Daily Management Review

Oil Majors are Under Pressure to De-Risk as Green Energy Gains Traction


11/20/2016




Oil Majors are Under Pressure to De-Risk as Green Energy Gains Traction
Countries and businesses are now being scrutinized to make sure they implement the correct strategies to deliver a greener future, following the breakthrough at the United Nations COP21 conference last year.
 
Oil majors will have to embrace the new energy world, or face getting left behind as zero-carbon fuels gain more traction.
 
"Global energy trends are changing. Sixty percent of global energy demand growth over the next 20 years will come from either gas or zero-carbon fuels such as wind and solar," Paul McConnell, research director of global trends for Wood Mackenzie, said. "So the majors are under pressure to articulate some sort of response to this challenge of a lower carbon world and to de-risk their legacy operations."
 
While sorting out their oil operations, oil operators will be facing a balancing act between incorporating more eco-friendly strategies when it comes to embracing this greener future. It's likely that oil majors will be taking one (or more) of three core strategies: decarbonizing, capitalizing and grow, as a result, Wood Mackenzie believes.
 
"So decarbonizing is really about looking at your legacy performance as an oil and gas operator and trying to reduce the greenhouse gas footprint, and we would probably put most of the American producers in that bucket."
 
"Capitalizing is more about using your abilities, perhaps in marine engineering to move into things like offshore wind, maybe a bit more organic growth. And 'grow' is some of the European majors reflecting the strategy — it's about accelerating the move into renewables, buying solar companies, buying [energy] storage."
 
But at what rate do they embrace the new greener world is he big question for oil majors. There's risks from approaching it too aggressively and too slowly according to McConnell.
 
"There are risks of moving too quickly, moving too aggressively into this new space and finding that oil prices might come back, profitability from oil and gas starts to return."
 
"But on the flip side, there's a risk that companies could move too slowly and the market could change. We do see zero-carbon fuels growing around three percent a year on average over the next 20 years, as opposed to oil."
  
He planned in revisiting the actions — activated by current President, Barack Obama — which were designed to fight climate change, President-elect Donald Trump said during his election campaign.
 
According to Reuters, China said it rejected a plan by Trump to pull out from the climate change pact, just over a week before Trump was named as the next U.S. leader.
 
Yet the call for cleaner energy is already rising in popularity and China could be at the forefront of it whatever approach Trump does take when it comes to the Paris agreement, McConnell revealed.
 
"China's a huge market for clean energy; it's a huge market for everything. But one of the reasons that solar in particular has come down in cost so much over the last few years is because China has been producing huge amounts of solar panels."
 
"Now I think from a carbon perspective, China — especially with President-Elect Trump coming into the mix — has an opportunity to almost take that baton of leadership here. It's a huge growing market. We do see coal demand in China in particular has already peaked and will continue to decline over the next 20 years."
 
"Regardless of what happens with U.S. support of the Paris Agreement, we do think these trends towards a lower carbon world are more or less baked into the mix. It's not really a matter of if; it's a matter of when, what magnitude and what regions it happens (in) first."
 
(Source:www.cnbc.com)






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