According to a new report from Carbon Tracker, a financial think tank, gas and oil companies need to begin preparations to at least halve their production of fossil fuels by the end of this decade if they want to align with the goals of the Paris Agreement.
According to Carbon Tracker’s Mike Coffin, who co-authored the reports, some oil companies were potentially at risk of having stranded assets in the future by investing in new projects. He said companies risked wasting a huge amount of money if they developed new production projects that would be uncompetitive in a low-carbon future:
“If the world is to avert climate catastrophe, demand for fossil fuels must fall sharply. Companies and investors must prepare for a world of lower long-term fossil fuel prices and a smaller oil and gas industry, and recognise now the risk of stranded assets that this creates.”
The call lends some support to the strategies of oil majors like Total, Shell and BP. All these companies have announced plans to move away from being predominantly oil and gas producers to become more diversified energy providers as they progress towards becoming net-zero businesses by 2050.
The report highlights, however, that in addition to the sustainability dimension, there is also a business case for moving away from fossil fuels. While gas and oil will still be used in products like hydraulic oil, lower demand may lead to lower prices, so companies need to focus on projects that will still be profitable in a low-carbon future.