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Big Oil stands on the precipice Something. But no one can agree on what it is. A long and slow decline? A brutal collapse? A remarkable reinvention?
The growing urgency about climate change has finally reached the boards of Exxon Mobil, BP, Shell and other international oil companies. Under intense pressure, these companies universally commit to preparing for a low carbon or “low carbon” future.
But there is no consensus on what a future with less oil would look like for companies that have been greatly enriched by the fossil fuels driving climate change.
European companies – like the French multinational Total and the British company BP – are betting big on a pivot from oil to renewable energies.
Meanwhile, the US giants are betting smaller amounts of money on more nascent technologies, like carbon capture, with no intention of moving away from crude.
Yet no matter how much money is committed to green energy, most oil companies are still spending significantly more money on oil and gas investments, a sign that they do not expect a revolution overnight.
Here are three takeaways from the potential transformation of the petroleum industry.
Europeans are betting on a transition to renewables
Companies like Total in France, BP in Great Britain, Eni in Italy and Equinor in Norway are making ambitious commitments to move, over time, from oil money to sun and wind money.
In fact, they don’t even want to call themselves oil companies anymore, preferring “energy companies”.
There are signs that real resources are being devoted to this promised strategic shift towards renewable energies. BP has just bought a 9 GW pipeline of solar projects in the United States. Total has invested billions in a major solar producer in India.
Governments, investors and the general public are increasingly concerned about climate change and are calling for action – calling, in fact, for a profound transformation of the global economy, which currently depends on fossil fuels for 80 % of its energy. And European governments are implementing particularly strict policies.
It is not clear whether this global transformation will happen quickly, but if it does, it would wreak havoc on the bottom line of oil companies. Shareholders therefore put pressure on companies to perpetuate their business plans in order to survive the abandonment of oil.
Renewable energies are one way to achieve this, which explains the breathtaking targets some European companies are setting themselves.
But can they achieve these goals? Skeptics point out that oil companies attempting to make the change are competing in an increasingly crowded renewable energy market, outside of their core strengths, and making commitments on a very tight schedule.
“The question we’re asking Big Oil right now is are their renewable energy ambitions running on empty?” Says Gero Farruggio, head of global renewable energy at Rystad Energy, an independent energy research company. .
Farruggio points out that many companies have told investors that they will have significant renewable generation by 2030, in less than a decade.
“The challenge for them will be to acquire this remaining portfolio, then the real the challenge … will be to develop it by the 2030 deadline, ”he says.
Wind turbines and solar panels are getting a lot of attention, but they’re not the only options for a post-oil future. Shell has, for example, invested in charging stations for electric vehicles. Many companies are also relying on hydrogen or biofuels.
Then there’s carbon capture, a technology that can prevent the release of carbon dioxide or even remove it from the atmosphere – which is key to understanding the other half of the Euro-American divide.
American companies are taking a different path
While Europeans promise a strategic pivot that would upset their basic economic model, Americans are banking on the power of technology to preserve their current economic model – with a strong emphasis on carbon capture in their future plans.
This carbon capture path calls for continued oil production, with carbon capture “balancing” new emissions, in contrast to how some European companies prepare for lower oil production over time.
In fact, the captured carbon can be injected underground to help extract even more crude oil, in a process called enhanced oil recovery.
Occidental Petroleum, an American oil company, has made this technology the centerpiece of its plan to achieve net zero emissions by 2050.
Exxon also announced $ 3 billion in carbon capture investments over the next five years.
It’s a big change for the company, but more importantly, it’s not a big chunk of its overall capital spending:
Likewise, Chevron recently announced a $ 300 million venture capital fund dedicated to a range of “low carbon technologies.” This is about 2% of the $ 14 billion to $ 16 billion that Chevron spends on capital expenditures each year.
Which raises the third big takeaway …
Oil and gas industry bets change will be slow
Climate change activists may have celebrated key victories this month, including an activist cover that succeeded in electing three new directors to Exxon’s board in a direct blame for Exxon’s investment plans focused on oil, and a Dutch court ruling ordering Royal Dutch Shell to cut emissions.
Yet for all the excitement, there is this reality: Unless governments and consumers around the world make dramatic changes – sparking rapid change in business plans – oil and gas companies are not. not on track to move their investments as quickly as analysts say the planet demands.
Even among European companies, green investments have so far been eclipsed by their investments in oil and gas.
A recent report by the International Energy Agency (IEA) found that in 2020, the oil and gas industry as a whole spent only 1% of its capital expenditure (money spent on physical things ) into clean energy.
The IEA noted that based on current trends, this could reach 4% this year, “well above 10% for some of the main European companies”. This is significant growth – from a very small starting point.
Rystad Energy compared what European companies spend on new oil and gas development to what they spend on new renewables. (This comparison excludes the large sums that companies spend to maintain production at their existing oil and gas facilities.)
Based on their current portfolios, if companies don’t make major changes, Rystad found that they would still spend a lot more money on new fossil fuels than on green energy over the next decade.
Of course, the most climate-focused companies promise they’ll will make major changes. But these are outliers among the industry as a whole, which relies heavily on the status quo.
Muqsit Ashraf is the global head of energy at consultancy firm Accenture, which recently surveyed 179 oil and gas companies – of all sizes – to see if they were planning to change the way they do business for a transition away from oil and gas. .
Ashraf notes that oil and gas companies are talking about reducing carbon emissions like never before, with sustainability “front and center” in boardrooms, C-suites and investor dialogues.
But when it comes to actually transforming the underlying business model?
“Only a very small fraction of companies are really thinking of a radical reinvention,” says Ashraf.