Yahoo Finance 'Uncomfortable truth': IEA warns oil & gas sector to embrace production cuts
The global oil and gas industry will need to cut production in order to limit global warming to 1.5°C by the end of this century, according to a new report from the International Energy Agency (IEA).
It’s a scenario Canadian companies had hoped to avoid by deploying carbon capture and other green innovations, says the industry’s top lobby group.
The new IEA analysis finds investment in oil and gas supply is needed under all scenarios outlined in the Paris climate agreement. However, it pegs the US$800 billion being invested annually at double what’s required to meet forecast demand.
IEA is now calling for producers to cut emissions from operations by more than 60 per cent from today’s levels by 2030. During that time, researchers say investment in clean energy must rise to 50 per cent of total capital spending, up from 2.5 per cent in 2022.
“The starting point is not very encouraging,” IEA executive director Fatih Birol said at a press conference Thursday. “COP28 will be a moment of truth for the oil and gas industry,” he added, referring to the United Nations climate summit set to begin in Dubai on Nov. 30.
Christophe McGlade, head of the IEA’s energy supply unit, says there is no longer a need for long-lead, upstream oil and gas projects today. He says new developments must be matched by reductions elsewhere. Earlier this year, a separate IEA report found the world’s oil, gas and coal demand will likely peak by the end of this decade.
“The uncomfortable truth is that net-zero transitions mean lower demand for oil and gas, and that means scaling back on oil and gas operations,” McGlade told reporters.
Lisa Baiton, chief executive officer of the Canadian Association of Petroleum Producers, was recently asked if production cuts were needed to lower the sector’s emissions enough to achieve Canada's climate goals.
“We have proven over the last decade that we can meaningfully reduce GHG (greenhouse gas) emissions while increasing production at the same time,” she said at a Canadian Club Toronto event last week. “If our goal is net-zero by 2050, that should be our goal, and we shouldn’t get twisted in a pretzel if we’re not making interim targets.”
Carbon capture
On Monday, the federal government announced it will begin financing investment tax credits for carbon capture and storage. Six of Canada’s largest oilsands companies, dubbed the Pathways Alliance, aim to begin construction on a proposed $16.5-billion CCS project in the coming months with the goal of reaching net-zero emissions from production by 2050.
“To say that carbon capture technology would allow the oil and gas industry to continue with current oil and gas production trends, and at the same time, bring the emissions down in line with the Paris target is, in our view, pure fantasy,” Birol said on Thursday.
The IEA says limiting global temperature increases to 1.5°C would need an “inconceivable” 32 billion tonnes of emissions to be sequestered by carbon capture by 2050.
“The amount of electricity needed to power these technologies would be greater than the entire world’s electricity demand today,” the report said, adding that amount of carbon capture would also require an increase in global spending on the technology from US$4 billion last year to US$3.5 trillion by 2050.
Adding to a growing chorus of doubt surrounding the technology, Birol calls its performance to date “a story of disappointment.”
Pathways Alliance president Kendall Dilling says CCS is a “proven technology that is critical to reaching global climate change goals.” He notes the 2022 UN Intergovernmental Panel on Climate Change deemed it an essential solution to the climate challenge.
“It is one – but not the only – technology oilsands companies are working collaboratively on as we push forward one of Canada’s most ambitious decarbonization efforts,” he told Yahoo Finance Canada in an emailed statement on Thursday.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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