Some of the largest oil and gas companies could plow up to $209 billion into renewables and carbon capture technology between now and 2030 if climate policies intensify around the world, according to new research — but the investment volume would still only make up around 10% of their total budgets.
During 2018, 15 of the world's largest oil and gas companies spent $6.6 billion on renewables and carbon capture and storage, representing around 3% of their investment budgets, research consultancy Capital Economics found in a new report commissioned by law firm CMS.
That annual investment could rise to $10 billion by 2030 under existing government policies, or as much as $31 billion under a sped-up energy transition, according to the report. To make its forecast, Capital Economics extrapolated two scenarios for the speed of the energy transition published by the International Energy Agency, or IEA.
The companies analyzed in the study were Royal Dutch Shell PLC, BP PLC, Total SA, Exxon Mobil Corp., Chevron Corp., ConocoPhillips Co., Eni SpA, Equinor ASA, Repsol SA, Petróleos Mexicanos SA de CV, PJSC LUKOIL, Petróleo Brasileiro SA - Petrobras, Saudi Arabian Oil Co., China National Petroleum Corp. and Petroliam Nasional Bhd. Between them, they represent around half of global oil and gas production and almost a quarter of proven reserves.
Integrated oil companies in particular are under intensifying pressure from investors and society at large to cut emissions and move from oil and gas to low-carbon alternatives. Critics say capital investment in alternative energy has been far too low to date. The IEA itself said in a recent report that investment outside of core business areas has averaged less than 1% of the entire sector's capital expenditure.
European majors have been leading the charge, investing an average of 6.2% of their capex on renewables and carbon capture in 2018, compared with just 0.8% on average in the rest of the world, including the U.S., according to Capital Economics. Chevron was the highest-placed U.S. company on the list, with just 1.5% of spending going to low-carbon alternatives. Companies with the highest oil and gas reserves, such as Saudi Aramco and Exxon, are least active in terms of diversification, Capital Economics found.
Under the IEA's more ambitious "Sustainable Development Scenario," most of the European majors will have spent roughly 20% of their total capex on renewables by 2030, the study said. This would be led by Shell, BP, Total and Repsol. The latter recently pledged to spend 25% of its money on low-carbon activities between now and 2025.
The bullish outlook would see the 15 companies spend a total of $209 billion on renewables and carbon capture between 2019 and 2030, compared with $100 billion under the less ambitious "New Policies Scenario" from the IEA.
Investment strategies in the industry vary, but the study found that 96% of renewables investment so far has gone to solar and wind power, with only ConocoPhillips failing to invest in either. Carbon capture has attracted all but two of the companies in the sample and most majors also spend money on biofuels, satisfying blending mandates in Europe and parts of Asia and the Americas. Other renewable technologies, like hydropower and geothermal energy, have only drawn sporadic interest.
An oft-repeated refrain in the oil and gas industry has been that returns in the renewables sector are lower than in traditional oil and gas. BP's outgoing CEO, Bob Dudley, warned this week that oil majors risk going out of business by pushing too fast into new technologies. BP made an ill-fated push into renewables in the early 2000s, leading to big write-offs.
"When it comes to where to put your money, there are oodles of options," said Munir Hassan, global head of energy at CMS. "The question is whether it makes sense."