How Middle East Oil and Gas Companies Can Translate Their Net-Zero Ambitions into Actions
Momentum is growing around the world to achieve net-zero greenhouse gas emissions over the next generation. Governments in the Gulf Cooperation Council have made net-zero commitments, as have national oil companies (NOCs) and international oil companies (IOCs). It is vital that oil companies now turn their ambitious goals to reduce greenhouse gas emissions from their operations into tangible action.
According to the latest report by Strategy& Middle East, part of the PwC network, entitled Greening the barrel, companies that successfully reduce their emissions to the lowest level possible will acquire a differentiated value proposition.
“Looking to the future, each barrel of oil with the lowest possible emission intensity – ‘the greenest’ barrel – will become a source of competitive advantage,” said James Thomas, partner with Strategy& Middle East. “Companies, however, will have to move quickly to translate their net-zero targets into actionable plans through five imperatives,” he added.
- Approach decarbonization with a focus on long-term shareholder value: Companies need to ensure that they can provide their investors with positive returns along with tangible progress toward emissions reduction targets. Some decarbonization investments will generate a near-term positive impact, due to potential savings and efficiencies, while others may take longer to result in a return on investment. However, the long-term sustainability of the business – financial and environmental – will depend on decisions made today.
- Identify portfolio decarbonization priorities and make clear choices: Companies need to identify and focus on the largest opportunities to ensure that decarbonization efforts are effective. These opportunities are presented by the small number of assets in the portfolio that contribute a disproportionate share of emissions. Some will be priority candidates for investment and intervention, while others will require reviews to be initiated for divestment or retirement.
- Take a systems approach to decarbonization solutions: Companies need to use integrated systems to address the most urgent decarbonization priorities, rather than implementing discrete solutions for specific points of emission across their operations. To succeed, they must first develop a clear understanding of solution economics, categorizing the sources and magnitude of specific emissions addressed by potential solutions.
- Capitalize on new partnership models: Companies will require a new approach to partnerships because of the magnitude of the challenge to achieve climate targets in a timely manner. To become contenders in the race for the greenest barrel, companies should expand their partner base to collaborate with traditional oil and gas competitors, companies in other heavy industries, service providers, technology licensors, and digital firms.
- Build integrated pathways for implementation: Companies can start building integrated decarbonization pathways once they have clarity about priority assets and solutions. Implementation will require clear technology roadmaps, business cases, a blueprint for governance, and a means to track results over time. Critically, all of these components need to be flexible and updated regularly, given that technology is developing, and regulations are changing, along with other factors that will be in flux during decarbonization. Companies must be prepared to adapt their planning in response to changing circumstances.
As national custodians of hydrocarbon resources and major contributors to their economies, National Oil Companies (NOCs) in the Gulf Cooperation Council have an added impetus to act as catalysts of national decarbonization plans. Beyond decarbonizing their own operations, they should work closely with their governments to build national net-zero pathways, and lead development of capabilities and technologies to drive broader decarbonization efforts.
The recently announced decarbonization agendas and initiatives from the oil and gas industry are significant and will shape the future of the industry. However, they require effective implementation and tangible results in the near-term.
“Translating net-zero ambition to action requires, above all, that leadership teams make bold moves today for a sustainable future. This will be difficult, but the fate of individual companies and the environment depend on how they rise to this challenge,” concluded Aditya Harneja, manager with Strategy& Middle East.
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