The world is transitioning between an era dominated by fossil fuels and one focused on a low-carbon economy through renewables, electric vehicles, and other technology solutions. Oil industry analysts say that major companies like ExxonMobil, BP and Shell must navigate two contradictory global forces: growing political, societal and market pressure to cut global emissions and the strong likelihood that “significant volumes of oil and gas will be required well after 2050.”
- Analysts say energy demand forecasts are inconsistent with meeting Paris Agreement targets using currently available and economic technologies. Can growing political, societal, and financial market pressure for decarbonization help us achieve zero net carbon by 2050?
- A coalition of environmental groups and major oil companies have launched the CEO Climate Dialogue that encourages Congress to enact a national carbon tax. Is this contrary to the interests of Big Oil? Or, is it seen as preferable to something like the Green New Deal that would fundamentally alter the way they do business?
- Just 8% of oil majors’ patents are in what’s broadly described as “new energies,” including renewables. The rest are aimed at improving the efficiency of fossil fuels. How can greater innovation be incented and led within the oil companies?
- “The renewable energy market is highly competitive and fragmented, returns on investments are typically lower than in oil and gas, and the average investment is much smaller in size,” says consulting firm Wood McKenzie.
- Oil and gas companies spent 1.3% of their 2018 budgets on such things as wind and solar power or battery storage and carbon capture.
- Big oil has come under intensive scrutiny from investors, climate activists, and state attorneys general, forcing it to become more transparent about how it values its climate risks while also doing more to curb its CO2 releases.
According to the Oxford Institute for Energy Studies, the move to clean tech “poses a major challenge for International oil companies whose business models and technologies are incompatible with full decarbonization, but whose future depends on them being part of the solution.”
There is a broad energy industry consensus that the expected increase in energy demand by 2050 cannot be met with today’s renewable technologies alone and that fossil fuels will continue to play a key role in the energy mix.
The Oxford Institute for Energy Studies estimates that even if the rate of investment in wind and solar could triple to an unprecedented $1 trillion annually, it would still take 55-years for these two renewables to ramp up to 50% of the world’s energy mix.
Companies are employing a mix of strategies that involve investments — both directly and via their VC arms — in tech that replaces fossil fuels, as well as ways to find and produce oil-and-gas more efficiently and see it burned it with less pollution.
Since 2016, 148 deals have been made in alternative energy and carbon capture, the CDP, or Carbon Disclosure Project says. Since 2010, $22 billion has been invested in alternative energies. And, 15 of 24 oil and gas companies it surveyed now have climate targets, with Repsol, Shell, and Total having the most ambitious ones.
The Oxford Institute for Energy Studies advises that “international oil companies ramp up on technologies where they see real opportunities and they are in a good position to exploit. But it remains very unclear whether these investments are being pursued as part of a long-term vision or as part of an ad-hoc approach.”