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How oil and gas companies can be successful in renewable power

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Capital markets are placing higher value on firms that are structurally aligned with the energy transition across sectors such as liquid fuels, power, and equipment manufacturers.

  1. By contrast, the major oil and gas companies that are most invested in low-carbon markets have not yet benefited from material uplifts in company valuation.
  2. In fact, our research shows that the upside for some leading firms starts to materialize when more than 40 percent of total portfolios are low carbon, while leading oil and gas majors typically allocate less than 25 percent of their new investments into new energies.

There are four areas where oil & gas companies can add value

  1. Offshore project development: Leveraging deepwater and offshore oil & gas experience to offshore wind power
  2. Hydrogen production and transportation: Leveraging H2 experience in refining for clean H2 production
  3. EV charging: Leveraging distribution network for EV charging
  4. Decarbonization solutions: Carbon remove through CCS

There is a fundamental difference between US & European oil & gas companies the way they see energy transition:

  • US has large oil and gas resources that provide energy security & affordability: Shale revolution has made US as net exporter in oil & gas. European oil companies, lack resources and needs to look for alternate resources.
  •  US oil companies sees emissions as a problem not oil and gas. European see oil & gas as a problem and look for its complete replacement
  • US oil companies believes in climate change; however the path and speed of energy transition is different than European oil companies
  • US oil super majors (Exxon-Mobil & Chevron) don’t see themselves as electrical power companies; so Wind and solar maybe a preferred option for US utilities, it is not for oil & gas companies. They will focus on emission reduction, CCUS and bio-fuels.
  • Despite championing climate change and energy transition, European companies have lagged in policies to match the speed needed for energy transition. Legislative support provided by EU and European countries alone is not sufficient and requires more actionable regulatory framework. Best example is 45Q federal credits in USA that allows injection of CO2 in EOR projects and Aquifers. The limits in 45Q have been increased in recent inflation act
    • CO2 injection in Saline Aquifer,  credit increase from $50/t to $85/t
    • CO2 injection in EOR,  credit increase from $35/t to $50/t
    • CO2 injection from DAC,  credit increase from $50/t to $185/t
  • The European energy transition efforts do not provide the scale of investment  needed for energy transition. This is evident from recent events in Ukraine,  hence energy security and affordability has become more important, relegating the energy transition to back burner.