How scarcity of cheap, low-carbon oil threatens energy transition

Global scarcity of high quality oil and gas supply will frustrate emissions targets and threaten the 2050 net-zero targets.A report, “Scraping the Barrel” released by Wood Mackenzie revealed that only 28 per cent of resources in undeveloped fields are low-cost, low-carbon “advantaged” barrels, adding that the upstream industry must look to exploration, decarbonisation and alternative fuels to meet energy transition goals.

According to the report, upstream operators may need new strategies, stressing that overall supply, total discovered and prospective oil and gas resources are more than double projected demand in 2050.

“However, truly advantaged resources, with low breakeven (resilience to low prices) and emissions are anything but plentiful. Most developed fields have little to offer and only 28 per cent of the resources in commercial undeveloped fields, roughly 49 billion barrels of equivalent (boe), are advantaged in terms of breakeven below US$30 Brent with emissions intensity of less than 20 kgCO2e/boe,” the report noted.

Under Wood Mackenzie’s base Energy Transition Outlook (ETO), the report noted that oil demand peaks in 2030, before declining slowly to 94 million barrels per day (b/d) in 2050.

It noted: “The AET 1.5 requires 20 million b/d lower than the ETO by 2035, but will still be 33 million b/d by 2050. Under the ETO scenario, gas demand will be 88 million boe/d in 2050, some 12% higher than today. Under the AET-1.5 scenario, gas demand in 2050 will fall to 59 million boe/d.”

The report sees few advantaged resources in brownfields and undeveloped fields, noting that exploration could play a key role in locating and increasing the supply.

According to Wood McKenzie, the industry discovered 228 billion boe in new fields between 2012 and 2021, with an average emissions intensity of 16 kgCO2e/boe, versus the current global average of 23 kgCO2e/boe (19 kgCO2e/boe for undeveloped fields).

Vice President, Energy Research for Wood Mackenzie Upstream, Andrew Latham, added, “We expect high-impact exploration to be an important source of new resources for as long as demand remains at or near our ETO trajectory. Recent results suggest a contribution of around 5-10 billion boe of new advantaged barrels a year. Most will be found within energy super basins. Exploration on this scale over the next two decades will add oil and gas supply of around 10-15 million boe a day by 2050.”

Decarbonisation technologies and biofuels could play an even bigger role. Bio-based diesel and aviation fuels from plant-based feedstock could emit 80 per cent less carbon than the crude oil-based products that dominate today’s oil market. Wood Mackenzie projects up to 20 million b/d being possible by 2050.

“This is really a wake-up call for the industry and for the overall energy transition outlook,” said Latham. “These are avenues that help alleviate advantaged supply pressures, but it is definitely going to be an uphill struggle.”