Global warming and the future of fossil fuels

As the world wrestles with the impacts of industrialization, there are different views on the future of oil and gas. This article provides a personal analysis of climate change and the energy transition, as a contribution on how we address their effects on business and livelihoods.

Following the 2015 Paris agreement at COP 21, most developed countries have effectively committed to net zero carbon emissions by 2070, and many as early as 2050. In 2019, human activities released more than 40 Gt (giga or billion tonnes) of carbon dioxide to the atmosphere. The implication is that over the next 30-50 years, these emissions will fall to near zero. This adds up to a total of 800 Gt CO2 (+/- 150 Gt) between now and a carbon-free future. In fact, the Intergovernmental Panel on Climate Change calculate a smaller, mid-case number of 560 Gt CO2 to keep the rise in global temperature to their recommended limit of 1.5 deg C.

Sticking with the higher number, a figure of 800 Gt CO2 represents the amount of carbon contained in 1850 billion barrels of oil, less than the current reserves of oil and gas (2900 billion barrels of oil equivalent or 1100 Gt CO2). Unfortunately, current economics suggest it is too costly to capture more than a small fraction of waste carbon dioxide and dispose of it underground. For example, $65 per tonne CO2 is a rough number for the cost of carbon capture and storage (CCS) in the North Sea, equivalent to almost $30 per barrel of oil. Furthermore, a formidable amount of land or sea is required if new trees or algae were used to offset a significant proportion of the emissions. The amount of carbon dioxide a forest can sequester per year comes to a reasonable average of 1000 tonnes per sq km, and fast-growing seaweed up to 10,000 tonnes.  This means to offset just 1% of the 800 Gt CO2, would require around 8 million sq km of new trees or more than 0.8 million sq km of kelp forests. So, although it is important to re-establish forests and ocean ecosystems, they are not going to solve the emissions problem. And, just to compare, a reasonably-sized CCS project might store 1 Mt (million tonnes) CO2 annually, requiring 8000 such projects to dispose of the same 1% over a year, amounting to a rough cost of $520 billion based on the $65/t CO2 mentioned above.

From a climate perspective, once coal-fired power-stations, deforestation and oxidizing soils are taken into account, it appears that the world does not need more petroleum as we will be unable to deal with the emissions. Therefore, based on national commitments alone, the days of traditional oil and gas exploration are numbered. The size of the playing field is also shrinking as certain governments announce that licensing rounds will stop. This does not mean that the demise of the industry is imminent but it is certainly prudent to plan for the energy transition, perhaps even be proactive in its development. The demand for petroleum is largely out of our hands but addressing the consequences of action on climate change need not be.

There are uncertainties in the degree of global warming we can expect in the future but the greenhouse effect is indisputable. Already in 1869, Svante Arrhenius demonstrated that infrared radiation from the Earth is trapped by carbon dioxide in the atmosphere causing it to heat by an amount proportional to its concentration. Prior to the industrial revolution, it is estimated that there was around 280 ppm of CO2 in the atmosphere, resulting in a climate conducive to the development of humans as well as present-day animals and plants. In contrast, if there were no greenhouse gases like carbon dioxide then the average global temperature would be as low as -23 deg C.

As a geologist who has been making models of the Earth for most of his career, I would argue that climate models are far better constrained than, say, the processes which cause tectonic plates to move. Despite only having indirect geophysical measurements and laboratory experiments to constrain properties at depth in the lithosphere and asthenosphere, few of us have serious doubts about plate tectonic theory. And, although none of us have visited the moon, we accept the scientific information about its physical character. I feel the same should be true of data and scientific models which prove that human activities are affecting the Earth’s climate, even if we are uncomfortable with some of the implications.

The immense number of measurements from meteorological stations, weather balloons and satellites, combined with the power of modern computers, mean that climate models are relatively well constrained. Temperatures have certainly risen by more than 1 deg C and the marked acceleration since 1950 clearly ties in with the excess carbon released from fossil fuels and widespread clearing of forests. Based on current emission trends, we are heading to an average atmospheric concentration of 560 ppm of carbon dioxide, a doubling, by around 2060. In most global models, where the effects of other greenhouse gases are also incorporated, this will cause temperatures to rise by somewhere between 2.6 deg C and 3.9 deg C, a potential catastrophe for the Earth as we know it.  Arrhenius calculated a similar rise (3-4 deg C) 125 years ago and even my own overly simple model predicts close to 2.6 deg C.

From a personal viewpoint, over the last 15 years in Copenhagen we have gone from a few weeks of snow every winter to none. Denmark used to have ski jumps but now there is significantly more rainfall, often in violent downpours. To address immediate concerns, not only has the Government invested large sums in flood mitigation but it has also announced an end to Danish North Sea oil and gas production by 2050. Nonetheless, whilst the rest of the Earth gets hotter, melting ice from Greenland will affect North Atlantic circulation to the extent that the climate of NW Europe may ultimately become much colder.

The largest impact we are having on the climate results from our modern lifestyle. An average person in NW Europe is responsible for somewhere between 17 and 19 tonnes CO2 per year from direct emissions (power, heating, private transport and industry) and indirect emissions (from his/her material consumption). The indirect emissions represent roughly two-thirds of the total, although these are not included in nationally determined contributions. It is only direct emissions which are considered in net zero aspirations and it is here where the burden of developing low-carbon solutions will fall, largely on industry.

Regarding the current difficulties for oil and gas, aside from environmental pressures, one could question whether the way the upstream business works makes sense when prices are low.  Traditionally numerous different companies spend significant amounts of money interpreting the same exploration acreage, then form partnerships and competitively bid against each other. Duplication of effort, often with incomplete data, is perhaps not the most efficient way of creating value when demand for a natural resource is reducing. The ‘winners curse’ of having paid too much for an oil or gas prospect is a common outcome. In the future, collaboration and integration with other sectors and between governments will be become essential if efficient low-carbon energy systems are to be built. Power conversion and storage are as important as generating electricity from renewable sources in such systems. A change from the established competitive approach is a significant ask. Even between national authorities, cross-border strategies are conspicuous by their absence.

With all this in mind, there are three scenarios in how the world deals with climate change over the next 30 years:

1)      Humans continue on a course of high-carbon use, requiring adaptation as islands and coastal regions flood and large parts of the earth become too hot and dry to be habitable, oceans acidify and many ecosystems die.

2)      Through the energy transition, humans successfully curb emissions, so that global warming is mitigated and the worst climate predictions are averted.

3)      Despite a reduction in emissions, this by itself is insufficient to mitigate global warming and, therefore, humans instigate large-scale geoengineering projects which, together, cool the Earth enough to avert the worst predictions.

All three are possibilities, although scenario 2) is preferable. It is here that the oil and gas industry can turn to develop new, sustainable businesses for the future. Significant up-front investment is needed but the projected cost of scenario 1) to the world as a whole is greater than the price of decarbonizing modern society.

There will be many new jobs in the energy transition, albeit less in geoscience and more in engineering and construction. As an example of how important renewables will become in the future, it is predicted that the capacity of wind energy will rise to 5000 GW by 2050 (equivalent to 8 billion boe per annum, a 9 times increase from 2018) and solar photovoltaic energy to 8500 GW (5 billion boe per annum, 17 times more than 2018). Together this amounts to 37% of current oil consumption (35 billion boe per annum in 2018) and equates with 1.4 million wind turbines of average 3.6 MW size and 170,000 sq km of solar parks assuming 50 MW per sq km. In contrast, in the era of decarbonized power generation, it is difficult to see a scenario where the costs of carbon capture and storage fall to the level which would allow gas, oil or coal to remain competitive. Clearly wind and solar are growth sectors whereas the market for fossil fuels will inevitably shrink.

One can also see what investors think when one compares the doubling in the market value of renewable energy companies to the halving in value of petroleum companies over the last 12 months. Another development is that a stigma has been attached to petroleum which can make those working in the industry feel either guilty or defensive. This is sad considering modern society still demands private cars, air travel, high-carbon consumables and limitless power. Nonetheless, it now seems important to take concerns about climate change seriously and consider how one might contribute to decarbonizing modern society.  

In conclusion, from both an environmental and a business perspective the world is changing. The more pragmatic question is how we change ourselves to meet the challenges. By embracing the energy transition, companies can motivate employees and meet the growing concerns of shareholders. The next step is finding the opportunities that play to the strengths of an industry used to dealing with large offshore engineering projects, disparate partnerships, long payback times and commercial risk and uncertainty. It is both feasible and sensible for companies to chart a path from producing oil and gas today to providing low-carbon power in the future, a broad field which includes generating electricity, storing energy and making fuels.

Dave Quirk

10 February 2021

References can be supplied on request.