Oil giants turn to low-carbon energy sources causing tight supply

According to a report from today's oil prices on June 3, environmental activists demand that oil giants drastically reduce emissions and shift their strategy to low-carbon energy investment instead of oil and natural gas, which may lead to oil prices in the near future.

The accusations of the current strategic direction of major oil companies have laid the groundwork for some unexpected consequences that climate activists may ignore.

In addition, investment in the development of new resources has dropped significantly.

Some people may say that oil demand will fall anyway, and the world's demand for oil supply will not be as great as it has been in the past 10 years.

But it should be noted that even if the global temperature rises by 2 degrees Celsius, investment in new oil will still be important.

If large oil companies heed the call of environmentalists and the International Energy Agency’s advice to “no longer make new oil and gas investments”, then in a world where the energy transition has just begun and oil and gas are still needed to operate and support the economy , Oil supply will be severely restricted.

The Norwegian Oil and Gas Association stated: “If demand does not fall as rapidly as the International Energy Agency assumes in its vision, and the supply side is cut off, the global energy supply may be threatened and lead to energy loss.

In Europe, oil majors are preparing to reduce emissions in the next few decades and gradually reduce oil production in order to fulfill their promise of achieving net zero emissions by 2050.

Patrick Pouyanné, the former Total CEO, said: “We need to stop producing oil, which is great, but what will happen if there are no longer enough projects or production? We also need to think carefully.

Rystad Energy said that the reserves of large oil companies have declined in the past decade, but even large European oil companies continue to rely on a business model dominated by oil and gas sales.

Parul Chopra, vice president of upstream research at Rystad Energy, said: "If the reserves are not enough to maintain production levels, companies will find it difficult to fund expensive energy transition projects, leading to a slowdown in their clean energy plans.

Long before shareholders and climate activists issued the biggest warning to date, large oil companies had realized the need to invest in low-carbon energy.

Wang Jiajing excerpted and translated from today's oil prices

The original text is as follows:

Climate Revolt Against Big Oil May Lead To Surge In Crude Prices

The surge in climate activism demanding that Big Oil drastically cut emissions and shift strategies to investment in low-carbon energy instead of oil and gas could result in a surge in oil prices in the not-too-distant future.

Last week's rebuke of Big Oil's current strategic direction sets the stage for some unintended consequences that climate activists may have overlooked.

These consequences include unintentionally giving OPEC even more control over the global oil market.

　　Then, significantly reduced investments in developing new resources—which are already low after the 2020 oil price collapse—could lead to a supply crunch down the road.

　　Some would argue that oil demand would fall anyway, and the world wouldn't need as much supply as it did over the past decade.
But there are currently no signs that oil demand is getting ready for a drastic fall, despite wishful thinking and net -zero scenarios, including the one from the International Energy Agency's (IEA) bombshell report that suggested no new investment in oil and gas needs to be approved beyond this year's commitments if the world is to reach net-zero emissions by 2050.

　　Investment in new oil will continue to be important, even if the world gets on the 2 degrees Celsius pathway.
New low-cost, low-carbon barrels will be necessary in order to replace dwindling production from maturing fields, Wood Mackenzie analysts said last week .
If these investments from international oil firms are insufficient, the national oil firms will step up to prove and commercialize new resources, WoodMac notes.

　　If Big Oil were to heed all the calls from environmentalists and the IEA's suggestion of'no new oil and gas investment ever again', oil supply would be severely constrained in a world that is only at the beginning of its energy transition and still needs oil and gas to function and support economies.

　　"If demand does not decline as rapidly as the IEA assumes in its scenario, and the supply side is simultaneously choked off, global energy provision could be threatened and lead to very high energy prices," said the Norwegian Oil and Gas Association, the professional body and employers' association of the industry.
Norway, Western Europe's biggest oil producer, has more stringent environmental standards than OPEC's producing countries and pumps oil at one of the world's lowest emissions levels.

　　In Europe, oil majors are preparing to reduce emissions and gradually slow oil production over the coming decades as per their net-zero by 2050 pledges.
However, those firms are also aware of the fact that it will be oil and gas profits that will pay for their'energy transition' portfolios.

　　“It's nice to say that we need to stop producing oil, but if there are no longer enough projects or production, what will happen? Prices will rise,” Patrick Pouyanné, chief executive at TotalEnergies, formerly Total, told France's Europe 1 radio on Monday.

　　Over the past decade, Big Oil's reserves have dropped, but even Europe's majors, all of which have pledged to become net-zero emission energy businesses, continue to rely on business models dominated by oil and gas sales, Rystad Energy said in a report last month.

　　“If reserves are not high enough to sustain production levels, companies will find it difficult to fund expensive energy transition projects, resulting in a slowdown of their clean energy plans,” said Parul Chopra, vice president of upstream research at Rystad Energy.

　　Big Oil had already awakened to the need to invest in low-carbon energy even before last week's biggest wake-up call from shareholders and climate activists so far.
Yet, aggressive reductions—or'keeping it in the ground' as environmentalists demand—in future oil supply beyond the oil majors' current plans would lead to oil price spikes.
It would also leave most of the world's supply in the hands of OPEC and Russia.