The transition from “fuel” to “energy” companies

100%

80%

60%

40%

20%

Use of CCUS in refining

Use of renewables in operations

Methane reductions

Reduce flaring and venting CO

Oil to gas shift

Change in resources produced and refined

Efficiency improvements

A necessary first step for the oil and gas industry in energy transitions is to reduce the environmental footprint of its operations. This is not important just to reduce GHG emissions, but also because producers that can demonstrate strong action in this area can credibly argue that their oil and gas resources should be preferred over higher-emissions options.

In the SDS, industry efforts are pushed by CO2 pricing and policy interventions and have a major impact on the level of scope 1 and 2 emissions. The emissions intensity of oil and natural gas production falls by more than 50% between 2018 and 2040, a drop in absolute terms of around 3 200 Mt CO2.

The biggest impact, by far, on reducing scope 1 and 2 emissions over the next ten years is through tackling methane emissions. Reductions go beyond those technologies that would pay for themselves through the value of the captured methane. All technically available measures to reduce emissions are deployed by 2030, which leads to a 75% reduction in methane emissions from oil and gas operations. As discussed above, only a modest CO2 price – applied to all sources of

GHG emissions – would be needed to incentivise the adoption of these measures, but regulatory interventions could also play a role to encourage their introduction at the pace and scale needed.

Significant emissions reductions also come through strengthened efforts to eliminate flaring, and capturing and reinjecting CO2 that is extracted with natural gas. There is wider adoption of efficiency improvements in existing facilities and the various “game-changing” measures are incorporated into the design of new facilities. This includes electrifying LNG facilities or equipping them with CCUS units,

capturing and storing emissions from refining, and co-locating renewables with new upstream operations.

The CO2 price in the SDS would be sufficient to encourage CO2-EOR operators to inject anthropogenic rather than natural sources of CO2. This is a crucial mechanism to storing permanently this CO2 underground.

The captured CO2 in this scenario comes from industrial facilities and power plants, which claim the emissions reduction credit. For CO2-EOR to produce negative emissions – that is reduce the stock of CO2 in the atmosphere – EOR projects would need to inject CO2 that has either come from the combustion or conversion of biomass or has been captured directly from the air.

These reductions in scope 1 and 2 emissions are an essential step for oil and natural gas to play the role envisaged in the SDS. If they do not occur, then there would need to be a faster reduction in oil and gas demand to ensure compatibility with international climate targets.