European oil majors better prepared for energy transition than US, Chinese counterparts

European oil and gas companies are diversifying into clean energy assets in order to improve their resilience to the changes ahead, CDP said. [Mike Baird / Flickr]

Oil majors are lagging behind when it comes to preparing for the low-carbon energy transition, according to a new report by financial watchdog CDP, which nonetheless praised BP, Eni, Equinor, Total, Repsol and Shell for taking the industry’s lead.

CDP, the environmental research and financial watchdog, issued a report on Monday (12 November) ranking the world’s 24 largest publicly listed oil and gas companies against their readiness to adjust to the low-carbon transition.

With an average of only 1.3% of capital expenditure spent on wind, solar or carbon capture and storage (CCS), the industry does pretty poorly overall, according to the report.

China’s oil giant CNOOC, Russia’s Rosneft and Marathon Oil in the US feature at the bottom of the league, which ranked companies by their ability to manage the four key transition risks defined in the Task Force on Climate-related Financial Disclosures (TCFD), chaired by Michael Bloomberg.

Regional split

For CDP, a “regional split” has become apparent, with Chinese, Russian and US firms lagging behind.

European oil majors stood out, with investments in low-carbon technologies reaching up to 7% of their total expenditure.

The percentage may look small. But Luke Fletcher, a senior analyst at CDP, said it has to be seen in relation to the industry’s massive size. Shell, for instance, has an annual capital expenditure of 25-30 billion dollars and plans to invest between 1 and 2 billion in low-carbon technologies over the coming years.

“On a relative basis, it’s not huge. But in an absolute perspective it’s quite large,” Fletcher told EURACTIV.

Rebranding

Some, like Norway’s Equinor – which holds the top spot on the list – have gone a step further by announcing plans to invest 15-20% of their capital expenditure in renewable energies by 2030, with a focus on offshore wind.

According to CDP, the company’s recent rebranding – taking the “oil” out of its name – is symbolic of a wider shift in the industry, caused by a combination of regulatory pressure to reduce emissions and increased scrutiny from investors.

US-based companies, by contrast, have not embraced renewables in the same way, because they have less domestic pressure to diversify.

“Across the 24 companies, European majors account for 70% of current renewable capacity and nearly all capacity under development,” CDP said.

Other companies like Shell, Total and Repsol were ranked by CDP as “the most ambitious” in reducing their carbon footprint because they have adopted greenhouse gas reduction targets that take into account so-called “scope three” emissions.

“That would be emissions from the everyday person driving their car,” Fletcher explained, saying the move is “quite a crucial step” for the three companies because “around 90% of oil and gas value chain emissions” come from use in areas like transport.

“These companies are starting to take the lead and think about their net carbon footprint as a whole,” Fletcher pointed out, saying European oil and gas firms are now increasingly seeing themselves as broad energy companies.

The shift in strategy is also visible in the sector’s acquisitions of clean energy businesses. Since the start of 2016, 148 deals have been made in alternative energy and CCS, the report found. Overall, the sector invested $22 billion in alternative energies since 2010, CDP said.

“A lot of these companies are spreading their bets,” Fletcher told EURACTIV, citing Total’s 2016 acquisition of Saft, a leading battery manufacturer, and Shell’s 2017 purchase of Dutch-based NewMotion, one of Europe’s largest electric vehicle charging networks.

BP confesses ‘mistake’ in forecasting renewable energy growth

The pace at which India – and China in particular – have developed solar power came as a surprise to BP analysts, the company’s chief economist told EURACTIV in an interview.

A change in mood music is also perceptible at the International Association of Oil and Gas producers (IOGP).

“Our industry sees real business opportunities and leads in many high-performance renewables and low carbon technologies,” said François-Régis Mouton, director of EU affairs at the IOGP in Brussels.

“The transition isn’t just about challenges,” Mouton told EURACTIV in e-mailed comments. “On top of renewables, we have decades of experience in CCUS which will be crucial for heavy industrial sectors in a carbon neutral economy. Combined with natural gas, we could also supply the system with hydrogen on a very large scale,” he said.

Beyond diversification into clean energy assets, European oil and gas companies are also shifting their focus to shorter investment cycles in order to improve their capital flexibility and resilience for the changes ahead, CDP said.

“In Russia, state-owned oil companies Gazprom and Rosneft have less capital flexibility, which means they may be less agile and slower to mobilise in response to future disruption such as climate regulation. This is also a trend across Chinese national oil companies including Petrochina,” CDP remarked.

Mountain to climb

Despite the show of goodwill, oil and gas companies still have a mountain to climb, however. The sector accounts for more than a half of global greenhouse gas emissions associated with energy consumption, representing more than 17 billion tonnes of carbon dioxide equivalent per year, CDP said.

And efficiency remains an issue in the industry that needs to be addressed. On average, companies are losing 3.3% of their natural gas production through flaring, venting and methane leakages – worth almost US$5bn at the current gas price, CDP pointed out.

But a growing number of people in the industry now argue the energy transition simply cannot happen at the scale and speed necessary without bringing big oil on board.

“If international oil companies don’t take part in the global renewables revolution, who else can?” said Eirik Wærness, chief economist at Equinor.

“Who else has the financial muscle, the experience, the technical skills and the supply chain that is already set up to develop that part of the energy spectrum?” he told EURACTIV in a recent interview.

Equinor: Oil majors have ‘muscle’ to join renewables race

International oil companies have “the financial muscle, the experience, the technical skills, and the supply chain” necessary to take part in the global renewable energy revolution, argues Eirik Waerness of Equinor.

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