The scenarios we have developed describe possible pathways leading to a particular outcome. Scenarios are hypothetical constructs and are not meant to be used as predictions of what is likely or forecasts of what we think is going to happen; they should be used to illustrate what factors drive future developments. 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 opportunities and inform mitigating actions.
• Identify leading indicators and trends.
• 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 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 strengths and weaknesses may exist.

We rarely make any decision based on a single source of information, but use a range of analyses, input and information when developing our strategy. The detail of our scenarios gives insight into the analysis we use to inform our strategic decision making and reinforces to stakeholders and shareholders that we are both preparing for reductions in GHGs consistent with the Paris Climate Agreement and developing resilient strategies that reflect the complex and uncertain range of energy futures.

We use four main energy transition scenarios in our global energy model: Current Trends, Moderate Transition, Accelerated Transition and Paris Agreement in our global energy model. The four scenarios incorporate a wide range of possible outcomes for energy and carbon emissions. Technology development (both complementary and competing), government policy (focused on both the supply and demand side) and social choices play leading roles in influencing the outcomes in each case. Regional differences were included to reflect areas of the world that may take a different pace or direction. While these scenarios extend to 2050, well beyond our operational planning period, they give insights on trends that could have an implication for near- and medium-term decisions and enable choices on the creation or preservation of future options.

Each scenario models the full energy system including oil, natural gas, solar, wind and nuclear, as well as their related GHG emissions and pricing policies. In 2021, near-term adjustments were made to account for actuals, and the modeled energy system has been expanded to include hydrogen and carbon capture, as both technologies appear vital to the energy system.

Each of these plausible pathways is designed to stretch our thinking about potential rates of new technology adoption, policy development and consumer behavior.  

The scenarios describe four pathways out of the myriad that are possible, given the uncertainty surrounding the development of future energy markets out to 2050. They do not intend to describe all possible future outcomes and are not used as a reliable indicator of the actual impact of climate change on ConocoPhillips’ portfolio or business.

In addition to using the four scenarios to analyze potential outcomes, we regularly monitor key signposts as we work 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 toward, but also to identify emerging disruptive scenarios. This analysis is presented to executive management and the Board of Directors to assist in strategic decision making.  

The thoughtful application of scenarios in strategic planning is core to our ability to navigate future uncertainty and is a practical way of conveying this information in a decision-useful manner. The key to scenario planning is the use of a wide-enough range to characterize uncertainty, rather than trying to correctly guess specific future variables or parameters. Different low-carbon scenarios that depict a wide range of future possibilities help facilitate strategic planning, but are not designed for, or intended to be used as reference scenarios to compare companies. For example, addressing market price uncertainty has led us to significantly change our portfolio, capital flexibility and cost structure over a short period of time. This illustrates how misleading it can be to compare companies based on a static view of a current portfolio; a range of scenarios are possible.

Scenario Descriptions

Energy Intensity of Gross Domestic Product (GDP) – The outcome for global energy-related CO₂ emissions from our four scenarios is shown in the chart below. The scenarios reflect differing economic activity, technology developments, public policy developments and consumer choices, but in all of our four scenarios, GDP becomes less energy intense as the global economy requires less incremental energy-intensive manufacturing and industrial activity relative to service-oriented activity. “Current Trends” corresponds to an average rate of decline in energy intensity of GDP from 2021 to 2050 of 1.5%, a rate in line with the 2010-2019 era. Alternatively, the Paris Agreement case corresponds to an average rate of decline in energy intensity of 3.0%. For reference, IEA’s Net-Zero pathway corresponds to an annual rate of 3.3% during 2021 to 2050.

Current Trends Scenario

This scenario is built on the assumption that current trends (2010-2019) in energy production and consumption 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 (TeCO₂e) in 2050. It is assumed that non-OECD countries have not implemented carbon pricing by 2050 in this scenario¹. Consequently, fossil fuels continue to deliver roughly 80% of global energy needs in 2050, and energy related carbon emissions continue to increase. 

The global oil market grows by 20% over 2019’s 100 MMB/D level, driven by solid economic growth and a lack of competitive alternatives. Transportation’s share of total oil demand expands from ~60% (2021) 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 20% in 2050. The global average internal combustion engine efficiency modestly improves by around 15%, 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 (2021), 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 double by 2050. The focal point of demand shifts away from North America and Europe toward Asia and the Middle East.

Moderate Transition Scenario

This scenario assumes moderate advances in carbon pricing policies and alternative energy technologies, with incremental shifts in consumer preferences for low carbon products. Fossil fuels remain at roughly 81% of the primary energy mix in 2050. Carbon taxes go into effect across OECD countries during the mid-2020s and are $25/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 plateaus in the late 2030’s at around 110 MMB/D 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 30% of the passenger auto fleet in 2050 (compared to 0.7% in 2020). 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. Russia and OPEC grow to take a larger share of global supply which increases geopolitical risk to supply.

The global gas market expands by 50% from 2019 levels, 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 240 in 2050. Improvements in energy storage enable wind and solar to be available throughout the day, increasing their contribution to power generation. As in the Current Trends scenario, global demand shifts east to Asia and the Middle East. 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.

In this scenario, hydrogen and Carbon Capture Utilization and Storage (CCUS) move to become viable, standalone business lines. Moderate progression toward national net-zero targets increases availability of capital funding which paves the way for these technologies to take hold. CCUS grows to 1.7 gigatonnes captured in 2050, while the total hydrogen market expands to 250 million metric tons in 2050.

Accelerated Transition Scenario

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, as the global 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 ride-sharing 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 TeCO₂e price by 2030.

Global oil markets reach a peak by 2028 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 a 40% share of the passenger vehicle fleet 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.

Faster progression toward net-zero targets and higher carbon prices increase capital available to new technologies, but hydrogen and CCUS remain the frontrunners. Captured carbon increases to 2.7 gigatonnes by 2050, and advances in renewables-powered hydrogen technology expand the hydrogen market to around 300 million metric tons.

Paris Agreement Scenario

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 pricing² mechanism by 2025 rising from $50/TeCO₂e in 2030 to $120 by 2050. Other non-OECD nations follow by imposing prices of $10/TeCO₂e in 2030 rising to $60 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 impacts to energy production, delivery and consumption. Technology and efficiencies allow total energy demand in 2050 to be 25% below 2019’s level with 50% of energy provided by non-fossil fuels. 

The global oil market peaks in 2023, before significantly declining thereafter. Energy storage improvements lead to EVs achieving parity with internal combustion engine vehicles by the mid-2020s, thus incentivizing climate-conscious consumers to purchase EVs. Consequently, 70% of the passenger automobile fleet is electric in 2050, and transportation sector demand falls to 25% of total oil demand. 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.

The natural gas market peaks in 2024. Natural gas generates only 8% of global electricity in 2050, while wind and solar grow to produce 60% of electricity in 2050. Global gas demand shifts to emerging markets in Asia, the Middle East, CIS and Africa. Only 26% 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 by over 58%.

In this scenario, countries and companies push for accelerated progression along net-zero pathways and implement supportive policies along with capital funding to progress new technologies. Hydrogen remains a front-runner, with blue (using CCS) and green hydrogen supporting increased petrochemical and industrial activities. In the later part of the scenario, electrolysis costs fall sharply, and green hydrogen accelerates along with other new technologies, pushing out blue and grey (Steam Methane Reforming) hydrogen production. Thus, the overall hydrogen market grows to around 360 million metric tons in 2050.  CCUS plays a critical role in emissions reduction, expanding to 3.4 gigatonnes by 2050.

Our scenarios have a wide range of assumptions regarding technological advances, government policies (e.g., carbon prices) and consumer behaviors leading to a range of oil and natural gas prices. We take this future price uncertainty into account in our strategy by using a fully burdened cost of supply as our primary criteria for capital allocation. Of the more than 20 billion barrels of resources with a cost of supply below $40 per barrel held in our portfolio, the next decade of production can be produced at an average cost of supply below $28 per barrel.  

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.

Key Strategic Linkages to our Scenario Planning

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

• Use a fully burdened cost of supply, including cost of carbon aligned with our current probability-weighted energy scenario, as an important metric in our project authorization process. In 2021, we had a resource base of over 20 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 rate of return greater than 10%.
• Prepare for diverse policy environments by maintaining a less than $40 per barrel of oil equivalent sustaining price that could generate the cash to fund capital expenditure to keep production flat over time and generate competitive returns to shareholders.
• Maintain diversification in our portfolio to be able to balance our production and capital expenditures as commodity prices become more volatile.
• Provide competitive distributions from cash flows to investors.
• Identify and fund emissions reduction projects to reduce the impact of any future regulations, or the introduction of carbon prices or taxes, and help maintain a low life cycle cost of supply. 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 emissions reduction projects.
• Introduce a proxy cost of carbon into qualifying project economics 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 our costs and our emissions where economically 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.
• Pursue hydrogen production and carbon sequestration as potentially attractive investments in meeting transition demand for low carbon energy.
• 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.

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