A net-zero future will see the vast majority of the world’s energy produced from renewables such as solar and wind, with demand for oil and other fossil fuels plummeting. Where demand for oil remains – for example, in certain industrial processes, or long-distance air travel – consistently low market prices are expected to mean that oil production will be dominated by low-cost producers.
The International Energy Agency’s (IEA) Net Zero by 2050 pathway anticipates oil demand declining by 75% by 2050 from 2020 levels, with falling demand leading to the oil price dropping to around $35 per barrel in 2030 and $25 per barrel by 2050.
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The vast onshore oil fields of the Middle East will give countries there an inherent market advantage. Oil is much cheaper to extract there than in offshore, remote or unconventional deposits found elsewhere, with most capital expenditure (capex) costs sunk decades ago. The oil that emerges from the desert is light and high-quality.
The world’s leading oil and gas majors, however, appear to be planning for a very different future. Analysis of exclusive fields data from GlobalData, Energy Monitor’s parent company, shows that the world’s five largest Western oil majors by revenue – BP, Chevron, ExxonMobil, Shell and TotalEnergies – are planning for a future misaligned with a net-zero pathway, as outlined by the IEA.
The findings come despite the fact that all five companies have pledged on paper to reach net zero by 2050, and they are all based in countries that hold similar pledges on a national level. The findings also come on top of an earlier Energy Monitor investigation, which found that the oil and gas extraction plans of just 25 oil majors will produce carbon emissions that use up 90% of the world’s remaining 1.5°C carbon budget.
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In the case of the five Western oil majors, the first key net-zero misalignment is the sheer size of the companies’ expansion plans. Rather than entering the period of managed decline that the IEA recommends should occur to be aligned with net zero by 2050, data shows that the five companies are in the process of developing 157 new fields, on top of the 1,350 they already operate. These upcoming fields would add a massive 122 billion barrels of oil equivalent (bboe) to the 299 bboe remaining in the five companies’ already-operating fields.
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By GlobalDataOil majors continue to be buoyed by high oil prices – currently hovering around $80 per barrel – which were triggered by the energy market shock following Russia’s invasion of Ukraine. Oil companies have as a result seen revenues significantly increase, with both Shell and ExxonMobil recording nearly double revenues in the 12 months to Q3 2022 compared with the same period in the previous year.
A report from the think tank Carbon Tracker warned in December 2022 that oil companies are taking advantage of their increased profits to invest billions in new production that will “tip the world towards climate catastrophe”. Analysts found that four companies – Shell, TotalEnergies, Chevron and Italian major Eni – approved a total of $58bn in investment in new projects in 2021 and the first quarter of 2022, which would produce enough fossil fuels to meet oil and gas demand in a 2.5°C global warming scenario, as opposed to the 1.5°C considered “safe”.
GlobalData’s data also shows that the oil majors are developing fields where production is expensive, and that will likely become unviable if prices fall, as is anticipated in a net-zero scenario.
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The development break-even oil price is a metric used by the fossil fuel industry to denote the minimum price of oil at which a development will break even when production starts. The average break-even oil price across the upcoming planned oil fields of all five oil majors is significantly higher than the $35 dollars per barrel the IEA says the oil price will fall to in 2030 in a net-zero 2050 scenario, despite the fact that many of the planned fields are only due to come online in 2028, 2029 and 2030.
The average development break-even for the upcoming fields of both Chevron ($58.35) and BP ($53.30) is also higher than the average oil price over the period 2015–20 ($50.72), suggesting that these companies are pursuing a particularly risky expansion strategy – one that anticipates global demand for oil to remain very high.
The capital costs of the companies’ upcoming projects are also very large. For each company, the average capex of a new project to first production is more than $2bn; for ExxonMobil, it is more than $6bn.
Tosin Coker, an upstream oil and gas analyst at GlobalData, explains that ExxonMobil operates in mainly unconventional oil fields – such as oil sands or fracking – which is “the main contributing factor” as to why average capex for the company is higher.
The five companies also continue to spread their operations widely around the world, shows the data from GlobalData. As long as they have existed, oil majors have been masters of globalised risk, developing operations across the globe in a bid to boost returns.
Planning for net zero in less than three decades would likely entail reducing the size of operations and focusing activities on more established regions with cheaper production, which would offer profits even if oil prices were to plummet. Yet the data shows that all five majors continue to operate in more than 20 countries worldwide, in a hugely varied collection of markets.
Recent years have seen oil majors pledge to expand their operations to include renewable energy. For example, Total changed its name to “TotalEnergies” in 2021, and has pledged to develop 100GW of renewable energy generation capacity by 2030. BP similarly has pledged to build 50GW of renewables by 2030, while Shell’s recently appointed new CEO Wael Sawan has pledged a “transformative” approach to renewables.
Yet the latest data from the IEA shows that just 5% of oil and gas company capital expenditure worldwide was on clean energy in 2022. As the data from GlobalData indicates, it seems the days of risk-laden global oil exploration and expansion are still very much with us.
