Oil’s Big Transition
Big Oil’s metamorphosis is underway from the slithering slug to the butterfly. Whilst they currently are only making relatively token clean tech investments it’s the beginning of the end for their old ways. The oil companies are planning a $100bn divesture from their current assets. Shifting from oil to energy is their goal. Renewable energy technologies, battery technology, mobility, electric cars and autonomous vehicles are just some of the industries now grabbing the attention of big oil money. Energy transition and portfolio asset diversification has risen to the top of oil executive agendas. As the investment begins to flow to these new technologies the momentum will build and further accelerate EV and EV infrastructure evolution.
ExxonMobil, Royal Dutch Shell, Chevron and BP are actively pursuing new electrification and renewable strategies. BP for example, acquired the UK’s largest vehicle charging network provider, Chargemaster in 2018. This investment followed another BP entry into solar power with the investment in Lightsource. All the oil majors have now established venture divisions hunting green and renewable investment diversification opportunities. Making strategic decisions to move into these new industries could see big oil become big green energy tech. In a future world they may survive and be the energy suppliers for the electric generation through clean renewable technologies, such as solar, wind, wave and even nuclear fusion.
Survival is a powerful motivator and given the increasing pace of change, sitting still will not be an option. As the world’s dependence on oil begins to wane, the oil tactics of greenwashing, misleading and false promotion of a dying product will be obsolete. There is a conflict between the strategic belief that oil will be around for a long time and the necessity to reduce carbon emissions today. Recognising the accelerating electrification of mobility, strategic execution has commenced for oil companies like Total and Shell. They have made commitments to cut carbon emissions by 50-60% by 2050. This required a huge sell off in their most polluting assets, combined with a significant and immediate increase in alternatives investments. Another key driver and motivation for this great transition will be investors. Shareholders and bankers are coming under increasing scrutiny to deliver on their green credentials. Greenwashing will only last so long, as the retail then institutional investors demand green transparency in their investing commitments.
Evidence of the transition is appearing almost daily with major announcements in the oil sector. BP announced it will develop 50 gigawatts of net renewable power generation by 2030, 20 times more than it produced in 2019. Low or no carbon producing technologies are becoming fashionable for the hydrocarbon gang to wear. The Biden administration is not as pliable to oil lobbying as the Trump one was and oil companies know it. The transition needs to be genuine and not a cover story for the possible $4.9 trillion spend on new oil and gas production developments planned over the next ten years – according to Globalwitness. The oil industry could accelerate their transformation by diverting this enormous planned future exploration investment into a green transition.
The world has had a glimpse of what could be possible. The oil demand drop due to the 2020 pandemic cut greenhouse gas emissions by 6.4% - this is equivalent to two years of Japan’s total CO2 output, but unfortunately it was only temporary. As the lockdowns were eased in the second half of 2020, the CO2 emissions quickly rose again to pre-Covid levels. There is a growing concern and early evidence that the oil industry might try to mitigate their decline by unleashing a flood of cheap oil for the plastics sector. Despite the international plastics crisis with our oceans contaminated by microplastics – big oil could yet again be the environment’s arch-villain. Every human is estimated to ingest nearly 2,000 micro plastic particles per week from water, food and even the air.
In the past 50 years the top 20 companies have contributed almost 500 billion tonnes of carbon dioxide to the atmosphere. Saudi Aramco at 60 billion tonnes leads the group with others like Chevron, Exxon, BP and Shell contributing 40,30 and 25 respectively. The oil industry may try to launch a dying last-ditch effort to keep the petrochemical world alive in the guise of lower carbon producing fuels and cleaner refineries. With the world now on an unstoppable move towards zero-emissions mobility and clean energy they will have an uphill battle. The transition must happen and with Biden aiming to drive $1.7 trillion over the 2020’s decade into renewable power and electric vehicles, through tax credits, research, carbon capture and investment, the potential for hope is real. Concrete actions, like reducing emissions from cars, trucks and SUVs are in plan alongside President Biden’s existing goals to create a carbon pollution-free power sector by 2035 and net zero emissions economy by no later than 2050. John Kerry’s role as climate tsar is to save the planet. When asked about the necessity for success of the new US climate plan Mr. Kerry said "I'm not going to contemplate anything else,"… "because it would be a dramatic failure for mankind."
The Age of Oil is over and so too is the Internal Combustion Engine era.
