Cop28, the UN climate conference, opens on November 30 at Dubai Expo City. Climate activists hope it won’t unlock a path to more oil and gas production.
Is there a justification for investing in hydrocarbon extraction in a world trying to get on track for net zero?
This question goes well beyond simplistic headlines. Overinvesting could, at best, waste a lot of money and, at worst, as many fear, lock us into a world of high emissions and catastrophic global heating.
Conversely, not spending enough could mean an energy crunch, very high oil prices, economic and geopolitical disruption, and possibly a turn against ambitious climate policies.
This debate was crystallised by the International Energy Agency’s declaration in 2021 that, in a world on a path towards net-zero emissions, no new oil and gasfields would need to be developed. The IEA reiterated and updated that view in September.
This framing is wrong, or at least, backwards. Environmentalists remain locked in a mindset of limited resources, in which every barrel of oil, cubic foot of gas or tonne of coal will eventually be dug up and burnt, if not prevented.
In reality, long-term demand determines supply, not vice versa. If oil is not required, because of the adoption of electric vehicles and other alternatives, prices will fall and investment will stop.
The example of the long slump from 1986 to 2001 is instructive.
Following the slump of global demand during that period, Opec spent two decades inching back to full capacity; countries such as Libya, Venezuela and Indonesia have never regained their 1970s highs.
How exactly a “net zero” pathway plays out depends on how the major producers – particularly Opec and its allies – respond.
Net zero does not mean absolute zero. A variety of sustainable development and net-zero scenarios have between 17 million and 45 million barrels per day of oil use in 2050, from about 102 million bpd this year.
And it will not have escaped notice that we are, unfortunately, nowhere near on track for global net zero. Oil companies have to tackle environmental challenges honestly, but they can invest for the world as we would wish it, or the world as it is.