The imperative to reduce the adverse effects of global climate change becomes more urgent with each passing day. Consequently, an increasing number of countries and companies are pledging to become carbon neutral by 2050, and fossil-fuel supply and demand are set to decline, particularly in oil and gas. Of the two, gas appears to be more resilient in the years to come, especially liquefied natural gas, but even LNG will ultimately be substituted by renewable energy sources or undergo emissions mitigation to meet the requirements of a 1.5-degree pathway.

Companies that meet the energy transformation head-on, however, will benefit both economically and environmentally. Rather than establishing long-term goals that ignore the short term, companies should present a clear five- to a ten-year strategy that details decisive, bold measures that can be executed now. The resilience of natural gas and LNG is discussed in this article, as well as three essential tactics for managing decarbonization: minimizing the carbon footprint of assets and consumers, managing risk by incorporating emissions costs into business decisions and improving portfolio resilience.

The energy sector is changing 

The energy sector has drastically increased its focus on sustainable, resilient assets and renewable energy sources in recent years. As a result, several fundamental shifts are altering the long-term future of companies along the entire value chain.

To begin with, the energy mix is shifting. The world is increasingly electrifying, with renewable energy sources expected to meet up to 80 percent of global demand by 2050. Until now, clean-energy investment has been relatively flat (30 to 37 percent total). Capital markets are also rewarding expected growth in renewables, and investors concerned about transition risks and stranded assets are beginning to divest from fossil fuels. Environmental, social, and governance investing, which accounts for approximately 30 percent of assets under management, is tightening its criteria, while activist investing is propelling impact via targeted resolutions.

In response, stakeholders are increasingly calling for commitments to emission reductions and for transition planning to ensure the stability of future supply. Some governments and regulators are wielding their policy powers to push decarbonization by influencing demand rather than relying on direct regulation. Carbon taxes in Norway are just one example.

Finally, environmental consciousness has become much more widespread, entering the political mainstream in many markets. In particular, Generation Z is increasingly influential, often favoring companies with explicit sustainability initiatives. Many customers believe that traditional oil and gas activities do not align with environmental consciousness. As a result, organizations unwilling to adapt their company cultures and ways of working may struggle to attract the talent required for transition.

The resilience of natural gas and LNG

In the face of changing perspectives on fossil fuels and increasing electrification, the oil and gas industry needs to take immediate action to prepare for the years to come. One such action is increasing the share of natural gas in portfolios. Our reference case shows that gas, unlike other fossil fuels, will experience growing demand until the mid-2030s. In a 1.5-degree climate pathway scenario, natural gas will be more resilient than other fossil fuels for another five to ten years. This is primarily because natural gas is among the cleanest fossil fuels, so it will be the last to be replaced as part of the energy transition.