Oil and gas investment will be needed for another 30 years: BP

Rachel Millard

Jan 31, 2023 – 12.00am

Investment in oil and gas production will be needed for at least the next three decades if the world is to avoid shortages and price swings, BP has warned.

The oil giant said in its annual energy outlook published on Monday that fossil fuels were still likely to account for about 20 per cent of primary energy in 2050, even under a significant tightening of climate policy.

Spencer Dale, chief economist at BP, said investment in production would be needed until 2050 to ensure supply matched demand.

“Natural declines in existing production sources mean there needs to be continuing upstream investment in oil and natural gas over the next 30 years,” he wrote in the report.

The assessment is likely to spark a backlash from climate groups and campaigners who argue that investment in new wells should be immediately stopped to meet net zero carbon emission goals.

Swedish environmental activist Greta Thunberg told world leaders at Davos this month that new extraction should be stopped immediately, while UN secretary-general Antonio Guterres has called new funding for fossil fuels “delusional”.

The International Energy Agency said in 2021 that no new oil, gas or coal projects should be approved if the world was to stay on track to meet a goal of net zero emissions by 2050.

However, BP said continued supply was needed to prevent a repeat of the kind of distress seen last year when Russian oil and gas supplies were cut or disrupted after it invaded Ukraine.

Mr Dale said the scale of disruption that caused “highlighted the need for the transition away from hydrocarbons to be orderly, such that the demand for hydrocarbons falls in line with available supplies, avoiding future periods of energy shortages and higher prices”.

While demand is expected to fall sharply as a result of efforts to cut carbon emissions, the fuels will still play a major energy role, BP predicts.

The company expects oil demand to plateau over the next decade, before starting to fall, driven by the switch to electric cars.

However, BP envisages fossil fuels will still account for about 20 per cent of primary energy in 2050, even under a significant tightening of climate policies to cut emissions by 95 per cent by 2050.

“Global energy policies and discussions in recent years have been focused on the importance of decarbonising the energy system and the transition to net zero,” Mr Dale said.

“Events of the past year have served as a reminder to us all that this transition needs to take account of the security and affordability of energy.”

The warning comes as investors increasingly turn their backs on fossil fuels, with close to $US40 trillion ($56.2 trillion) in global capital committed to divesting.

BP looked at three possible scenarios for the evolution of the global energy system. Under its “new momentum” scenario, which best reflects the current trajectory, fossil fuels would account for 55 per cent of primary energy in 2050, compared to about 80 per cent in 2019.

“The total consumption of fossil fuels declines in all three scenarios over the outlook,” it says. “This would be the first time in modern history that there has been a sustained fall in the demand for any fossil fuel.”

OPEC’s share of global oil production is expected to rise sharply after 2030 to almost two-thirds by 2050, albeit in a much smaller market.

The cartel of oil-producing countries, led by Saudi Arabia, is forecast to cut output over the next decade to avoid pushing prices down too far.

Under chief executive Bernard Looney, BP has pledged to shift towards renewable energy and has said it expects to cut its oil and gas output by about 40 per cent by 2030.

The Telegraph London

Why the big banks are sticking with oil and gas

Activists forced the banks to ditch thermal coal. Don’t expect a repeat on oil and gas, with banks committed to keeping the lights – and their profits – running.

Biggest financier

The activists cite the IEA’s report calling for no new or expanded projects as proof that the banks cannot meet their net zero commitments by 2050 if they stump up for new projects.

ANZ Banking Group is the biggest financier to the oil and gas sector of the Aussie majors by a long way. It said late last year that it would put more money, not less, into the sector to enable it to transition. It hasn’t ruled out financing new projects and is unapologetic about its support for the sector, which it says will lead the transition.

Adding $50 billion to its existing $50 billion sustainable financing target, ANZ is the most vocal about the existing players being the ones who will eventually feed the grid with renewable energy.

Whitton says most of the major energy players are already developing plans to move into green hydrogen and other forms of renewables. But they’re doing it with their own booming cashflows, highlighting the challenge for banks if they can’t innovate and find new revenue streams in a rapidly changing energy market context.

“We can see this in the way the sector is developing today, expecting to see some of this innovation happening inside large existing companies that have already typically got access to finance or basically collateral that they can hold on the balance sheet so they can say ‘look, I am going to chase this demonstration project and maybe I’m going to have a partner, but I’ll be one of the very creditworthy parties who are standing behind this exercise and probably providing some of my own finance’,” says Whitton.

The Aussie banks, meanwhile, are yet to define the technical parameters for what constitutes green, brown or transition when it comes to their sustainable financing ambitions.

A crucial piece of work being done by the Australian Sustainable Finance Institute will help them to not only determine the right labels for finance, but also the parameters for which emissions-exposed clients they should stick with and which they should ditch. But given it won’t be ready until 2025, we can expect at least one more round of AGM protests before then.