The Oil and Gas Industry in Net Zero Transitions

Strategic responses of exporters and importers

Summary

  • Change is unavoidable for producer economies in net zero transitions. Transitions increase the likelihood of boom and bust cycles for oil and gas producers and – with oil and gas markets entering terminal decline – the baseline expectation should be for a bumpy ride. Strategies will necessarily vary from country to country, but a common element is that while net zero transitions will present immense challenges for producer economies, their energy advantages do not disappear overnight.
  • Ten established producer economies in the Middle East, Africa and Latin America, currently produce more than 30 mb/d of oil and nearly 800 bcm of natural gas annually. Per-capita income from oil and gas sales in the NZE Scenario in these economies falls by 70% to 2030 and by 90% to 2050 compared with the average level between 2010 and 2022. This could create a powerful incentive to accelerate the pace of reform while also draining a source of revenue that could finance it.
  • A number of new potential producer economies – Guyana, Mozambique, Senegal and Tanzania – have seen large oil and gas discoveries in recent years. Despite growing domestic consumption, the prospects for new projects hinge mainly on exports, and their economics are very sensitive to the pace of global energy transitions. In the APS and NZE Scenario, new large-scale oil and gas projects would face major commercial risks and they may struggle to generate any real income. None of these countries have universal access to energy today, but it is achieved in full by 2030 in the NZE Scenario; this would require less than USD 2 billion annual investment to 2030.
  • We explore elements of energy strategies for producer economies that, depending on their context, could complement broader reforms to build macroeconomic stability. These include: reducing the emissions intensity of oil and gas operations; securing additional value from traditional supplies by reducing flaring and methane emissions and increasing non-combustion uses of oil and gas; phasing out inefficient fossil fuel subsidies; boosting clean energy deployment to reduce domestic oil and gas use; stepping up low-emissions fuel production; and expanding into new clean energy supply chains.
  • Net zero transitions can only occur smoothly if producer and consumer countries provide clear signals on their direction of travel, work together in a mutually beneficial manner, and implement coherent cross-border measures. We examine four routes for effective international co‑operation: sending the right market signals; working together to unlock investment in low-emissions fuel trade; collaboration on technology; and bilateral and multilateral engagement. There are several examples of current policy efforts that promote action in these areas.