Oil & Gas Majors Expedite Their Move to Renewables

The year 2020 will go down in history as the point when the long-awaited energy transition to a low-carbon future went from being a topic of debate to something far more tangible. The effects of the global pandemic of 2020 will be remembered for a long time to come. The world-wide lockdown dramatically reduced the demand for oil and gas but provided a big boost for renewables. The speed at which the move away from fossil fuels happens will still not be fast enough for many people but will far outstrip previous and current forecasts. Covid-19 is just one part of what is a complex story.

Fossil fuel companies are turning towards wind and solar in a big way after seeing oil futures dropping below zero in April this year. Mona Dajani, partner and global head of energy and infrastructure at Pillsbury Winthrop Shaw Pittman LLP in New York said in a phone interview with BloombergNEF in June that she is also increasingly seeing storage bundled into packages with wind and solar.

Big oil companies have long realised that the future lies ultimately with renewable energy. Both oil and gas prices have been in decline since 2014. Following the spread of Covid-19 and the inevitable recession that has followed it numerous planned projects are no longer commercially viable. Oil is of course still required as demand cannot be easily substituted in areas such as freight or air transport. The International Energy Agency has predicted that renewable energy generation will more than quadruple by 2040 and this is probably a very conservative estimate knowing the history of their projects.

In particular, European-based oil and gas companies such as BP, Shell, Equinor and Total have realised that for commercial reasons alone they need to be on the green side of the future. This is happening at the same time that energy consuming companies in many other industrial sectors are coming to the same conclusion. Companies both oil and gas producing, and guzzling are understanding that there is no point in resisting the path to renewables as it is not only a waste of time but bad for business.

Electric vehicles are continuing to grow in number and with dozens of new models coming online in the next year we should see an ongoing shift to electric vehicles over the next two decades.

The big utilities and oil super majors are establishing their place in offshore wind. In order to survive they need to develop this arm of their business. They are bringing funds to capital intensive projects. Fossil fuel super majors are repurposing some of the infrastructure needed on flagships and offshore cranes. The consolidation of the industry is a great step forward for renewables. 

Big oil companies are adapting their businesses to stay relevant. One of the first big oil companies to take renewable energy seriously was Total. The European energy giant bought a majority stake in SunPower, the solar energy choice for homeowners and businesses around the world and acquired Saft, which is now building some of the biggest energy storage projects in the world. 

Interestingly, Total’s move into renewable energy makes the company look more like a utility than a traditional oil and gas company. The company is changing its business model in order to survive. In 2020, the company expects to grow gross global renewable energy capacity to 6 gigawatts (GW) from about 3 GW in 2019. That’s enough to power 1.14 million U.S. homes. 

Total is planning to have low carbon electricity operations account for 15% to 20% of its sales mix by 2040. This may not seem like a lot for an energy company but it’s important to remember that big oil companies are in the process of navigating massive businesses slowly away from fossil fuels to other forms of energy. Total is moving faster than most of its rivals but getting ahead of the game is wise as renewable energy becomes a larger portion of the world’s energy mix.

As one of the world’s largest independent oil refiners, you would not normally associate Valero Energy with renewable energy. They manufacture and sell transportation fuels and currently operate 15 petroleum refineries and 14 ethanol plants. Now, however it has a stake in the largest renewable diesel plant in North America. Valero operates Diamond Green Diesel, a renewable diesel joint venture with Darling Ingredients in Louisiana. Though it’s still only a small portion of its business relative to petroleum, the renewable diesel segment grew 80% in 2019.

Though you wouldn’t normally think of Clean Energy Fuels as an oil company as such it does match the definition of a fossil fuels company working to transition to renewables. Clean Energy has already moved a bigger share of its business to renewables than most other energy companies. Their core business is selling natural gas to transportation customers. Natural gas has much cleaner emissions than diesel and as more companies, investors and municipalities are keen to prioritise environmental measures, Clean Energy’s fuel volume sales have grown quickly.

The big oil and gas majors are well placed to expand into the renewable energy industry as they already have the money, the talent, and a lot of the existing infrastructure. They also have the mandate to move into this space. It’s almost like, a win-win situation for both the company and the renewable industry. The once solely traditional fossil fuel companies are gradually changing the way that they are perceived and although they are very much driven by profits it’s also a survival strategy.