OIL and gas companies must do much more to support efforts to tackle the threat of climate change if they are to have a future, an industry watchdog has warned.

The International Energy Agency (IEA) said sector players could see their long term social acceptability and profitability come under threat unless they address growing calls to reduce greenhouse gas emissions.

The Paris-based organisation appears to be concerned that while global attention is increasingly focused on the need to develop a cleaner energy mix some firms may be too fixed on maximising their short term profits.

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It said companies must address the challenge of balancing their short-term returns with their long-term license to operate and warned that none could ignore the climate issue.

“No energy company will be unaffected by clean energy transitions,” said executive director Fatih Birol. “Every part of the industry needs to consider how to respond. Doing nothing is simply not an option.”

The report comes as a survey by risk specialist DNV GL found confidence has fallen in the North Sea in recent months. Criticism of the oil and gas sector and the fall in the crude price since October 2018 have impacted on sentiment.

In its Oil and Gas Industry in Energy Transitions report, the IEA highlights serious shortcomings in the industry’s response to the challenge posed by climate change.

The report will make uncomfortable reading for industry leaders amid efforts to portray oil and gas firms as part of the solution to the problem rather than a cause.

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The IEA found that while oil and gas firms have resources and skills that could allow them to make a big contribution the response to date has been limited and patchy.

It said some companies had taken steps to support efforts to combat climate change but the industry as a whole could play a much more significant role through its engineering capabilities, financial resources and project-management expertise.

Mr Birol noted: “With their extensive know-how and deep pockets, oil and gas companies can play a crucial role in accelerating deployment of key renewable options such as offshore wind, while also enabling some key capital-intensive clean energy technologies – such as carbon capture, utilisation and storage and hydrogen – to reach maturity.”

But the report found few signs of the large-scale changes in investment priorities needed to put the world on a more sustainable path.

The IEA said average investment by oil and gas companies in non-core areas has so far been limited to around one per cent of total capital spending.

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It said firms must increase investment in fuels that could generate the same energy as oil and gas while reducing emissions of carbon, net of amounts absorbed. These include hydrogen, biomethane and advanced biofuels.

The IEA reckons oil and gas will remain part of the energy mix for decades given trends in global demand. But companies must cut the emissions associated with their operations.“A large part of these emissions can be brought down relatively quickly and easily,” said Mr Birol.

The IEA reckons firms should prioritise the reduction of methane leaks, eliminate routine flaring and look to use renewable energy to power their operations.

Some 59% of UK-based respondents to a survey by DNV GL were confident about the outlook for growth in the UK industry, compared to 71 per cent a year ago. Across the world the percentage expressing confidence fell to 66% from 76%.

Hari Vamadevan, regional manager UK and West Africa at DNV GL, said the fall in the oil price since 2018 and the actions of environmental campaigners may have been factors in the UK.

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However, growing numbers of firms are trying to respond to the climate change challenge. Sixty per cent of UK respondents said their organisations were adapting to a lower carbon energy mix against 39% last time. Some 64% were likely to invest in or develop offshore wind portfolios, up from 38%.

Around eight in ten, 78%, of respondents expected to increase or maintain investment in new assets this year, against 68% in 2019.

Mr Vamadevan noted the competitiveness of the UK North Sea had increased following moves by firms to cut costs and boost efficiency in response to the sharp fall in the oil price from 2014.

Seventy three per cent of UK respondents expect to maintain or increase employee numbers in 2020, in line with last year.