Oil and Gas Industry Slows Energy Transition as Focus Shifts Back to Fossil Fuels

The oil and gas sector has been working to decarbonize its operations as part of the global energy transition. However, the heightened concerns over energy security following the Ukraine conflict have refocused attention on fossil fuels, leading many companies to scale back their efforts toward clean energy. According to GlobalData, a leading data and analytics firm, this trend is expected to continue into 2024. While the shift to low-carbon energy will proceed, it is likely to happen at a slower pace.

GlobalData’s report, "Energy Transition in Oil and Gas," outlines the progress and challenges within the industry. Many companies are integrating renewable energy and other low-carbon options into their operations as part of their transition strategies. Notably, the industry’s major players have set ambitious goals to reach net-zero emissions by 2050, with interim targets slated for 2030.

Ravindra Puranik, Oil and Gas Analyst at GlobalData, notes: “The Russia-Ukraine war has exacerbated energy security concerns globally. The resulting disruptions in supply chains have pushed countries back towards readily available fossil fuels, driving a spike in oil and gas demand. Meanwhile, the focus on energy independence, coupled with high inflation, has slowed the adoption of clean energy solutions.”

Despite the shift back to fossil fuels, the industry continues to pursue decarbonization goals over both the medium and long term. This is largely being driven by emerging technologies and increased investment in renewable energy, particularly in wind and solar power.

“In 2020, several oil and gas companies laid out bold energy transition targets,” Puranik adds. “However, as we approach 2024, the enthusiasm for these goals has waned somewhat, with profitability challenges, inflation, and rising interest rates creating uncertainty around renewable energy projects.”

The global energy mix is gradually shifting as the share of fossil fuels in power generation continues to decline, replaced by renewable sources such as solar and wind. Oil and gas companies are increasingly entering the renewable power generation space as part of their broader energy transition strategies. Additionally, technologies like carbon capture, hydrogen production, and low-carbon fuels are being developed to provide alternatives to fossil fuels. Energy storage, particularly in the form of batteries, is another area of exploration within the industry.

Puranik concludes: “Achieving the energy transition in the oil and gas industry requires long-term planning and commitment to reducing or eliminating carbon emissions. In the short to medium term, companies will need to incorporate both transition fuels and zero-carbon energy sources into their portfolios. While there may be temporary slowdowns, the energy transition will continue to progress and reshape the global energy mix in the years ahead.”