energy supply for everyone, everywhere. All four elements are related to each other and addressing all four is essential to a successful transition. Otherwise, the unsteady progress toward substantial emissions reductions could stall further; there are and will be trade-offs.
Recent history confirms this. Germany has been a committed climate change actor, but when it faced the risk of energy shortages due to the invasion of Ukraine in 2022, one of its responses was to re-open coal plants to ensure that its economy could function and that its people could stay warm.3
Given this context, there are two questions to answer: how can the oil and gas industry play a role in the energy transition and what exactly can it do?
How can the oil and gas industry play a role in the energy transition?
The oil and gas industry has a critical role to play in the energy transition. For a start, given economic and population growth, the demand for energy will continue to grow. In its most recent Global Energy Perspective, McKinsey estimates that demand for power will rise 3 to 4 percent a year to 2050.4 At the moment, 80 percent of global primary energy demand is supplied by fossil fuels (coal, gas, and oil) which is about the same as in 1997, the year of the first global climate conference.5
There is, however, a world of change in the works. McKinsey projects that oil demand could peak in the 2030s and then decline through 2050 (although the scenarios vary widely, with projected declines ranging from 3 percent to close to 50 percent depending on the speed of the transition). For gas, the peak will likely come later, potentially in the 2040s, but could plateau or even keep rising for years after that, though at a slower rate. At the same time, the analysis sees renewables and other low-emissions sources of energy continuing their strong growth; they could account for 65 to 85 percent of global power generation by 2050.6
It’s important to remember that there is a human dimension to energy, in the form of economic development. Almost 775 million people lack electricity and 2.4 billion people still cook with traditional fuels—a practice that costs nearly 3.2 million premature deaths a year.7 McKinsey estimates that 4.7 billion people live under what it called “the empowerment line”, defined as having the means to securely meet basic needs, including nutrition, health, shelter, education, water, and energy.8
Right now, oil and gas account for about 170 million barrels a day of accessible and relatively low-cost energy, which cannot easily be replaced.9 When the International Energy Agency modeled future trends, assuming the world comes close to net zero in 2050, it projected that fossil fuels would still account for a quarter of energy demand in 2050. Oil and gas make up the great majority of that, as the use of coal continues to decline.