Transforming the fossil fuel-based energy system to one that is sustainable and decarbonized is one of humanity’s greatest challenges. It also represents one of the greatest opportunities to make global energy supplies more available and affordable than ever before.
A primary catalyst for the Decarbonization Transition was the 2015 Paris Agreement, which set the goal of keeping global average temperature increases less than 2°C (3.6˚F) above pre-industrial levels by 2050. Toward this objective, more than 800 companies have launched ambitious programs to curtail emissions of greenhouse gases—particularly carbon dioxide (CO2)—into the atmosphere. The goal is to curb the emissions trajectory to net zero by 2050.
Understandably, all eyes are on the oil and gas industry. An early-2020 Accenture analysis found that global energy-related CO2 emissions totaled 40 gigatons. Nearly two-thirds of that amount was related to oil and gas—emitted either through the industry’s extraction, processing, transportation and refining activities or, more significantly, at the point of consumption when hydrocarbons were converted for other uses. The imperative for oil and gas companies is to limit not only the 20 percent of emissions that occur in their operations, but also the 80 percent that occur beyond their reach.
The call for change
Pressure is being applied from all sides. Consumers, environmental activists, regulators and investors are all demanding the industry take bold action. Ironically, some of the loudest calls for oil and gas companies to change course come from the industry itself. Operators recognize that delivering energy assets sustainably is the right thing to do. They are increasingly recognizing it is also the only thing to do.
Supply abundance, coupled with the demand slowdown expected in the next 20 years, has made investors skittish and driven the cost of capital up. Returns from traditional hydrocarbon extraction and processing projects have dipped into single digits from previous highs well above 10 percent. The need for oil and gas companies to accelerate their transition to the decarbonized energy future has never been greater. Their survival depends on it.
Accenture’s analyses have determined that the oil and gas industry’s goal of achieving net-zero emissions by 2050 is unlikely, if not impossible. We believe, however, that a pathway exists for them to achieve 80 percent of their net-zero ambitions. Negative emissions can potentially close a portion of the gap that remains. And the momentum from concerted and pragmatic actions will likely bring about additional gains post-2050.
To illustrate what is possible, Accenture has envisioned two "states of the world" through to 2050. One is the by-product of business-as-usual practices and mindsets. The other depicts what we’ve termed the "stretch case." It represents what we believe is possible, realistic and within reach.
Conclusion: Today’s actions deliver tomorrow’s ambitions
Achieving an 80 percent reduction in emissions by 2050 depends on three things.
- The actions oil and gas companies take today. We bundle these actions into three sets. Clean the Core activities minimize emissions and maximize efficiency from current operations. Accelerate the Transition actions replace existing sources of energy and demand with cleaner alternatives. And Extend the Frontier actions are focused on adopting and scaling new energy sources, processes and technologies. Success requires all three sets of actions to be activated.
- The ability of oil and gas companies to orchestrate actions in hydrocarbon-burning sectors. Accenture’s analyses suggest that up to 25 percent of potential emissions reductions achievable through 2050 are dependent on collaboration between energy suppliers and their customers. Four sectors—power, transportation, heavy industry and buildings—will drive most of the projected rise in emissions. These are the industries that oil and gas companies must target and influence. That means more than investing. It means innovating and collaborating with them to make the transition to a low- or no-emission future a reality.
- The strategic postures oil and gas companies want to hold tomorrow. We believe there are three archetypal roles oil and gas companies can play during the Decarbonization Transition and beyond. The first is the “Decarbonization Specialist,” which sustains and grows value from the core oil and gas value chain. The second is the “Energy Major,” which builds or adds clean energy businesses to its existing oil and gas assets over time. The third is the “Low-Carbon Solutions Leader,” which will exit its role in oil and gas and refocus, instead, on leading in one or more clean areas of the energy system.
These archetypes represent the only choices for oil and gas leaders committed to taking a bold new direction. Industry players must go “all in” on one.
Common to the winners across all three archetypes will be a commitment to pursue a low-carbon (or net-zero) future and account for it in all business decisions. They will each work to reshape their portfolios. They will rethink their operating models and customer value propositions. And they will ramp up their innovation engines and engage with industry sectors in new ways. The path to achieving their future ambitions is open now. It’s time for the industry leaders to make their moves.