Surmont workersScenarios represent plausible potential future states of the world. We use scenarios in our strategic planning process to:

  • Gain better understanding of external factors that impact our business to assist in the identification of major risks and inform mitigating actions.
  • Test the robustness of our strategy across different business environments.
  • Communicate risks appropriately.
  • Inform how we position our business, as technologies and markets evolve, to capitalize on opportunities that meet risk and return criteria.

Using scenarios enables us to understand a range of risks around potential commodity market prices associated with various greenhouse gas (GHG) reduction scenarios. To assist our capital allocation decisions, we can test our current portfolio of assets and investment opportunities against these future possibilities and identify where weaknesses may exist.

In 2019, we worked to change the way we use scenarios. Previously, we had constructed a single corporate scenario to reflect a world with carbon constraints which was subdivided into four climate-related risk scenarios to characterize possible pathways that could result from a mix of technology advancement and government policy actions. We have now combined our corporate and climate constraint scenarios into four main corporate scenarios: Current Trends, Moderate Transition, Accelerated Transition and Global Carbon Price. The scenarios were constructed using our revised global energy model and regional differences were included to reflect areas of the world that may take a different pace or direction. We also extended the duration of the scenarios to 2050. While these scenarios extend well beyond our operational planning period, they give insights on trends that could have an implication for near and medium term decisions and enable the creation or preservation of future options. 

Each scenario models the full energy system including oil, natural gas, solar, wind, nuclear and storage, as well their related GHG emissions and pricing policies. Each of these plausible pathways is designed to stretch our thinking about potential rates of new technology adoption, policy development and consumer behavior. We believe that three of the four climate-related risk scenarios result in global emissions trajectories that may be capable of being Paris aligned. Only the Global Carbon Price scenario is likely to achieve this without the need for negative emissions technology beyond 2050.

Constructing four very different scenarios means that analyzing and modeling potential outcomes is not the end of the process, as we also need to understand the probability of the world moving toward a specific scenario. We monitor crucial signposts that can indicate the direction and pace of scenario changes. The objective is to connect our scenarios with our climate-related risk strategy in a way that enables comprehensive strategic decision making. By measuring changes in the key signposts, we aim to track the pace and direction of the energy transition and identify potential leading indicators of change in the demand for hydrocarbons. In this way we aim to establish not just which scenario we are moving towards, but also identify merging disruptive scenarios. This analysis is presented to executive management and the board of directors to assist in strategic decision making.

Scenario Descriptions1

Global Energy Related CO2 Emissions graphic

Source: Various ConocoPhillips estimates and 3rd party independently published projections. ConocoPhillips estimates are based on industry consultants and publicly available data. Gray area indicates the range of third-party projections.

Current Trends

This scenario is built on the assumption that current trends continue. Government policies for carbon emissions remain globally uncoordinated. Technologies evolve at a gradual pace and current modes of transportation and power generation remain the lowest cost, most efficient avenues for energy consumption and generation. Carbon taxes are introduced at a moderate rate in Organisation for Economic Co-operation and Development (OECD) countries, rising to only $30/tonne of CO2 equivalent (CO₂e) in 2030. It is assumed that non-OECD countries have not implemented carbon pricing by 2050 in this scenario. Consequently, fossil fuels continue to deliver roughly 75% of global energy needs in 2050, and energy related carbon emissions continue to increase.

Supported by healthy economic growth, the global oil market grows by 25%, reaching 125 million barrels per day (MMBD) in 2050. Transportation’s share of total oil demand expands from 60% today to 65% in 2050. The automotive sector continues to evolve gradually, and the global share of electric vehicle sales increases from 1 – 2% today to 40% in 2050. The global average internal combustion engine efficiency modestly improves, and petroleum remains the most prevalent fuel for all modes of transportation. Production from all regions and resource types are developed.

The natural gas market expands at a faster rate than oil over the long term. By 2050, natural gas demand is 75% larger than today, reaching just under 700 billion cubic feet per day (BCF/D) as growing economies utilize natural gas in all sectors. The volume of natural gas consumed in power generation more than doubles. The focal point of demand shifts away from North America and Europe towards Asia.

Moderate Transition

This scenario assumes moderate advances in carbon pricing policies and alternative energy technologies, with incremental shifts in consumer preferences for lower carbon products.  Fossil fuels remain at roughly 75% of the primary energy mix in 2050. Carbon taxes go into effect across OECD countries during the mid-2020s and are $25/tonne CO₂(e) (TeCO₂e) in 2030, rising to $60 in 2050. It is assumed that China implements its proposed national carbon pricing policy at 50% of the OECD carbon fee and that no other non-OECD countries implement a carbon pricing policy prior to 2050. Global energy-related carbon emissions stabilize by 2050.

Global oil demand peaks in 2040 and then declines very slowly. Average internal combustion engine efficiency improves by one-third. Electric vehicle penetration is slow in the early years but accelerates in the 2030s and 2040s, reaching 60% of the passenger auto fleet in 2050 (compared to 1% in 2019). Regional policies also influence the outcome for electrification in transportation. Global oil production benefits from technology advances which improve productivity and enable global demand to be satisfied. U.S. crude oil production grows through 2030 then falls as incremental productivity improvements slow and high-quality acreage is exhausted.

The global gas market expands by 55% by 2050. The primary driver for natural gas demand growth is power generation. Natural gas consumed in power generation increases from 140 BCF/D in 2018 to 250 in 2050. Improvements in energy storage enable wind and solar to be available throughout the day, increasing their contribution to power generation sevenfold. As in the Current Trends scenario, global demand shifts east to Asia, the Middle East and the Commonwealth of Independent States (CIS). Global supplies remain heavily weighted to North America. U.S. shale gas and Permian associated gas drive North American growth until the 2030s, after which Canada leads North America’s production growth.

Accelerated Transition

This is a scenario with more aggressive changes in technologies, consumer preferences and government policies relative to Moderate Transition. Technology is vital to limiting growth in energy demand, while the population and economy expand. Social trends that are prevalent today in specific regions or municipalities spread because technological advances make these choices universally economic. For example, individual auto ownership gives way to shared mobility. Mass transit and ridesharing are accessible and cost effective for more people in more regions. Consumers shift purchases toward products and services that are viewed as environmentally responsible, and society demands more transparent environmental stewardship from the businesses they patronize. Governments target aggressive policies toward GHG emissions, fossil fuel production and consumption. Carbon pricing goes into effect across OECD countries during the mid-2020s and is $30 per TeCO2e in 2030, rising to $80 in 2050. Again, China implements its proposed carbon pricing policy at 50% of the OECD price. Other non-OECD countries impose a very low $5 per TeCO2(e) price by 2030.

Global oil markets reach a peak by 2025 and remain near that level until tapering more quickly after 2035. The combination of internal combustion engine efficiencies and faster adoption of electric vehicles, which reach 75% of new passenger vehicle sales by 2050, reduces oil demand in the transportation sector. Oil demand from the industrial sector grows for plastics and chemicals.

The global natural gas market grows at an average annual rate of 0.6% into the 2040s, peaking at just under 450 BCF/D in 2045 before starting a gentle decline. Natural gas remains a prominent fuel in electricity generation but starts to yield market share to wind and solar in the latter years of the scenario. By the late 2040s, energy storage technology allows renewables to contribute a larger share of power generation. North America’s gas production increases 15% over today’s level, plateauing in about 2040, before declining.

Global Carbon Price

This scenario assumes technology breakthroughs, major social movements to reduce fossil fuel consumption and rapid global policy coordination to price GHG emissions at a level that materially reduces fossil fuel use and emissions. It also assumes that OECD countries and China implement a pricing mechanism by 2025 rising from $50/TeCO2(e) in 2030 to $120 by 2050. Other non-OECD nations follow by imposing prices of $10/TeCO2(e) in 2030 rising to $50 by 2050. The scenario assumes significant technological advances which reduce battery, wind and solar generation costs, improve fuel efficiencies for internal combustion engines (80% more fuel efficient by 2050), improve energy efficiency in buildings and lighting, and other advances impacting energy production, delivery and consumption. Technology and efficiencies allow total energy demand in 2050 to be 5% below today’s level with 55% of energy provided by non-fossil fuels.

The global oil market peaks in 2023, before significantly declining thereafter. Energy storage improvements lead to 80% of new passenger automobile sales being electric in 2050. Consequently, transportation sector demand falls to 22% of total oil demand. Industrial demand becomes the largest proportionate sector at 45% as petroleum derived chemicals and plastics remain vital to many sectors. Oil supply dynamics evolve as most production occurs in OPEC countries and Russia and geopolitics play an even larger role in oil prices and the supply and price of oil.

Like oil, the natural gas market peaks in 2023. Natural gas generates only 8% of global electricity in 2050, while wind and solar grow to produce 55% of electricity in 2050. Global gas demand shifts to emerging markets in Asia, the Middle East, CIS and Africa. Only 20% of global gas demand remains in North America and Europe. The market also becomes more reliant on OPEC and Russia for supply as North American gas output declines.

ConocoPhillips Scenarios Energy Mix

Our scenarios indicate a wide range of oil and natural gas prices. We take this future price uncertainty into account in our strategy by only sanctioning projects with a fully loaded cost of supply which is less than $40 per barrel (WTI) in 2019 dollars. Of our 15 billion barrels of resources with a cost of supply below $40 per barrel, 13.5 billion have a cost of supply below $35 per barrel. 

None of the scenarios include a significant contribution to emission reductions from carbon capture and storage.

The scenarios are designed to address transitional risks. A separate scenario process addresses physical climate-related risk using consultant scenarios based on the Intergovernmental Panel on Climate Change (IPCC) modeling.

Matt Fox“By using scenarios to model the entire energy system, we can better understand and evaluate the energy transition as it unfolds and use that information in our long-term strategic planning” 

Chief Operating Officer, Matt Fox

Key Strategic Linkages to our Scenario Planning

Our corporate strategy reflects several findings from our scenario analyses. We have acted to:

  • Use a fully loaded cost of supply, including cost of carbon where legislation exists, as an important metric in our project authorization process. Our portfolio changes have created a resource base of 15 billion barrels of oil equivalent with less than a $40 per barrel cost of supply and an average cost of supply of less than $30 per barrel. Our strategic objective is to provide resilience in lower price environments, with any oil price above our cost of supply generating an after tax fully burdened return greater than 10%.
  • Prepare for diverse policy environments by maintaining a less than $40 per barrel of oil equivalent sustaining price that will generate the cash to fund capital expenditure to keep production flat over time and generate a dividend to shareholders.
  • Maintain diversification in our portfolio to be able to balance our production and capital expenditures as commodity prices become more volatile.
  • Provide a distinctive payout of cash flows to investors.
  • Identify and fund profitable emissions reduction projects, including methane emissions reductions. Reducing our scope 1 and scope 2 emissions intensity reduces the impact of any future regulations, or the introduction of carbon prices or taxes, and helps maintain our low cost of supply into the future. We have upgraded the use of a marginal abatement cost curve (MACC) in long-range planning to identify the most cost effective emissions reduction opportunities available to the company globally. These process  upgrades have resulted in more efficient collection, recording, sharing and funding of emission reduction projects.
  • Introduce a proxy cost of carbon into qualifying project sensitivities to help us be more resilient to climate-related risk in the short to medium term and provide the flexibility to remain resilient in the long term.
  • Focus near-term technology investments on reducing both costs and emissions where feasible.
  • Monitor for potential disruptive technologies that might impact the market for natural gas or oil, enabling us to take advantage of our capital flexibility and reduce our exposure to lower commodity prices at an early point in time.
  • Focus on the carbon and cost competitive supply of natural gas and oil while continuing to utilize our scenario planning system to monitor and assess additional business opportunities within the evolving energy transition.
  • Monitor global regulatory and legislative developments and engage in development of pragmatic policies aligned with the climate policy principles outlined in our Global Climate Change Position.


1 All carbon taxes are in 2019 dollars.