The New 2050 Club
Ever since the era defining Spindletop oilfield discovery of 1901, the Oil and Gas industry has existed at the nexus of politics, trade and technological innovation. But even by the industry’s long, 120-year history the last six months have been remarkable. Negative futures oil prices were a headline that the world never thought they would see, the result of an unusual set of circumstances both on the political supply side and COVID-19 induced demand side. But the more notable and less noticed public interest story for this author is the now significant and high profile set of companies that have described what they want to be in 2050: a “net-zero” company. This is an extraordinary, strategic horizon for any industry, let alone one that has operations that account for approximately nine percent of all human-made greenhouse-gas (GHG) emissions.
Some may be concerned that the current circumstances may cause O&G companies to redirect their focus off of the 2050 goals, but in a letter published by the Oil and Gas Climate Initiative (OGCI) signed by the participating Oil and Gas company CEO’s, stated, “The reality is that rather than shifting our priorities, the Covid-19 crisis is further crystallizing our focus on what is essential: health, safety and protection of the environment while providing the energy and vital products that society needs to support economic recovery”.
The Oil and Gas companies Repsol, Total, BP, Equinor, Shell and ENI have described and committed to a sustainable, “net-zero” version of their current selves in 2050. Moving from a 95% plus hydrocarbon capital invested outfit to a fully-fledged energy conglomerate blending biofuels, generating hydrogen, storing carbon underground, and of course embracing the green electrons of wind and solar. Even the president of the Texas Oil and Gas Association (TXOGA), at the more conservative end of the industry, stated in January 2020, that his industry group agrees fossil fuels contribute to global warming, but they will find ways to reduce emissions.
It may feel like a revolutionary point, but it is in fact going to be evolutionary. This is going to a herculean marathon, not a fleet-footed sprint. There is much to do to redefine and redirect the estimated $30 trillion investment in energy infrastructure that Goldman Sachs estimate is needed to meet global energy demands. And this is the key point for SAP. Whether an O&G company is mandated to reduce emissions based on carbon regulations or prices, or voluntarily decides to in alignment with the Paris accord, companies must act. And this action will be end to end, across the whole value chain with tremendous business opportunity for differentiation and advantage. As the president of the Texas Oil and Gas Association (TXOGA), Todd Staples, says, O&G companies will find a way. In response to reporters’ questions at a press conference earlier this year, Staples said, “We believe that all emissions contribute to climate change, and we believe that our industry is committed to doing our part to make improvements.”
This trust, support and patience during this transition isn’t going to be possible without a fundamentally new way of reporting emissions. And with that an entirely new approach to not simply report it but manage it. Ultimately, for the strategy to be successful, a similar approach to best in class safety will be required, embedded in everything, everywhere, all the time. Barely a single part of routine business operations will remain untouched. And it will all need to be integrated for internal decision makers to wisely allocate resources. SAP strives to be an underpinning part of the O&G 2050 net zero climate evolution. We have partnered with industry for over 40 years to assist with their success and their strategic goals and look forward to the next 40 years. SAP’s Climate 21 is our start as we support their bold evolution, growth and transformation to be the sustainable energy businesses of the next 120 years.