I wonder if the supermajors would consider a good corp/bad corp setup with liquid and non-oil assets parked in the former and the latter operated like an insurance company book of business in run-off mode?
With minimal investments the price of oil would probably see $150 -250 over the next five years as the oil companies point their fingers at the IEA, IPCC and any number of other acronyms.
Hopefully the depression this causes won't be too bad and it will be interesting to see who emerges strongest on the other side of the rough patch.
Highlights
- Oil supplies would slump after immediate drilling halt
- Risk of backlash seen over pace of energy transition
- CCS, carbon prices key to future role for oil
The International Energy Agency issued a stark warning to the global oil industry last month that the time for new oil and gas projects has passed.
If the world wants to achieve net-zero emissions by 2050, all new upstream developments are effectively surplus to requirements, and the only spending needed is to keep oil and gas flowing from existing fields, the IEA said in its Net Zero 2050 (NZE2050) report.
Coming from the body created in response to the 1973 oil crisis, it's difficult to overstate the report's significance for decarbonizing energy supplies.
In a stroke, the world's most influential energy watchdog has undercut the rationale for finding any more oil and gas globally. Not in five or 10 years' time, but from today.
More radical than its Sustainable Development Scenario needed to meet Paris climate goals, the IEA's NZE2050 brings forward the deadline for achieving net-zero emissions by two decades. For oil, the net-zero pathway would see demand collapse by 76% to 2050, with annual average declines of more than 4%.
Saudi Arabia's energy minister likened the roadmap to the romantic comedy blockbuster "La La Land," while green campaigners have jumped on the report to highlight oil's role in the climate emergency.
Achievability aside, the scenario has already emboldened calls for more bans on exploration, the scrapping of licensing rounds, and hard cutoffs for producing fields. That's a major blow to oil and gas hopes in Africa and other upstream hot spots such as Suriname, Guyana, Mexico, Brazil, and Australia.
With deepwater projects subject to long lead times to production, the IEA's warning casts further doubt over their payback in a more carbon-constrained world.
Shorter-cycle shale drilling could survive longer if players can secure financing for fracking and lower emissions. But with oil prices seen sliding to $25/b by 2050, the NWE2050 report provides little hope for a long tail to shale developments either.
"As international players retreat from exploration, so their funnel of new projects gradually narrows, and they move towards a model where they rely on their best performing existing assets to fund any new supply investments," the IEA said in a June 2 report on energy investment.
Transition backlash
The NZE2020 model will ratchet up pressure on integrated oil majors to decarbonize faster and drive more investment dollars into renewable energy. While the IEA's bill for a faster energy decarbonization will double to $5 trillion a year, upstream spending will shrink more than threefold in the coming decades.
European integrated oil majors such as BP and Shell have already started shedding upstream assets under their pivot to lower-carbon, renewable energy. ExxonMobil's recent loss of board seats to activist hedge funds suggests US Big Oil could soon start moving in the same direction.
But as Western energy majors accelerate upstream divestments, it's unclear how much of their oil and gas resources will simply be transferred to smaller, private companies and state-run national oil champions less exposed to climate scrutiny. An unintended consequence of this process will be more oil resources being operated by companies "almost certainly dirtier" than the original IOCs owners, according to Christof Ruhl, BP's former chief economist.
"This is a warning sign, if it proceeds, that will lead to a concentration of oil investments away from IOCs and shale to the OPEC and NOC countries which do not face these kinds of restrictions," Ruhl recently told Gulf Intelligence....
....MUCH MORE
