Will 1.5 degrees Trigger a Death Spiral for Oil and Gas Companies?


It has always been clear that fixing climate change would require a massive industrial and technological transformation, with widespread social and economic consequences. The recent the UN Intergovernmental Panel on Climate Change (IPCC) Special Report on 1.5 degrees however deeply challenges dominant assumptions about the speed and scale involved.

This has profound implications for many industries and policy makers, but perhaps most dramatically for the future of the multi-trillion-dollar fossil fuel industry, particularly the oil and gas majors (the coal industry now being in terminal decline regardless).

For the last few years, I have been examining what to expect in such major economic transformations – from both large incumbents and disruptive new players.

The evidence suggests that when business models are overturned, the dominant tendency of large incumbent companies is to fail. That led me to question the assumption that these giant oil and gas companies would transition to become the giant energy companies of the future.

Central to any such analysis is the science, as this will ultimately drive how society acts and in particular at what speed. The IPCC recently told us that to achieve a safe climate we must reduce CO2 emissions by nearly half by 2030 (vs 2010) and to net zero by 2050 (1). The science is very straightforward. We either achieve that outcome or face the existential risk of runaway climate change and economic collapse. Doing the latter would be madness. So despite today’s lack of political attention, it is reasonable to assume we will act – dramatically and soon – in the face of such an urgent existential risk.

For the oil and gas industry that has very clear implications. The market for their product (for use as energy) could halve within 10 years and then decline to zero thereafter. If you find this hard to imagine, you must assume we will knowingly choose collapse instead. I would argue humanity may be slow, but we are not stupid.

It is therefore important to think realistically about how such transitions occur and how society and the market will manage this one. Separately – and it is a quite separate issue – we also need to ask if there is a realistic likelihood of today’s oil and gas companies transitioning as corporate entities. Do they have a future? Or will they just fail – as incumbents most often do when faced with such dramatic market change?

We must first acknowledge that the business challenge facing oil and gas majors is mind boggling in speed, complexity and scale. As I argued in some detail in this article this is not only a change in technology. It is total business system change – different technologies, price and cost cycles, valuations, supply chains and business cultures. It is effectively a transition from a centralised long-life resource business to a distributed consumer technology business. It simply couldn’t be more different.

So the transformation is inherently very difficult anyway, even without the issue of speed.

Also, let me be crystal clear on something I think most people get wrong – and as I did before this research.   The question is not could they change, or should they change. Nor is it would it be better for society if they change. Those questions really don’t matter. This is a market question not a social or moral one.

Only one question actually matters: “On the balance of probabilities, given the way markets work and based on real evidence, what is the likelihood they will change.

Timing is a really critical issue. If they act too late, they will fail. As one of Britain’s most influential energy experts Professor Paul Stephens said, the choice for oil and gas companies is stark. It is between an urgent and radical change in business model – with a strategy of managed decline but ultimate survival on a much smaller scale – or, “what remains of their existence will be nasty, brutish and short.”

In my work, I have considered five key factors, drawing conclusions on each and then overall. (This blog post is a summary of my full analysis which can be found here.)

  1. The speed of transition now required – 12 years to have cut CO2 emissions by around 50% with continued rapid decline thereafter;

Conclusion: Nothing short of dramatic and rapid transformation by the International Oil Companies (IOCs) will see them survive, given how markets value them.

  1. The economicviability of Carbon Capture and Storage (CCS) technology for energy production vs the dramatically falling costs for renewables and storage;

Conclusion: CCS may well be useful for society, but it will do little to support the use of oil (not relevant to how it’s used) and gas (not price competitive) for energy.  It will at best be a marginal issue for IOCs.

  1. The viability of a transition strategy – does it actually make business sense for IOCs to become energy companies (thus would the market support IOCs doing so)?

Conclusion: In many ways, becoming energy companies would be the mostdifficult transition strategy for oil and gas companies. Even more so when the required speed is taken into account. There are different, more logical transition strategies, but they all imply smaller, leaner companies.

  1. The evidence of the real business behaviour of large listed IOCs over the 30 years since the existential threat to the industry’s future became clear.

Conclusion: The industry has already lost the race to become energy companies. They are now up against “built for purpose” companies that are large, well-financed and have the right culture. These new companies are way ahead and the oil and gas majors will not catch up.

  1. The behaviour of financial markets with respect to incumbents and disruptors during major economic transitions.

Conclusion:  The attitude of the financial markets to incumbents vs disruptors makes profound transitions by incumbents very hard. Consider the gap between how markets value GM vs Tesla despite stock pricing fundamentals. And that is not a profound business model change.

Given this context, I have concluded that dominant assumptions regarding the transition of the oil and gas companies are wrong. The evidence suggests it is far more likely they will fail. The recent IPCC report makes this even more likely because of the speed of change. The market will soon come to the same conclusion and price in this risk accordingly. Considering the way markets work and capital flows – and observing the history of other incumbents that have failed – this will then trigger a market spiral of irreversible decline.


This blog post is a summary. The paper with my full analysis can be found here. 


(1)  IPCC 1.5 degree report http://www.ipcc.ch/report/sr15/  Note these reductions are from 2010 levels, with the task actually greater given 2018 emissions are higher. And this is for a low level of certainty of achieving the 1.5 degree goal (about 50% likelihood).


43 thoughts on “Will 1.5 degrees Trigger a Death Spiral for Oil and Gas Companies?

  1. It’s the oil and GAS industry. I’ve seen suggestions and programs that feature a massive the transition of fossil fuel cars to clean energy cars -by using refined methane (derived from fracking, food, plant material and animal wastes) as a clean fuel for fossil fueled cars (a staggering number of them world wide) If the current oil and gas companies decided that they would provide the needed fuel, derived from methane, mght they be able to survive, by converting current cars to use their fuel, instead of attempting a massive global transition to EVs?

    • Chris Tuckfield

      Paul, interesting reading as always. Agree they have missed the boat for energy, maybe they will buy graphene and plastics /related businesses? As a case in pointfor mechanism did you see the Xerox bonds rating downgrade recently leading to a share price crash. All based on falling demand for printing and copiers whilst the actual business numbers still kind of ticking along. . Now how about your shorting oil and gas etf??? And more to your point about distributed energy that looks a lot like blockchain and LO3 and POWR are already onto that. They betterget some new ideas and go shopping soon as EV uptake is now rising exponentially….
      All the best Chris T

  2. Jonathan Evelegh

    Having just spent a boatload of money on a solar system that will hopefully provide us with 97% of our annual electric consumption, I am naturally enough on the same general side as Paul (and all other renewables advocates). However, the realities of the economics were challenging. Without tax credits (set to expire) and production incentives from the power company but mandated by law, there is no way this would have made economic sense for our household budget. Even so, the payback is about 14 years based on an annual increase in power costs of 4.5%. And we are still totally reliant on being hooked up to the grid. Local battery storage is way out of being cost effective.

    For reference, this is a rural location in Washington state, USA, and the power company is Puget Sound Energy, owned by an Australian conglomerate. Besides the cost of install, many people around here will not have either the space or a suitable site (‘cos of the famous trees and cloud cover). Washington is not the entire world, of course, and we have some substantial wind power generation around along with the fish-killing hydropower. When all is said and done, these renewables do, in fact, have substantial drawbacks – some environmental, some aesthetic. The solar array is frankly as ugly as can be.

    This is somewhat tangential to Paul’s main point of the oil companies collapsing I realize, but it is to point out that the “magic of the markets” is not an automatic solution to all the problems that appear to be ahead. There are also those of us who think that the “magic of the markets” is something of a propaganda ploy by the powers that be to make us believe that we have access to that power. Looking around, I am unconvinced. I think it likely that humans as a species are, in fact, somewhat insane and that we may bring this whole shit show of western industrialized consumerism down yet. That may not be a bad thing for many of the other species we share this planet with. In the long term, at least.

    I’ll add that I think that, as adaptable and resourceful as humans are, we are unlikely to become extinct in the near future. Our somewhat overly self-regarding society may decline drastically, but perhaps it will be replaced with something more respectful of the larger world. Those who survive the coming transition will undoubtedly have a hard time of it, but maybe they’ll create a way of being that does not have to have markets to have magic!

  3. Michael Gill

    Dear Paul. “We are not stupid”. We are all different, some are stupid and some are wonderfully intelligent. The trouble is that we are now governed by the most selfish and stupid among us. It is not only the burning of fossil fuels, but our population that has got so big that we are using capital resources, destroying the enviroment, and still fighting Nature instead of helping her in her efforts to develop the World. Yes, smaller localised businesses, also subsidiarity of rules and discisions are necessary. Imidiate biochar from waste would help. Burying carbon in the soil, preventing waste and hydrogen for energy. Michael Gill.

    • Paul Gilding

      Yes, but its a very marginal investment relative to their overall business. Given the pace of change underway now, that leaves me deeply sceptical.

  4. Joan Halgren

    Hi Paul,

    I think your conclusion on the oil and gas corporations may have more parallel options–they can tremendously down-size to meet niche needs. Plus, the smart ones can buy-out the bigger emerging renewable players. So I think there maybe a clue harkening back to the railroad barons–when cars came in, well, the railroads, at least in the U.S., didn’t grow much but they still exist today (with potential conversion to electric railways). So the replacement of the rails by cars and trucks exceeded the barons grasp but not totally. We will probably still need some gas and oil to generate energy for devices in the short-term until new sources are generated not even relating to wind, solar, or hydro–perhaps, some new sort of hybrid chemical or technology will replace gas and oil. Meanwhile, it seems renewables will gain the lead as the go-to choice to mitigate damages to the Earth. Another major concern, of course, is toxic plastic everywhere with no real great plan to get rid of it and it’s killing so many wildlife and food sources too, like ocean fish, etc.

    Let us know your latest thoughts once you digest peoples’ responses herein!

    Thanks for maintaining your quest to nurture global solutions!


  5. Philip Sutton

    What are the chances that some oil/gas companies could develop renewable hydrogen as a major industry for transport and for steel making. It seems that Japan is still pursuing this pathway?

    And what is the chance that some oil/gas cmpanies could switch over to CO2 sequestration once government funding is put in place?

    (By the way, the UNFCCC 1.5 degree target is not safe.)

    • Paul Gilding

      All possible Philip, but not a major business relative to today, so decline still inevitable. And totally agree, 1.5 is way way too risky. Mentioned this in the footnote of this summary, but expanded in the full paper. To make that worse, the target of the IPCC report assumes only a 50/50 chance of hitting 1.5, which makes it double unsafe.

    • Paul Gilding

      In short, they are in deep and serious trouble I think. Loss of power, influence and income. An ugly combination for autocratic regimes (and those who live near them!)

  6. Ross K Flint

    What significance will the rise of far-right political parties and neo-fascists play in this unfolding scenario? Could they highjack the necessary changes and just create chaos?
    My great concern is that neo-capitalism, which currently drives the agenda, is more concerned about today’s and tomorrow’s profit rather than survival of the planet.
    Even if governments were to respond positively to the challenges of the IPCC Report, how do you foresee society accepting the limitations that will affect the lifestyles of the developed nations? Won’t degrowth be an essential part of the scenario?
    Would degrowth create unemployment, thus affecting the capacity of nations to provide (fiscal) support for rising number of the unemployed? I’m sure the far-right would take every opportunity to create political instability if this eventuated.

    • Joan Halgren

      You raise valid concerns but an aggressive movement to ignite super efforts would create tons of jobs while the fossils collapse so why wouldn’t this please the right wingers? I think Paul wrote in his book how renewables, etc.will boost growth for a dcade. So there’s an opportunity to motivate a whole new generation of people who are planet-healthy oriented to live simple and better. This is my dream view.

      • Leif Knutsen

        Not any job, only Green Jobs can start to move the economies of the world out of the Climate Crisis morass. As long as capitalism has the ability to profit from polluting the commons, (the very foundation of violence IMO), every “Black” job just digs the hole deeper. Only green jobs ADD VALUE to the economy and start to rejuvenate Planetary life support systems as well as the economy via distributed green energy from the renewable sector. Only GREEN JOBS bring enlightenment to the populations of the world. Only green jobs should be subsidized. IMO, Preferably with a Medicare health policy and a $1200/month untaxed basic income. For those benefits, I propose a minimum of 32 hr/month environmental public service jobs. All extra entry-level Green jobs pay a minimum of $20/ hr with normal taxes applied.
        Bingo! Homelessness vanishes, 100% employment achieved, Universal Health Care paid for as the Planetary life support systems are healed inexpensively. Ample time and money are also now available to pursue higher education without going in debt for the remainder of their lives. Cash-flow is returned to the communities, not to the bottomless pockets of the Pollution Profiteers and to off-shore tax shelters.

  7. Great analysis, Paul.
    I would only like to add one point which I believe has been noted also by Richard Heinberg: solving the energy crisis does not actually get us off the hook, it simply allows us to continue trashing the planet at an ever increasing rate! We do not need alternative fuels: we need an alternative society!

  8. Alberto Miguel

    Paul, I think that we are looking at the wrong issue. Even if the oil and gas industry collapses, the most important GHG producer is still the burning of millions of acres of grasslands and forests around the world. Coupled with that is the grain production, that oxidizes Organic Matter in huge quantities every single year, especially in the tropics. And the grain produced in this places are just shipped away to countries that had already exhausted its natural resources (Middle East, once the place that sustained the Roman Empire with food) and China (today had lost already 30 percent of its agricultural land). So, I would like to know your thoughts about it and how we are going to change our food system and stop to feed animals with the wrong food (grain). Have a great holidays all of you!

    • Joan Halgren

      Alberto, you make a good point of another source of GHGs that’s leaving the Earth in peril. Indeed, there needs to be a push to get Big Ag into sustainable agriculture that is mostly organic. Plus, we need people to stop eating all the grain that’s not healthy–way too many carbohydrates versus good fiber; people need to get into the OMD habit–that’s consuming ‘only one meal per day’ without meat–it helps save the planet from further destruction. Finally, we still need to resolve the plastic in our oceans, streams and lakes too! That’s a real tough nut to crack–how to get rid of the material–landfills are bad, incinerators too, so a huge campaign to get people back to using glass and maybe paper products too. We need manufacturers to produce products without plastic! So much to do, and it seems, so little time and opportunity to get it all done fast enough! Let’s see what Paul says about agriculture and plastics too! Cheers, Joan

      • Alberto Miguel

        Hi Joan, I most certainly agree with some of your comments. My main focus here is in the fact that all the grassland burning (you see, if people just did not throw that cigarette butt through the window of their cars…). Here in Canada we had a major fire in 2013 in Fort MacMurray and another last year in British Columbia, some 2 million hectares combined…). Such fires can release up to 300 tons of C per ha. And these two were peanuts if compared to all the grasslands and forests being burned around the world. Some 5 years ago I was in Brazil in a National Park and they were prescribing burning 3,000 ha a year to control burning the entire park. Every year! And it wasn’t working. Nobody told the anteaters that they could not run from the fire to the other side of the road when their tails were on fire….So, oil and gas are part of the problem, but not the major cause. Also, Brazil is a major alcohol producer to use as fuel for cars, but in order to harvest the sugarcane they burn it first. And use diesel engine vehicles to transport, harvest, plant, cultivate and so on…

  9. Arjan Wilkie

    I think the key take-home for individuals is to divest from all carbon exposed stocks as soon as possible. I realise the whole market will feel the blow of the fall of the fossil giants, but if/when it bounces back, the low-carbon (or no-carbon!) stocks will do best. So if you are in your mid-40’s now (like me!) then the smart move is to try and quarantine your retirement related investments (funds, stocks, property etc)… and vote for the Greens.

    • Joan Halgren

      Indeed, good to boycott the fossil emiters; also, request that public/private pension funds divest from the oil and gas industry and support renewable energy, organic farming, and only biodegradable production of products. That covers a litany of crimes against Mother Earth.

  10. Paul while I admire your positive take on the potential demise of the fossil fuel industry but I find it difficult to imagine their CEOs are going to roll over at the IPCC’s 12 year 50% by 2030 prospectus. If Australia’s current pathway is any sort of global example it is plainly evident that we still export around 6 times more coal than we burn locally. Our big 4 banks have lent more than $70 Billion to FF developers since 1980 (https://www.marketforces.org.au/info/compare-bank-table/) .At present at least Adani is still not scuttled on its proposal to establish one of the biggest coal mines in the world. Australian media is predominantly pro market ‘stuff the environment’ forces. There is sadly no longer a carbon tax or even the less invasive cap and trade system.
    FF company CEOs are undoubtedly aware of the impact of Climate Change and the IPCC’s dire warning but while there is a strong market for more and more bigger and better internal combustion engine cars, exponential demand for air and sea travel, more flexible electricity generators than renewables to meet the demand plus the CEO’s inherent need to perform with bigger and better margins and shareholder dividends in order to secure their substantial financial benefits, why should they change? No doubt they may have contingency plans in place and even potential takeover strategies of renewable energy suppliers, land acquisitions to cater for massive solar and wind establishments close to population centres, but whey should they change tack any time soon on a proven bottom line strategy?
    We brought a, not so early, end to the Vietnam War although we have had some further disasters since. Is Civil disobedience part of the answer in this case?

  11. Bill Sargent

    Thanks Paul, for your insights. As for Mikes suggestion of civil disobedience, I shared a cell with a now prominent civil rights lawyer. We sang Oh Danny Boy. But will civil disobedience in, say, the streets of Brisbane impact on the likes of Bolsonaro, Jinping, Trump, Gautam Adani, Putin…..?

  12. Warren Bolton

    Only one flaw I can see in your hypothesis “I would argue humanity may be slow, but we are not stupid.”

    See http://stupidhumans.club/

    What odds will you give me that we fail to hold at 1.5degrees by 2050 and What odd will you give me that we hit 4 degrees and have not descended into major global chaos by 2100?

    A young woman with two children sitting on a beach was interviewed last Friday by a TV channel about the IPCC prognostications.- Her response “There is nothing I can do”

    Yep 2018, 50 years or warnings and that is the commitment to a strategy, underpinned by urgency, for 83% of the community.

    Politicians have only one skill -understanding the masses.

    What solution is there for the coming permafrost methane and continuing ozone layer problems?

    • I doubt anyone will argue that humanity is stupid. We will no doubt have a solid grasp of what has finally caused the problem, so much like, one can assume, most passengers were aware on the Titanic

  13. It’s the oil and GAS industry. I’ve seen suggestions and programs that feature a massive the transition of fossil fuel cars to clean energy cars -by using refined methane (derived from fracking, food, plant material and animal wastes) as a clean fuel for fossil-fueled cars (a staggering number of the worldwide) If the current oil and gas companies decided that they would provide the needed fuel, derived from methane, might they be able to survive, by converting current cars to use their fuel, instead of attempting a massive global transition to EVs?

    • Azra it is hard for me at least to imaging our addiction to the internal combustion engine, however inefficient they are at extracting more than around 25% of the primary energy inherent in the fuel, that they will disappear entirely. Car racing and motor bike enthusiasts and such are likely to pay a premium for any fuel that will keep it all happening. Biofuels may well fill this gap although so far not altogether produced on an energy efficient basis. [https://www.researchgate.net/publication/26584295_What_is_the_Minimum_EROI_that_a_Sustainable_Society_Must_Have ]
      However the carbon content of methane from fracking, at least, is most likely to be of fossil origin thereby defeating any emission goals sought. Methane from food, biomass and animal waste is already in use around the globe and the carbon therein should not be too disruptive of the natural carbon cycle. Escaping (fugitive) methane from any source would likely I would suggest, cause accelerated global warming due to its inherent forcing properties.
      Whether EVs will largely displace ICE vehicles should come down to the overall energy return on investment (energy out/energy in). Depending on the type of energy source (% of renewable in the grid) for vehicle and battery manufacture and to charge up, an EV can absorb close to, or even more than, that of a normal ICE vehicle. [http://large.stanford.edu/courses/2014/ph240/lambilliotte2/]

  14. Liz Connor

    I’ve just discovered Eileen Crist and Yoel Koval and I must assume that you know their work Paul. But in case other readers of your blog don’t, here are links to two articles that are in the throes of changing my life: https://www.greanvillepost.com/special/Kovel,%20Enemy%20of%20Nature%20(2007).pdf
    SPOILER ALERT: The enemy is capitalism

  15. What will be the role of the military going forward?
    Global warming has been declared a National Security issue for some time. I have long argued that the military has to become GREEN in tooth and nail for the survival of the Nation and by inference the world’s planetary life support systems. Given that the military has taken an oath to defend the Nation and its people from all enemies, both foreign and domestic, it presents a quandary. To wit: It costs the nation a lot of money to operate, (~50% of our tax-base) so it needs a strong capitalistic system to support it. However, that very capitalistic system of “socially enabled capitalism” from consumption and trash is clearly killing the people and Nation it has sworn to defend. Wasting trillions of dollars on fuel, weapons, infrastructure, and blowing it up while killing our youth in the process.
    The military takes a dim view of wantonly killing the troops. Not only does it make for bad moral, I believe it is even treasonous.
    Give me a break. Why not make all that stuff work for GREEN. All that tech, manpower, weapons manufacture, the whole shitteree, build a new SUPPER WEAPON, a GREEN ECONOMY in a big hurry. As a Matter of National Defense. If we do that, Manpower does not get killed, nor the wounded a burden on the Nation till they die. Instead, they become an asset to the Nation and the World. All the infrastructure stays in place but a different “weapons system” deployed. Use the military to deploy green technology to the third world. I dare say sewer, water, and health care will make a far safer world than guns, drones and bombs.
    For how long can the military justify sending legion after legion of our youth to kill, and be killed, in trumped up efforts that will kill the military in the end, as well as the corporate paradigm that supports it? For how long will the enlisted continue to march to its drums as family and friends back home succumb to planetary climate carnage? Surely at some point “Fuck it” must prevail I would think. Can the leaders of the Military be prosecuted for treason for supporting the same social paradigm that feeds it but kills planetary life support systems? It gets tricky in my book. Who has standing?

    • Joan Halgren

      Leif, your points are valid! It seems the Extinction Rebellion is the way to begin to turn around this nightmare. While I am against riots, I think strategic ones will help along with investors divestment from emitters that will force them to transition their empires, including military might! This all must happen to save Mother Earth. Wishing all well.

      • Leif E Knutsen

        Capitalism unencumbered by the requirements of functioning planetary life support systems = mutually assured destruction. As surely as an all-out Nuke Puke! Just a bit slower and less humane.

  16. Leif Erik Knutsen

    Paul Gilding. First, thank you for all your continued efforts confronting the impending Climate Crisis and the associated carnage.

    Second. Could you please update my e-mail address to my Gmail account. Provided on recent posts.

    Best wishes,

      • Hi Leif

        The terms – Humans don’t go extinct in the period of anthropogenic climate change. No one is predicting when we will return to 240ppm co2~ but some are predicting were could be as 2200ppm by 2300. The last time we were at 2000ppm it took 10 million years to sequester.

        But human are more capable than that – aren’t they?

        Holding the stakes- I can’t at present find any of the wealthy deniers that will underwrite the proposition – so you will just have to hope that I am still alive and have any assets left when the dust settles.

  17. Elizabeth Robinson

    You say coal is dead but I just read ab0ut a businessman from India signing a big contract with Australia for many tons of coal for many years…

    • Joan Halgren

      Indeed, Elizabeth, I noted this sad news as well. We need courage and moral leadership on a global level now! Not next week or next year: now!

    • Leif knutsen

      I read decades ago that the cost of the transition to the green economy would require about the same % of GDP as the cost of the transition from night buckets out the windows to indoor plumbing. Which, incidentally, the GOP of the time were against as well, and for many of the same reasons. I defy anyone to find a Republican today that feels that indoor plumbing was not a wise investment. On top of that the green economy is getting less expensive by the day, and the sooner we start the more we save.

      • Leif knutsen

        The Survival of functioning Planetary life support systems require nothing less than the transition to the Green Awakening Economy. Z

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