Year after year, the oil majors have managed to remain afloat in all sorts of crises. These companies overcame oil price shocks, environmental disasters, force majeure and many operational challenges.
This time around though, things are different. Five out of the seven largest integrated oil companies have committed to net-zero carbon emissions by 2050 with smaller entities (in relative size, but large entities otherwise) also following suit. It is almost like acknowledging that their existing nature cannot be sustained in the future.
The business strategies of how to get there, however, remain relatively blur. And even if some of the companies announce more details on their targets over five-year periods until 2050, significant questions remain.
Where to play?
Oil majors are heavily playing their renewable energy card. BP has set a target of 50GW installed capacity by 2030 from a mere 2.5GW in 2019. Total is even more ambitious stating a 100GW installed renewable capacity by 2030. By comparison, today’s renewable energy giants Enel, Iberdrola and EDF have targets of 75-150GW by 2030.
But how can oil companies compete in a segment where they are currently laggards compared to power companies? Technology, commercial agreements, regulatory hurdles and lower returns are only few of the challenges oil companies need to overcome. Are these companies too late to join the renewable surge?
How to play? Partnerships and new business models
Lacking most of the elements above (in varying degrees) calls for innovation. And not purely technological innovation, but business innovation. Oil companies would need to work-out what’s the best way to achieve the scale in new energies they require, while at the same time ensuring shareholder returns.
Installing renewable capacity at the scale publicized is difficult. It would need to compete for capital with traditional oil & gas projects and will also require significant resources to be tied-up to develop those projects.
Could progress come via mergers with renewables companies? Sounds unlikely given the scale of operations on both sides, lengthy & expensive integration costs and heavy financing required to do something like this.
Joint ventures with utility companies sounds like a more prominent solution. Exchange of know-how, equity contribution and project development capabilities will be mutual benefits among the JV partners, in my opinion.
Partnerships with original equipment manufacturers (OEM) and technology licensors could also be a move towards the right direction. Again, oil companies have the money (some of them) and experience in scalable solutions demonstrated in the oil & gas sector, while OEMs have the technological know-how.
Getting closer to the consumer
It’s not all bad news for the big oil gang though. Oil companies have historically been very close to their consumers through their retail branding building loyalty through generations, despite the market sentiment being somewhat negative this time around.
Retail offering can easily be transformed and expanded into EV charging stations, hydrogen refueling and biofuels expanding the companies’ social license to operate.
Moreover, the knowledge acquired through these consumer-based operations can provide a leading-edge in the power distribution market that these companies are looking to enter into.
The next decade would be pivotal for oil majors. Multi-decade long business models are now questioned around their sustainability and shareholders returns. The near future will be among the most interesting periods in the history of energy. Never before has the public sentiment been more critical about oil companies. Let’s see how the play unfolds.
Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy & Sustainability writers, their opinions do not necessarily represent those of illuminem.