The defining decade for oil and gas in the energy transition
Business as usual for the oil and gas industry is over. Investor confidence is flagging just as the talent pool shrinks and competition from cleaner energy sources intensifies. Pressure on companies to respond to the climate crisis to maintain their future viability has never been higher.
BP’s recent “net zero” announcement is a case in point. And though time will tell whether BP delivers on its ambition, CEO Bernard Looney deserves credit for putting his company on the right path. It’s critically important — for the planet and the entire industry — that other energy companies meet or beat the mark of BP’s ambition, and that all turn their sights next to implementation.
As BP’s new plan changes the conversation in boardrooms around the world, energy companies that are serious about performing while transforming will need to step up in four areas. Here’s what to watch for as industry’s defining decade begins.
Set and achieve big targets for GHG reductions
Committing to achieve net-zero emissions by 2050 or sooner is the new standard — that’s lifecycle emissions, which includes the carbon footprint of oil and gas combusted by customers during end uses. In addition to 2050 targets, companies should set and announce mid-course targets (2025 and 2030, for example) that align with the Paris Accord’s reduction trajectory and catalyze investment shifts now.
BP, for example, must follow its visionary February with a specific September. Other companies raising their ambitions would be well served to come to the table with near-term targets from the get-go.
The first implementation task for oil and gas companies is delivering on promises to virtually eliminate methane emissions from their entire supply chain. And they must do so with more accurate, measurement based data, greatly enhanced disclosure, and auditing by qualified and independent experts. Comprehensive technology deployment commitments should become the new normal among companies serious about climate change.
Support science based climate policy agendas
Actively supporting climate policy isn’t just the right thing to do, it’s good business. Climate policy provides regulatory certainty, supports fair competition, sends strong and positive market signals to investors and is vital for industry’s license to operate.
General commitments to support climate policy are welcome, but specific and sustained advocacy is required to make such commitments meaningful. The gauge of a company’s seriousness about achieving net zero is how actively it supports policies to get us there. That’s why BP is right to double down on efforts to pressure trade associations, which, historically, have taken strong stands against government action to reduce carbon pollution. The rest of the industry should take note: hiding behind trade associations is no longer an option.
Deliver results at scale through cooperation
Collaboration with other companies to achieve verifiable climate outcomes at scale is another hallmark of adaptation in the energy transition.
After a splashy start, the credibility of the industry CEO-led Oil and Gas Climate Initiative is eroding because it has failed to demonstrate progress that lives up to the urgency and magnitude of the task at hand. By this fall, OGCI should commit that all of its members, which includes the likes of Shell, Total and Equinor, will monitor, mitigate and measure methane emissions at every site around the world by 2025, the year the OGCI 0.25% methane target comes due. Any OGCI member that cannot commit to achieve this basic step on methane should not remain in what industry touts as its preeminent climate leadership initiative.
Collaborations like the Methane Guiding Principles also hold promise in accelerating action across joint venture partners and throughout the supply chain, and results will be judged by concrete action and ambitious emission reduction outcomes.
Industry has spent 100 years innovating underground. Its future requires innovating above ground. Innovation will be key to bringing diverse stakeholders together, changing energy systems and hitting emission targets.
Each company will carve out its own innovation priorities that build on its core competencies and decarbonization growth areas. Ramping renewables, advancing hydrogen, scaling carbon capture and partnering with cities and customers to accelerate electrification are among the innovation opportunities ahead. The specifics will vary, but every company must put innovation front and center in its energy transition agenda and dedicate resources and investment to match.
Now or never
BP’s announcement is proof that even the largest energy companies are not impervious to investor and social pressure. And it arrived not a moment too soon. If we are to reach climate neutrality in the next 30 years, other companies must follow BP’s ambition and follow through with actions that speed the energy transition and verifiably reduce emissions. The planet’s fate depends on what happens in this defining decade, and so does industry’s.