trending Market Intelligence /marketintelligence/en/news-insights/trending/Gx7skoYI5DbcRhNCVKsjqA2 content esgSubNav
In This List

Oil majors moving 'cautiously' on green investments amid low-carbon transition

Blog

Middle East & Africa M&A by the Numbers: Q2 2021

Video

S&P Capital IQ Pro | Unrivaled Sector Coverage

Video

S&P Capital IQ Pro | Powering Your Edge

S&P Capital IQ Pro | Powered by Expert Insights


Oil majors moving 'cautiously' on green investments amid low-carbon transition

As the energy market moves away from fossil fuels, the world's biggest oil companies are adapting their investment strategies to mitigate the associated risks. However, investments in cleaner energy to date represent just a small percentage of their overall businesses.

Oil majors face mounting risks from the demand for fossil fuels, which has already stagnated and is projected to sink, and from concerns over climate change, which threatens to strand a significant number of reservoirs, according to a July 16 report from science journal Progress in Energy.

To mitigate the possible challenges of a low-carbon world, the integrated oil companies, or IOCs, "are looking to manage the energy transition, but they are proceeding cautiously, and their investments still make up a small part of their portfolios," lead author Ensieh Shojaeddini said in the report, "Oil and gas company strategies regarding the energy transition."

BP PLC has pledged about $500 million per year in low-carbon activities. Eni SpA spent more than $72 million on lowering greenhouse gas emissions in 2017 and expects to spend $1.14 billion on renewable energy from 2018 to 2021. Equinor ASA aims to devote 25% of its research and development funds to new energies by 2025 and expects its spending on new energies to reach 15% to 20% of total capital expenditures by 2030. Royal Dutch Shell PLC has pledged $1 billion to $2 billion per year on biofuels, electric vehicles and wind power from 2018 to 2020, out of a total expected capital investment of $25 billion to $30 billion per year. Total SA expects to devote 10% of its research and development to carbon capture systems, aiming to invest about 20% of its $130 billion in assets to its low-carbon businesses by 2035.

SNL Image

"Shell stands out among its peers for its pledge of $1 billion to $2 billion per year on renewables, although that only accounts for 3% to 8% of its total capital expenditures. Equinor stands out for its target of 15% to 20% of capex spending on new energies in 2030," Shojaeddini said.

Chevron Corp. has already spent hundreds of millions of dollars on cleaner energy investments, and Exxon Mobil Corp. has spent billions of dollars, however; neither of the U.S.-based IOCs has announced new investment plans, according to the report. Chevron has invested $75 million in carbon capture systems since 2008, and it launched a $100 million Future Energy Fund through Chevron Technology Ventures LLC to invest in technologies to lower greenhouse gas emissions. Exxon has invested $250 million in biofuels research and development over the past decade and since 2000 has spent $4 billion on upstream efficiency projects and flaring reductions, $2 billion on reducing emissions at refining and chemical facilities, and $2 billion on co-generation at upstream and downstream facilities.

The report also shows that European IOCs are outpacing their U.S. counterparts in efforts to reduce carbon emissions.

"Companies face pressure from shareholders and society to reduce [greenhouse gas] emissions to lessen their contribution to climate change," Shojaeddini said in the report.

Amid the pressure, all seven of the companies are members of industry groups focused on reducing greenhouse gas emissions. As members of the Oil and Gas Climate Initiative, the IOCs have pledged to meet the Initiative's target of reducing the overall average intensity of methane emissions from its upstream oil and gas operations by one-fifth, to below 0.25% by 2025. But the European majors — BP, Eni, Equinor, Shell and Total — are taking extra steps, each announcing plans to lower their greenhouse gas emissions beyond the pledged levels.

SNL Image

"It is vitally important to find solutions that keep [oil majors] in the market while contributing to global climate change mitigation," Shojaeddini said.

To that end, the oil majors — most of them in Europe — are moving into renewable energies and investing in low-carbon transportation technologies.

Most of the integrated oil companies invest in renewable energies through direct ownership of renewable generation asset, but BP, Equinor, Shell and Total have each invested in or acquired developers, manufacturers and utility companies. BP, Chevron, Equinor, Shell and Total are also investing venture capital in technology companies through their venture firms, according to the report.

The European companies including BP, Eni, Equinor and Shell are also leading in low-carbon transportation, investing in alternative fuels and electric vehicles.

"In the past, companies tended to invest in either biofuels or [electric vehicles,] mostly choosing the former because the latter still had not achieved cost reductions necessary to scale," Shojaeddini said. Today, companies are increasingly investing in both, he said.