Europe’s big oil companies are all targeting net-zero greenhouse-gas emissions by 2050 in some form. But while their emissions could be 60 per cent-65 per cent below 2019 levels by then, that still won’t be sufficient for net zero. Carbon offsets such as carbon-capture and forestry will thus be critical. We estimate that nearly a quarter of current emissions will need to be offset by 2050.
The six major oil companies’ emissions dipped 13 per cent last year as the pandemic slowed economic activity. They will rise again this year but should remain below their 2018 peak, then plateau and return to 2020 levels by 2030.
Absolute reductions will be required and cutting upstream production will be the main route. The companies’ upstream oil and gas production could fall by 12 per cent from 2019 levels by 2030, and by more than 60 per cent by 2050.
Gas production could be down 45 per cent-50 per cent with oil down 80 per cent. That will lift gas’s share from 50 per cent today to more than 70 per cent by 2050 on our estimates.
Reducing carbon intensity can be achieved simply by growing low-carbon power such as wind and solar and shifting the production mix from oil to gas. But cutting absolute emissions requires more radical action.
Operating emissions reductions can be achieved through cutting methane leaks, less flaring, energy efficiencies or platform electrification, but these total only 14 per cent of the oil firms’ emissions.
In the medium term, reducing oil volumes is inevitable, but longer term, net-zero targets will require negative-carbon technologies such as carbon capture and storage.
For some companies, upstream asset sales and exiting third-party oil and gas activities could represent up to 20 per cent of their emissions cuts but this simply shifts emissions to businesses that may have less stringent environmental practices or increase output and, hence, emissions.
Long term, a European oil firms’ net emissions decline of 75 per cent-80 per cent would broadly align with the Paris Agreement.
All the companies have ambitious plans for low-carbon power, especially in solar and offshore wind. We expect solar’s share of their aggregate capacity to rise this decade from just over 50 per cent to about 60 per cent in 2030. The share of offshore wind should rise from 6 per cent currently to around 15 per cent, but new licences could increase it to about 20 per cent of net installed capacity by 2030.
A key challenge for the oil companies will be finding ways to decarbonise their energy sales mix while mitigating the shrinkage of their overall business. If they cut oil and gas volumes faster than they grow their low-carbon businesses, total energy sales would fall.
We expect a small rise in sales until 2030, before they decrease as the energy transition unfolds and consumers use less energy. By 2050, the European companies’ sales could fall by more than 20 per cent from 2019 levels, driven partly by a sharp fall in oil and gas production and sales volumes.
In 2019, oil made up 52 per cent of the European oil majors’ aggregate energy sales, gas 43 per cent, biofuels less than 1 per cent, and power about 4 per cent. By 2050, the sales mix could be mainly low-carbon products, with electricity contributing 44 per cent of total sales, biofuels another 7 per cent, but oil just 15 per cent and gas 34 per cent.
First published 20 April 2021.
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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Kim Fustier
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