Emissions in Oil and Gas sector must fall 90 per cent by 2050: McKinsey & Company


The demands of global climate change are affecting the way businesses operate. Besides ramping up efforts to reduce waste and recycle, calls urging companies to take active steps in decarbonising their operations have grown.

These are especially pronounced in the Oil and Gas (O&G) industry, due to the environmental impact of fossil fuels. According to McKinsey & Company’s The future is now: How oil and gas companies can decarbonise report, operations within the O&G industry account for nine per cent of all human-made greenhouse gas (GHG) emissions.

The fuels created as a result of these processes account for another 33 per cent of GHG emissions globally.

These sizeable statistics prove that prompt and collective action must be taken by stakeholders in the O&G sector to meet the global climate-change goals. These impending changes come at an opportune moment as curbing climate change weighs heavily on executives’ list of priorities.

To effectively mitigate climate change to the extent required, McKinsey & Company’s report points out that emissions within the O&G sector must fall by at least 3.4 gigatons of carbon dioxide equivalent (GtCO2e) every year, by 2050. This is a 90 per cent reduction in emissions compared to current ‘business as usual’ policies or technologies.

There are several ways that stakeholders—from the upstream and downstream verticals—can achieve effective change. The McKinsey and Company report outlined 10 things that operators from both verticals can do. Here are four highlights from the recommendations:


1) Switch power sources. By replacing generators with a solar photovoltaic (PV) and battery setup, one O&G company has been able to reduce emissions significantly and break even on its investment within five years. Connecting onshore or nearshore rigs and platforms to the central grid can also lead to greater emissions reductions. If upstream producers electrified most of their operations, this could result in almost 720 tCO2e reduction a year by 2050; at an estimated cost of $10/tCO2e, depending on local electricity costs.

2) Electrifying equipment. Another company in the O&G sector also replaced gas boilers with electric steam-production systems, including high-pressure storage for night-time steam supply, to support separation units. The project is expected to pay for itself in less than a decade.


3) Switch to ‘green hydrogen’. Hydrogen production through electrolysis has become more technically advanced and less expensive in recent times. Bloomberg New Energy Finance estimates that the cost of hydrogen could drop as much as two-thirds by 2050. Using renewable energy rather than steam methane reforming (SMR) to power the electrolysis could offer refineries a way to reduce emissions—resulting in what’s known as ‘green hydrogen’.
This is not a speculative technology. O&G companies like Shell and UK-based energy-storage and clean-fuel company, ITM Power, are already building the world’s largest hydrogen electrolysis plant in Germany with support from the European Union.

4) Adopting greener feedstocks. Replacing some conventional-oil feedstocks in refineries with biobased feedstocks or recycled-plastic materials would also reduce emissions. This can be achieved through pyrolysis or gasification.

Furthermore, environmentally conscious investors are growing in numbers, exerting additional pressures on stakeholders within the sector to take notice and act decisively.

The McKinsey & Company report notes that the Global Sustainable Investment Alliance has assessed that sustainable investments in five key markets reached assets of US$30.7 trillion in early 2018, one-third of its total investment. These markets are namely Australia and New Zealand, Canada, Europe, Japan, and the United States.

Further into the future, an alliance of some of the world’s largest pension funds and insurers — representing US$2.4 trillion assets in total — has committed itself to transitioning its portfolios to net-zero emissions by 2050.

These changes, paired with efforts by stakeholders across the industry also mean that in an increasingly decarbonising world, the O&G sector can and will be a major player in cementing the success of our climate change plans as a global community.

To find out what other measures upstream and downstream O&G operators can do to decarbonise more efficiently and effectively, read McKinsey’s The future is now: How oil and gas companies can decarbonise report.


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