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    IEA calls for no more upstream projects


The Paris-based agency has drawn its harshest conclusion about future upstream development yet.

by: Joseph Murphy, William Powell

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IEA calls for no more upstream projects

The International Energy Agency (IEA) has called for an end to investment in oil and gas production beyond projects already approved, in order for the world to reach net-zero emissions in 2050.

The conclusion, published in the IEA's Net Zero by 2050: a Roadmap for the Global Energy Sector report on May 18, is the harshest that the Paris-based agency has ever drawn concerning future upstream development. IEA director Fatih Birol said the report proposed a "narrow but still achievable" pathway to net zero within three decades, which will also entail a quadrupling of wind and solar capacity additions by 2030.

Birol told journalists at a press briefing that the finding followed from individual governments' plans to cut their emissions and would lead to OPEC meeting half the world's demand but prices for oil would fall. That would be its highest ever percentage, he said. If followed, the advice would also hit Nigeria and Russia hard, not to mention the millions of jobs at stake. However some of these jobs could be transferred to other energy sectors, the IEA said.

The report's Net-Zero Emissions by 2050 Scenario (NZE) envisages annual natural gas consumption peaking in the mid-2020s at 4.3 trillion m3 before entering terminal decline, falling to 3.7 trillion m3 by 2030 and 1.75 trillion m3 by 2050. By that point, demand will be 55% lower than it was last year. Coal and oil demand will see even greater losses of 90% and 75% respectively.

"No new natural gas fields are needed in the NZE beyond those already under development," the IEA said. "Also not needed are many of the LNG liquefaction facilities currently under construction or at the planning stage."

Natural gas trade by LNG will fall by 60% and by pipeline by 65% over the 30 years, under the NZE scenario. During the 2030s, gas demand will fall by over 5%/year, which will mean "some fields may be closed prematurely or shut in temporarily." Rates of decline will slow after 2040 and by 2050, more than half of gas produced be used to produce hydrogen.

Oil and gas companies face both threats and opportunities in the net-zero pathway, the IEA said. While their earnings will take a hit, "the resources and skills of the oil and gas industry are a good match with some of the new technologies needed to tackle emissions in sectors where reductions are likely to be most challenging, and to produce some of the low-emissions liquids and gases for which there is a rapid increase in demand in the NZE."

Most – if not all of the international oil companies – are planning to keep exploring for new oil and gas reserves to backfill production or meet new demand, even as they expand their renewable energy operations. For example there are major oil finds off South America still awaiting development; and Novatek in Russia and Qatar Petroleum are pushing ahead with LNG developments that imply much more new upstream production. 

The UK, which has a strong commitment to net zero, has said that indigenous oil and gas production will be key to net zero; although the regulators are making the rules on emissions offshore tougher. Those governments that have banned new licences outright, such as Denmark, Ireland and Spain, are not depriving themselves of much oil and gas production.

"By partnering with governments and other stakeholders, the oil and gas industry could play a leading role in developing these fuels and technologies at scale, and in establishing new business models," the agency said.

The IEA also said minimising emissions from oil and gas operations should be a "first-order priority," with a 75% decline in methane emissions and an elimination of flaring envisaged under the NZE. They should also electrify their operations where possible, the agency said.

"Some oil and gas companies may choose to become 'energy companies' focused on low‐ emissions technologies and fuels, including renewable electricity, electricity distribution, EV charging and batteries," the IEA said. "Several technologies that are critical to the achievement of net‐zero emissions, such as CCUS, hydrogen, bioenergy and offshore wind, look especially well‐suited to some of the existing skills, competencies and resources of oil and gas companies."