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Should We Keep Investing in Oil and Gas? Experts Weigh In

In recent months, several oil majors have emphasised the need for greater investment in oil and gas. Many fossil fuel companies have increased their oil and gas output in the wake of the Russian invasion of Ukraine and subsequent sanctions on Russian energy, to support government energy security efforts and fill the gap until there are sufficient green alternatives to meet the rising global energy demand. However, as governments worldwide pursue a green transition, scientists and environmentalists are stressing the need to cut fossil fuel funding to ensure that climate targets, such as those of the Paris Agreement, are met.
In March, at the CERAWeek by S&P Global energy conference in Houston, the CEO of Saudi Arabia’s state-owned oil company Aramco, Amin Nasser, emphasised the ongoing global dependence on fossil fuels. Nasser suggested that instead of pumping money into green energy, governments should support the expansion of fossil fuel operations worldwide, to ensure energy security in the face of the growing global energy demand. This opinion was shared by several other attendees at the conference representing a wide array of oil and gas companies.
Nasser caught the attention of climate activists last year when he publicly disagreed with the International Energy Agency’s (IEA) prediction that oil, gas and coal demand will peak in 2030. He accused the IEA of being overly U.S.- and Europe-centric and overlooking the growing demand in other parts of the world. He, and several other oil and gas representatives, believe that we must continue to fund oil and gas operations until there is an alternative energy source that is stable and large enough to meet the global energy demand.
However, many scientists and environmentalists believe that the only way to achieve a widespread green transition is by cutting funding to fossil fuel operations in favour of renewable alternatives. There are several reasons for this view. Firstly, the money being spent on oil and gas exploration and related operations could be better spent on research and development into alternative energy sources. Secondly, funding new fossil fuel operations will lead to the production of higher levels of greenhouse gas emissions for decades longer. Thirdly, so long as fossil fuels are being used as a safety blanket, governments and consumers across the globe are unlikely to take the green transition seriously, as there is no imminent need for the switch beyond the threat of climate change.
In 2021, the IEA stated the need for an “unprecedented transformation of how energy is produced, transported and used globally” to achieve international climate goals. The Agency’s 2021 Roadmap showed that the pledges at that point fell “well short of what is necessary to reach net?zero emissions globally by 2050.” It also highlighted several milestones that need to be achieved to support climate pledges, such as bringing an end to the sales of new fossil fuel boilers by 2025 and banning the sale of new internal combustion engine cars by 2035. Overall, the IEA emphasised that there should be “no investment in new fossil fuel supply projects, and no further final investment decisions for new unabated coal plants.”
Despite the IEA’s continued efforts to draw attention to the dire state of the energy industry and the need to make an imminent shift away from fossil fuels in favour of green alternatives, governments and private companies have continued to fund oil, gas and coal projects. Some are doing this because they view fossil fuels as necessary for energy security and others are doing it for the high revenues that oil and gas bring to the table.
One lesser-explored criticism of oil and gas funding is its longevity. Some investors believe that although fossil fuels have offered a good return on investment in recent years – particularly following the Russian invasion of Ukraine – they do not offer a sound long-term investment. Tom Steyer, the founder and co-executive chair of Galvanize Climate Solutions, an investment firm focused on the energy transition, writes, “If there’s one lesson I’ve learned in decades as an investor, it’s that things change. On closer examination, the simplest argument against funding new oil, gas and coal projects is not that they’re immoral. It’s that they’re unsound.”
Steyer believes that investing in new oil and gas projects is risky as they won’t come online for several years; much of the oil and gas in traditional oil-rich regions has depleted and accessing the remaining supplies through technologies such as fracking will be more expensive; the oil and gas industry relies heavily on government subsidies, which are likely to be reduced as countries worldwide undergo a green transition; and massive funding into green energy in recent years has led to several major technological breakthroughs and the rapid expansion of renewable energy capacity. This suggests that investing in new fossil fuel projects could be a bad move, not only for climate change efforts but also in terms of profitability.
By Felicity Bradstock for Oilprice.com
Apr 21, 2024 14:12
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