Oil and gas companies are responsible for around 10 per cent1 of global emissions when considering direct emissions (scope 1 and 2), and this contribution trebles when taking indirect emissions (scope 3) into account.
The bulk of the sector’s emissions, around 55 per cent2, comes from oil firms with ties to government, which therefore must balance global climate goals with national agendas. Meanwhile, publicly owned international oil companies, accounting for around 15 per cent of emissions, face the fiercest scrutiny and the most aggressive transition targets.
Access to capital and social licence to operate are increasingly dependent on players demonstrating willingness and ability to transition to low-carbon business models.
Against this backdrop, oil and gas companies have a range of options available to help them transition to net zero. These include reshaping their portfolios, expanding into low-carbon energy sources or optimising existing operations to substantially reduce the carbon intensity of existing assets.
1 According to the International Energy Agency 2 Scope 1, 2 and 3 emissions
A successful energy transition rests on the industry pursuing a range of options to meet Paris climate goals. At its core is the need to meet increased global energy demand by electrifying the industrial, consumer and transportation sectors with clean energy.
As such, the energy transition will not be simply a case of replacing carbon-intensive fuels with renewables. To overcome problems such as limited access or intermittency – when too little sun or wind affects power generation – we will need to harness and store surplus energy.
Moreover, meeting future global power demand will require other technologies to be scaled up – think hydrogen, geothermal energy and nuclear power. Emissions-reducing innovations such as carbon capture, utilisation and storage will also feature in the future energy mix.
The availability of capital to fund these developments is a crucial component of change. With public and investor sentiment increasingly focused on the environmental credentials of energy projects, future oil and gas projects must compete with clean energy initiatives for the same capital.
Increasingly, the environmental impact of a company or project can influence the financial sector’s decision to invest in it, which has important implications for the pace of change. Access to equity and debt capital will become easier over time for projects with low or improving carbon emissions.
Accelerating the energy transition must involve sharing risk, so that governments and the financial community come together to invest in developing and scaling up key technologies needed to combat climate change. If individual actors are left to shoulder the risk alone, developing new technologies could take too long in a race against time.
Standard Chartered is supporting the oil and gas sector in the transition to net zero across a range of activities, including reshaping the oil and gas portfolio, investments in renewable energy, emerging low-carbon technologies and projects which reduce the carbon intensity of existing operations.
For example, we are involved in several carbon removal projects in markets where carbon prices are regulated. We are also financing clients in Africa and Asia, where switching from coal to natural gas is a critical part of the journey to cleaner energy.
As a trusted adviser, Standard Chartered is helping clients to define and achieve their sustainability goals as they take their place in building the energy industry of the future.
