Pressure is growing on the oil and gas industry to decarbonise but global carbon emissions will remain “stubbornly high" until the mid-2030s, according to DNV GL.

Deep decarbonisation of the world’s energy system is still 15 years away and emissions will not start to realistically decline until after the middle of the next decade, the Norway-based classification giant said in its Energy Transition Outlook 2020.

'Pressure form all sides'

“Pressure is increasing on the oil and gas industry to decarbonise and this is coming from all sides: From society and governments, from investors and also from people within the industry itself,” said DNV GL Oil & Gas chief executive Liv Hovem.

“We see the sector increasingly putting the energy transition at the centre of its agenda but climate change and ambitions to reduce it are outpacing action. The industry needs to prepare for an energy system that does not accept the release of carbon emissions.”

The commitments made by oil and gas companies suggest that short-term emissions reductions will mostly come from efforts to decarbonise oil and gas production.

Such solutions include electrifying oil and gas assets, reducing flaring and venting of gas, increased efforts to detect and stem methane leaks, and efficiency gains through digitalisation.

However, oil and gas production and distribution accounts for only a quarter of the industry’s carbon emissions, with the majority occurring during the combustion process.

Faster pace necessary

Decarbonisation is rapidly rising up the agenda of industry and governments but not at the pace or depth required to meet the Paris Agreement, according to DNV GL.

The scaling of hydrogen and carbon capture and storage (CCS) technology — incentivised by government policy — will be a catalyst to begin deeply decarbonising the oil and gas value chain after 2035.

Partnerships among government, industry and associations will be crucial in accelerating the timeline on decarbonisation and reducing the risk of missing climate targets and ambitions, according to the Norwegian consultancy.

Emissions: a coal-fired power plant in China Photo: REUTERS/SCANPIX

“Collaboration on frameworks for making hydrogen and CCS safe, effective and commercially viable will give the oil and gas industry the certainty it needs to manage new risks and accelerate its transformation towards a low-carbon future,” she added.

Asia holds the key

Asia will be key to the global decarbonisation drive.

“If India and China do not decarbonise, then it doesn’t really matter what the rest of the world is doing,” DNV GL chief executive Remi Eriksen said on Wednesday at the launch of the annual report — an event held virtually.

Carbon dioxide emissions from global energy use are forecast to fall by only 15% to 2035 before decreasing by 40% to 2050.

Fossil fuels will account for 54% of primary energy supply in 2050 compared to around 80% today. However, the oil and gas industry will still account for more than four-fifths of global energy-related carbon emissions in 2050.

Looking ahead to 2050, DNV GL expects that the industry will broadly not be measured on carbon emissions per barrel of oil or gas produced — as is the current default — but by lifecycle emissions per barrel of oil or gas consumed. This includes so-called ‘Scope 3 emissions’, which include all emissions from combustion or use of oil and gas products.

CCS is central

DNV GL noted that, while there are limited options to reduce emissions from oil consumption, other than shifting to another energy source, natural gas consumption could be decarbonised through deploying CCS technology.

Hydrogen and CCS have the potential to decarbonise fossil fuels more deeply. These technologies could transform the oil and gas industry’s ability to remove significant amounts of carbon emissions.

Natural gas is expected to overtake oil in the primary energy mix in 2026 and gas demand is forecast to peak in 2035 before its utilisation slowly tapers off.

However, just 13% of natural gas will be decarbonised in 2050, with 12% of world energy emissions captured by CCS — most from natural gas.

“The transition to renewables and efforts to cut carbon intensity will significantly reduce emissions but they will not deeply decarbonise natural gas, which the world’s energy system will depend upon for years to come.

"It is only by removing the carbon from natural gas — before or after combustion — that the oil and gas industry can deeply decarbonise, reaching hard-to-abate sectors throughout the value chain,” added Hovem.

Huge role for hydrogen

In terms of lowering the emissions of natural gas consumption, DNV GL projects that hydrogen (produced from fossil fuels with CCS and from renewables via electrolysis) will supply 23% of end-user demand for gas (natural gas and hydrogen).

Around half of this hydrogen will be produced from fossil fuels in 2050, with approximately 70% coming from natural gas.

Governments need to enact policy to stimulate greater uptake of the technologies that will decarbonise industry, according to DNV GL.

The quicker that governments incentivise industry to adopt technology, such as through a competitive carbon price, the quicker industry takes the technology down the cost-learning curve for it to become independently financially viable.

Hovem cautioned the problem is that CCS won't move down the cost learning curve unless industry significantly increases its roll-out of the technology but DNV GL does not foresee this happening until costs come down or there is a carbon price that exceeds the cost of the technology.

Hydrogen is said to face a similar issue. It relies on CCS for blue hydrogen and on the cost of electrolysers falling to produce green hydrogen at scale.

“We forecast that both will happen in order to realise the hydrogen economy, just not until the 2040s,” said Hovem.