Oil and gas giants are pursuing diverse energy transition strategies shaped by their specific geographical and policy contexts, shareholder pressures and existing asset bases.
New research from global law firm CMS reveals a notable shift in the energy landscape, with the expected peak oil demand now forecast to arrive in 2029 – a year earlier than previously projected by economic research business Capital Economics in 2020. This acceleration is attributed to the rapid adoption of electric and hybrid vehicles, driving faster decarbonisation in the transport sector.
The research note, titled Energy Transition 2023: The Evolving Role of O&G Companies in the Energy Transition, conducted by Capital Economics assessed the energy transition activities of 15 top oil and gas (O&G) majors. The findings underscore the industry’s transformation, with these companies collectively investing 16.5 billion US dollars in their energy transition activities in 2022, equivalent to an average of 7.4 per cent of their total capital expenditures (CAPEX).
Oil and gas giants are pursuing diverse energy transition strategies shaped by their specific geographical and policy contexts, shareholder pressures and existing asset bases. These strategies for progressing the energy transition fall into four main categories:
- Carbon removal – Offsetting / reducing ongoing emissions to meet emission targets.
- Low carbon solutions – Displacing fossil fuel energy with less carbon-intensive alternatives, such as low-carbon fuels or electric vehicle charging infrastructure.
- Renewable generation – Including initiatives like wind farms.
- Hydrogen – Exploring hydrogen as a “clean fuel”.
Currently, 13 of the 15 assessed companies have committed to achieving net-zero emissions by 2050, a significant increase from nine in 2021. Additionally, 11 companies have joined the Aiming for Zero Methane Initiative, supported by members of the Oil and Gas Climate Initiative (OGCI).
Munir Hassan, Head of Head of the CMS Energy and Climate Change Group, said: “While overall spending on renewables and low carbon initiatives averaged 7.4 per cent of capital expenditure in 2022 for the sampled companies, the wide variances between individual companies underscores how the energy transition remains in its early days as a collective strategic priority.
“The companies assessed here face pressures from all sides. But their commitments and initiatives demonstrate that the energy transition is nevertheless now underway and augmenting business as usual, even as the destination for each of them remains unclear.”
Global investment in renewables outpaces fossil fuels
Renewables have taken the lead in global investment, outpacing fossil fuels. Data from the International Energy Agency (IEA) reveals that energy investment totalled 2.2 trillion US dollars in 2021 and nearly 2.4 trillion US dollars in 2022. The share of clean energy investment has been increasing over time and now constitutes the majority – comprising 59.3 per cent in 2021 and 60.2 per cent in 2022.
The proportion of energy investment directed towards renewables rose to 74 per cent in power generation and 27 per cent in energy supply. This compares to 64 per cent and 20 per cent, respectively, in 2017.
Fossil fuels investment remains a large portion of the investment in energy production and supply at 52 per cent but its share has been shrinking – down from 59 per cent five years ago.
Peak consumption of natural gas to hit in mid-2030s
Peak consumption of natural gas is expected to follow peak oil, projected for the mid-2030s. Natural gas offers an immediate alternative for diverting electricity generation away from the more carbon-intensive use of coal-fired power plants. In addition, natural gas is a relatively clean fuel, which can act as a bridge for electricity generation until investments in wind and solar power, as well as the necessary storage capacities, can be accelerated.
Company strategies are adapting alongside national commitments
Companies are aligning their energy transition pathways more closely with national roadmaps. This alignment highlights the emerging standard for emissions reporting across industries. European oil and gas majors lead in diversifying energy offerings, driven by regional climate commitments and shareholder / public sentiment. US companies have also adapted their strategies in response to shareholder expectations, focusing on low carbon products and services. National oil and gas companies, forming integral components of their countries’ carbon reduction commitments, reflect their nations’ evolving climate goals.
This content has been produced in collaboration with a partner organisation through our Global Visibility Programme. Our programme helps companies boost their digital presence and strengthen the thought leadership of their experts. Find out more here.
Add Comment