Oil and gas companies are facing a critical challenge as the world increasingly shifts towards clean energy transitions. Fossil fuels drive the companies’ near-term returns, but failure to address growing calls to reduce greenhouse gas emissions could threaten their long-term social acceptability and profitability.

The oil and gas industry now needs to make clear what clean energy transitions mean for it – and what it can do to accelerate clean energy transitions.

Whatever path the world follows in its efforts to limit the rise in global temperatures, intensifying climate impacts will increase the pressure on all industries to find solutions.

‘No energy company will be unaffected by clean energy transitions,’ said Dr Fatih Birol. ‘Every part of the industry needs to consider how to respond. Doing nothing is simply not an option.’

The landscape of the oil and gas industry is diverse, meaning there is no single strategic response but a variety of approaches depending on each company’s circumstances.

‘The first immediate task for all parts of the industry is reducing the environmental footprint of their own operations,’ Dr Birol said. ‘As of today, around 15% of global energy-related greenhouse gas emissions come from the process of getting oil and gas out of the ground and to consumers. A large part of these emissions can be brought down relatively quickly and easily.’

Reducing methane leaks to the atmosphere is the single most important and cost-effective way for the industry to bring down these emissions. But there are ample other opportunities to lower the emissions intensity of delivered oil and gas by eliminating routine flaring and integrating renewables and low-carbon electricity into new upstream and LNG developments.

‘Also, with their extensive know-how and deep pockets, oil and gas companies can play a crucial role in accelerating deployment of key renewable options such as offshore wind, while also enabling some key capital-intensive clean energy technologies to reach maturity,’ Dr Birol added. ‘Without the industry’s input, these technologies may simply not achieve the scale needed for them to move the dial on emissions.’

Some oil and gas companies are diversifying their energy operations to include renewables and other low-carbon technologies. However, average investment by oil and gas companies in non-core areas has so far been limited to around 1% of total capital spending, with the largest outlays going to solar PV and wind. Some oil and gas companies have also diversified by acquiring existing non-core businesses – for example in electricity distribution, electric-vehicle charging, and batteries – while stepping up research and development activity.