Halting new oil and gas investments to try to hit net-zero emissions by 2050 risks centralising hydrocarbon resource assets and wealth in a handful of nations, such as major Middle East producers, one energy consultancy warns.

The International Energy Agency (IEA), in a landmark report released last week, said there is no need for investment in new fossil fuel development if the world wants to tackle global warming effectively.

The proposal was one element of the Paris-based agency's ‘Net Zero by 2050’ report outlining what it believes are the steps needed to keep global temperature increases to within 1.5 degrees Celsius above pre-industrial levels by mid-century.

Virendra Chauhan, head of Asia Pacific at consultancy Energy Aspects, said that, if governments, primarily in OECD nations, and investors are pressured into not making new oil and gas investments, there will be a large transfer of assets and wealth away from international oil companies to state-owned players in producer economies, for example in the Middle East, and to large demand centres such as China.

“We are already seeing this happen, for example with Iranian and Iraqi oilfields, where Western operators have moved out and operators domiciled in Asia have moved in,” he told Upstream.

Chauhan described the IEA’s net-zero emissions scenario as “exactly that — it’s a scenario”.

“Long story short, oil is not going to go away any time soon, and any lack of investment in oil will lead to further future volatility in the oil price,” he added.

‘Just a scenario’: Virendra Chauhan, head of APAC at Energy Aspects Photo: ENERGY ASPECTS

Glen Peters, research director for the Center for International Climate Research in Norway and peer reviewer for the IEA’s ‘Net Zero 2050’ road map, disagrees with Chauhan, arguing that it is increasingly hard to envisage a world that will drift back towards greater fossil fuel usage.

“Any investment decision will now have additional question marks and more uncertainty,” he told Upstream.

According to Peters, the IEA road map will not be realised without a concerted effort by governments, investors, industry and consumers.

“It is unlikely the world will overnight propel itself along the IEA road map, but the fact that the report came from the IEA and was backed up by strong and clear messages will change the risk profile moving forward,” he said.

Many countries, investors and companies have pledged net-zero targets, Peters said, but since 2050 is still 30 years away, they have been able to avoid scrutiny of what this means for decisions taken today.

“The IEA has now said clearly what needs to happen in the 2020s for net zero to be feasible in 2050, and almost all countries and companies with net-zero pledges will be inconsistent with these requirements,” he said.

“Investors and voters now have clear benchmarks on which to assess progress. Litigators will see more opportunities.”

Chauhan, on the other hand, explained that there is a strong correlation between oil demand and economic growth.

“Put simply, if you look back at periods of strong economic growth, they have coincided with periods of strong growth in energy supply — and oil has historically been the primary driver of that.”

He said that, although oil may not be the key growth market in the decades to come, it will continue to play a critical role: “Assuming a reduction in investment from today will have deep economic consequences and impact the lives of many, particularly in the non-OECD.”

The IEA road map assumes that energy demand will be 8% lower in 2050 than today but serve an economy twice as big and a population with 2 billion more people.

Chauhan believes this would be extremely challenging to achieve.

“Some of the key principles of the IEA include maintaining and enhancing energy security, reducing energy poverty and increasing energy access. I struggle to see how we can cater to 2 billion more people whilst simultaneously reducing energy demand,” he said.

Efficiencies are, according to Chauhan, inherent in the system, and he believes there are limits to how much further energy consumption can be reduced without affecting people’s way of life in a significant way.