Decarbonization: Oil & gas industry’s biggest challenge

There is no denying that the oil and gas industry faces multiple challenges, however, Global Data has selected the pressure to decarbonize and diversify products as the largest, driven by climate concerns and increasing carbon taxes imposed by governments, which is perceived to threaten oil and gas companies’ profits.

The pressure also stems from investors, who are concerned with the long-term profitability of the industry, given the World Economic Forum’s forecasts of oil demand being due to peak between 2030 and 2035.

“Low-carbon fuels such as renewable diesel, SAFs, and synthetic fuels offer a route to decarbonization that allows the industry to continue providing products and services to its existing consumer industries, while diversifying its assets and decreasing the risk of its infrastructure becoming obsolete,” outlined Global Data.

Even though renewables will continue to eat into the fossil fuels demand, developing economies and complex sectors are likely to sustain long-term hydrocarbon use in the foreseeable future. As the energy transition journey gained ground, the UK’s North Sea Transition Authority (NSTA) came up with a plan to curb the emissions footprint and reach net-zero targets, calling for more action to decarbonize production, encompassing flaring and venting and the electrification of oil and gas installations.

Many, including Offshore Energies UK (OEUK), believe that oil and gas, entwined with other offshore energy sources, can lend a helping hand in boosting the economy and pave the way for a much-anticipated sustainable future.

While oil and gas projects have the potential to create £145 billion (around $182.85 billion) for Britain’s supply chain, new offshore wind farms around the UK could generate £260 billion (nearly $327.9 billion), new hydrogen projects £25 billion (over $31.5 billion), and carbon capture and storage (CCS) technology could bring in £34 billion (almost $42.9 billion).

This dive into the complex depths of the UK oil and gas tax hike ponders whether this is a boon or bane for offshore energy investment in the North Sea. The Labour Party’s green power quest within the offshore energy arena does not come as a surprise due to its zest to turn Britain into a clean energy superpower by 2030, which carries a hefty price tag it plans to bankroll with windfall taxes collected from fossil fuels.

The windfall tax seems to be ignoring the big elephant in the energy transition room, which stands for the fact that many of the players producing hydrocarbons are the same companies spearheading the expansion of renewables and low-emission offshore energies, including offshore wind, hydrogen, marine energy, and the development of carbon capture and storage (CCS), in analysts’ view.

Britain has many energy plays at its disposal, ranging from traditional oil, natural gas, and LNG to renewables like offshore wind and solar, alongside emerging low-carbon technologies, electrification, green electricity interconnectors, etc.

However, fears are rising over the windfall tax extension’s potential to damage the overall investment case for projects across the North Sea, which serve as building blocks of the energy transition’s net-zero blueprint and sustainable energy future.

Do these fifty shades of green energy pursuits need to be put into play alongside open season on domestic oil, gas, and LNG plays, as many energy analysts are convinced is the best recipe to come to grips with the triple whammy of energy security, affordability, and sustainability?

There is no doubt that artificial intelligence (AI) plays an important role in the global energy landscape and decarbonization game, but what is in store for global oil, gas, and renewable energy in the AI-oriented environment, and how will these sources of supply be revolutionized further? The zest for AI solutions has also left its mark on the maritime industry, as global shipping firms take advantage of the fruits of digitalization, IT technology, and automation.

Offshore Energy shed light on these and similar questions while diving into AI’s impact on the offshore energy industry and the energy transition story in an interview with Kumar Narayanan, VP & Head of Energy & Resources for Americas at Tata Consultancy Services.

There was no smooth sailing for the oil and gas industry in 2024, as it faced many attempts from environmental and climate activists to ban offshore drilling and shut down projects before they could even come on stream. Greenpeace activists illustrated this at the headquarters of OMV Petrom in Bucharest, Romania.

These protesters wanted to stop the development of a natural gas project in the Romanian part of the Black Sea, as they were convinced that the energy industry should direct all its attention to the transition to renewable and clean energy rather than more fossil fuels. Currently, OMV Petrom is engaged in drilling activities at this gas project.

With climate change challenges in full swing, the risk of a lid being kept on the investments in oil, gas, and LNG plays has gone up, primarily in Europe, where the UK leads the charge in putting pressure on the industry to shift to less-emission-intensive fuels to power their operations. Energy analysts pinpoint gas, with LNG as the crown jewel in the low-carbon toolset, as a bridge fuel spearheading the pivot from the high-emission coal epoch to a low-carbon era.

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However, opposition to all types of fossil fuels runs deep in some political circles, just like love for Big Oil as a money maker dominates others. The ones whose feet are firmly planted in the net-zero aspirations tend to be oriented toward greening the grid with renewables and other zero-emission variants within the clean energy arsenal.

Their counterparts, mired in the positive changes the fossil fuels industry has brought about and concerned with the intermittent nature of renewables, energy storage issues, and rising development costs, are willing to trade coal for gas and adopt low-carbon technologies in response to the energy transition demands.

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While claiming that Britain needs to get gas out of its system, E3G underscores the importance of creating a plan to navigate the complexities surrounding the future of these fossil fuel assets, since it is convinced that some might use carbon capture and storage to clean up their act, others could convert to green hydrogen, with many most likely requiring a full decommissioning package.

“Beyond investments in renewables, there are other technologies needed to squeeze fossil gas out the power system. These include storage, flexible demand and hydrogen power stations. These assets are often less talked about than solar panels and wind farms, but are equally essential for ensuring the UK can meet its energy needs without gas. Rolling these out needs to be coupled with a plan for phasing out and evolving the existing fleet of gas power stations,” underlined E3G.

The state of play on the global energy scene does not seem all that supportive of cutting all fossil fuels, especially natural gas and LNG, out of the energy mix, since the worldwide gas market demand keeps growing, pushing diversification of market participants and the acceleration of innovation and technology development to new levels.

Rystad Energy’s research warned about a looming energy deficit, which puts renewable energy targets in danger of missing their deadlines due to a lack of funds to continue the development of gas and clean energy projects.

While energy transition wheels keep turning, more fuel is being added to the decarbonization fire to invigorate the net-zero race. However, oil and gas are still the main protagonists of the global energy story, with many projects under development and in the offing. Innovation, which is at the heart of change in any industry, can be pushed into uncharted energy waters or steered through familiar ones that have a new twist.

While energy is the life force that powers the world, fossil fuels have been the lifeblood of progress, technological evolution, and the primary source of supply for many decades, which is what makes them so hard to quit.

There is no ready-made recipe to move beyond coal, oil, and gas that applies to all nations, as the speed and ability to do so depend on the circumstances of each country and its ability to harvest renewable energy resources such as solar, wind, geothermal, hydropower, ocean energy, and bioenergy.

Regardless of the path to metamorphosis and remodeling the industry players decide to explore, the current energy landscape and the challenges facing it require fresh impetus to tackle the demand and supply sides of the equation while also pursuing decarbonization offerings.

Therefore, a sea change in energy politics, which is more actively pursued and sought by some regions and nations than others, has not managed to dethrone oil and gas, as they are still at the top of the global energy demand pyramid despite the rising push toward cleaner sources of supply. The fossil fuels industry is also working on its decarbonization agenda to usher in a low-carbon future.

Entwining old energy technologies, specifically developed for the oil and gas industry, with new developments, prompted by emerging power opportunities, which are spurred by the shift toward cleaner sources of supply to mitigate climate change and curb the GHG footprint, seems to many as the best way forward to keep transforming and growing the energy arsenal to reach a more sustainable future.

Even though market predictions mostly focus on further renewable energy additions, more gas and LNG plays, and escalating trade wars due to ongoing tariff woes, there is still a possibility of unexpected shifts in market dynamics and trends throughout the rest of 2025, so fasten your seatbelts as it may be a bumpy energy ride following such a turbulent take-off.