Associate Fellow, Energy, Environment and Resources
Beth MitchellConsultant

In order to meet the agreed climate target of the Paris Agreement, it is inevitable that the upcoming review will aim at tougher policies. As a result, the impact on the oil and gas sector will intensify.

Climate change demonstrators hold up a sign with the text 'system change not climate change' in front of the Eiffel Tower. Photo: NurPhoto/NurPhoto via Getty Images.Climate change demonstrators hold up a sign with the text 'system change not climate change' in front of the Eiffel Tower. Photo via Getty Images.

This paper analyses the impact of international climate action agreed at the COP21 meeting in Paris in December 2015 on the oil and gas sector, concluding that:

  • Given the gap between the current round of Intended Nationally Determined Contributions (INDCs) and the target of limiting global warming to below 2°C, additional and more stringent measures are likely to be imposed on fossil fuels in future. As a result, the impact of regulation on the oil and gas sector is set to intensify.
  • Credible policies are needed to send a strong signal to those who consume and produce carbon-based fuels so that their investment plans can be amended to reflect the shape of a lower carbon economy. Without credible policies oil and gas companies may make risky investments to meet unsustainable demand.
  • The impact of the INDCs on oil demand will be negative, but relatively predictable, at least until batteries become economically available at scale. A realistic assessment of demand growth is crucial and managements must avoid overinvestment in potentially unnecessary projects.
  • For natural gas the outlook is much more unsettling and unpredictable. The markets available will be the uncertain residual of policies to promote renewables and government attitudes to nuclear energy and use of cheap coal.
  • Investors will be keen to see capital deployed appropriately and will pressure managements to be realistic about viable investments over the next decades. Some will be deterred by uncertainty and concern about the future of fossil fuels.