A reflection on the state of the industryQuang Le via Pixabay

A reflection on the state of the industry

Shane Cowley puts the current oil and gas industry downturn in a global energy perspective.

Even a casual observer could not help to notice that our industry has undergone unprecedented change over the last number of years and this is now accelerating with the COVID 19 crisis. Global investment in oil and gas is estimated by the IEA to have fallen by 20% or some $400 billion in 2020 resulting in enormous job losses, somewhere between 100,000 and 300,000 globally at last count.

After some brief optimism in 2018, a major drop in oil prices followed in 2019. Add to that the drop in demand due to the COVID 19 crisis and the industry is currently enduring the perfect storm.

The other long-term trend affecting the industry is the rotation of investor sentiment away from oil and gas toward renewables. Investors are rightly asking for cleaner alternatives that won’t have a lasting impact on the environment and for that reason renewables are enjoying a huge appetite for investment at the moment.

The UN Environment Program (UNEP) published a gap analysis around the COP 25 summit last year showing how while current policies have flattened the global CO2 growth curve there will still be a gap of between 12 and 15 gigatons of CO2 remaining to be closed by 2030 to keep global temperature rises below 1.5 to 2 degrees C.

“Sentiment is a huge driver of the stock market and while renewables are very popular at the moment and will certainly make a contribution to the required change, it will be nowhere near what is required.”

Where could we save something of that magnitude quickly?

The IEA has some interesting graphs on its front page showing growth in energy supply, electricity consumption, total CO2 emissions, and CO2 emissions per capita since 1992.

Source: IEA.

The CO2 graphs are particularly interesting – in that time period CO2 emissions have jumped from approx. 20.5 gigatons to approx. 33 gigatons in 2019, a staggering 56% increase in 30 years, the vast majority of which has come from fossil fuels. Over a similar time period the BP statistical review shows growth in all forms of energy. Unsurprisingly I suppose oil, natural gas, and maybe a little surprisingly coal make up the bulk of the 60% growth in energy consumption from 1994 to 2019.

Source: BP Statistical Review of World Energy 2020

Coal takes up an awfully big chunk of that growth for an industry that is supposed to be in decline and has long been known to be a major pollutant from both a health and greenhouse gas emissions perspective.

“To the average consumer, when they think about greenhouse gas emissions I would venture to say they don’t think about coal, they think about oil.”

Replacing the quarter of all energy consumption that comes from coal, with something much lower in CO2 emissions, like natural gas for example, seems an obvious and much more impactful strategy when undertaken in tandem with the growth in renewables. This is happening in the developed world but coal is actually still growing elsewhere.

Natural gas, the so called “transition fuel”, emits only about half the CO2 that coal emits for the same amount of energy. According to the Stanford Woods Institute for the Environment coal made up at least 40% of all CO2 emissions globally in 2019. A direct substitution for gas would get us half way to meeting greenhouse gas emissions targets while producing the same amount of energy.

Renewables, and energy conservation have a realistic chance of meeting the rest of the gap if there were no politics involved. China is the elephant in the room of course consuming about 50% of the worlds coal, and five times that of the next biggest offender India. Currently the US policy toward China is focussed on anything but this issue unfortunately.

Oil and gas continue to play a significant role

Oil and gas definitely do have a role to play and BP’s pledge to offset by 2050 all emissions, whether related to operations or the oil and gas it produces is a statement full of brave intent. I do believe Bernard Looney means it, but there is an extremely long road ahead. This is by far the most ambitious pledge by any major global corporation and they will be watched closely for progress across the industry and beyond.

Back in 2000, Lord Brown rebranded the company Beyond Petroleum but then followed a very difficult few decades for the company very much related to petroleum, it wasn’t easy then and it won’t be now to achieve this target. For the time being I am willing to give BP the benefit of the doubt as we need leadership at the moment.

Carbon Capture and Storage

Carbon capture technology must be front and centre of the internal discussions at BP, and there has been some progress on the related technologies over the last few years. MIT researchers reported in the journal of Energy and Environmental Science in 2019 the development of a device based on passing air through a stack of charged electrochemical plates that works at a wide range of CO2 concentrations for considerably less cost than existing technologies.

The global Carbon Capture and Storage Institute, a think tank funded initially by the Australian government in 2009, was set up to accelerate the development of CCS globally. They see CCS as an essential mitigation technology and have identified four areas where it will be key to achieving decarbonisation at scale. Namely, abatement of emissions from industry including the chemical, steel, and cement industries, enabling the production of low carbon hydrogen at scale using natural gas, providing low-carbon dispatchable electricity which could complement renewables, and delivering negative emissions for example from direct air capture of CO2.

The UK government passed laws in 2019 to reach a net-zero emissions by 2050. CCS featured heavily in their strategy to achieve this target.

The rapid growth days of the oil and gas industry may be behind but there is a lot of essential work to be done to keep the lights on globally, and provide access to the basics like running water, and electricity in the developing world. Oil companies have to work hand in hand with renewables as they play a part in energy production like never before and at the very least can help offset emissions from operations with the smart deployment of solar and wind at producing facilities.

Another key role is in influencing government policy so that technologies that enable the industry while aiming for net-zero, such as incentivising  CCS through tax incentives or other means will be key. This current crisis will pass and investment in the sector will recover. If history is anything to go by it could be relatively quickly.

Another interesting chart from the IEA shows the rate of change of global primary energy demand from 1990-2020.

Source: IEA

This derivative plot has a series of world events shown on it with demand rapidly falling during major crises such as the Spanish flu, Great depression, oil shocks in the 1970’s, etc. For the major shocks demand destruction reaches the bottom quickly < 12 months after the shock and fully recovers within 18-24 months so growth may return sooner than we think.

As it becomes clear COVID 19 will take time to tackle, and perhaps difficult to eradicate, governments are rethinking their strategy from a “containment” to a “living with” approach. Life will return to something more familiar as we implement better systems to mitigate against the risk of the virus. Once aviation begins to recover oil and gas will too. A little patience and the industry will come back but hopefully not to a boom. Sustainability is the key today.

SHANE COWLEY – Co-Founder of Geomada Energy Partners


Stanford, IEA, Global CCS Institute, UN, Worldbank, BP, MIT