Strategies for the energy transition

The information we present below has been highlighted by the companies themselves in their recent reporting. It is not intended to account for every single initiative undertaken in the last reporting year and it is not meant to include activities prior to 2022, though some may be ongoing.

Company initiatives for progressing the energy transition fall into four broad categories:  carbon removal, low carbon fuels and hydrogen development. The table below sets out what we have observed from the most recent company reporting. 

Figure 4-1: Initiatives for progressing the energy transition

Carbon removal strategies involve existing solutions and new technology developments

Carbon removal strategies exist to offset the ongoing generation of emissions in order to achieve the companies’ emission targets. There are essentially three ways in which companies pursue this strategy.

Nature-based solutions promote the absorption of CO2 through environmental stewardship and biodiversity. These activities have the advantage of promoting broader ESG goals both in their home countries and in the jurisdictions in which they are operating. This strategy is used by 12 of the 15 companies.

One of the common initiatives is tree plantings. Chevron is expanding its reforestation of bald cypress trees in Louisiana, USA by increasing the number of trees it plants as well as more than doubling the land area it is re-foresting. PetroChina is involved in planting trees nationwide in both existing forests and land set aside for carbon sequestration. Saudi Aramco is participating in a nationwide initiative in the Kingdom to plant mangrove trees. ADNOC is also involved in mangrove plantings.

Pemex has established two ecological parks as “voluntary conservation areas” to provide environmental services such as carbon capture, water harvesting, and pollinator protection. TotalEnergies is developing carbon sinks in both Guatemala and Peru which will benefit Central and South American emissions reduction aims.

Carbon capture, sequestration and storage (CCS) is an existing technology which is also evolving towards larger scale commercial solutions. With fourteen of the companies in our analysis highlighting CCS as a part of their strategy over the last year, ongoing expansion and development is something that cuts across the three trajectories on the path to net zero.

Depleted oil and gas fields are one of the main options for CO2 storage, though not all depleted sites offer this potential. If storage is feasible at a site, there is the opportunity to repurpose the existing infrastructure, thereby reducing decommissioning costs. Policy support could accelerate development and adoption of CCS in future.

For the moment, companies are in varying degrees of exploring and utilising CCS. ADNOC, bp, Chevron and ExxonMobil all have facilities that are currently operating with this capability. ConocoPhillips is evaluating sites along the US Gulf coast. PetroChina plans to construct regional CCS facilities in industrial centres. Saudi Aramco has identified several key assets for CCS and has sought out international partners to develop additional projects. Equinor and Shell have partnered to transport and store CO2 with the Northern Lights partnership and Yara, a major global producer of fertiliser.

Carbon offsets are a way for the companies to invest in activities outside their business and acquired credits to reduce their own emissions tally. The companies utilising this activity are largely investing in funds which, in turn, invest in nature-based carbon removal solutions around the globe. As such, the companies are participating in the greater global aim of reaching net zero, not just their own company mandates. At the same time, companies have noted they are purchasing carbon credits through marketplace mechanisms, or include it as a potential option, in order to reach their stated emissions targets.

Low carbon downstream products look to the net zero future

Low carbon solutions are those which will displace fossil fuel energy with something less carbon intensive, now and in the future. Many of the companies with significant downstream operations and distribution networks are involved in the development of biofuels and synthetic products, some of which are already being marketed to consumers and industrial customers.

Perhaps the most high profile statement around what the future looks like for the oil and gas majors with important downstream operations, ExxonMobil has recently stated that it has assessed that the value of its low carbon solutions business, which it created in 2021, is likely to be larger than current value of its upstream operations today.

An example outside the passenger vehicle market is Repsol, which has developed an aviation biofuel from its waste streams that is used by Iberia Airlines on long-haul flights.

Several of the companies – bp, Repsol, Shell and Petronas – have invested in the installation of electric vehicle (EV) charging points. Whether this is at their own service stations or at a new service site, this represents replacing a core downstream activity with an adjacent one promoting the energy transition. While Petronas is a national champion, the other three companies are domiciled in Spain and the UK, where their automotive customers have pledged to end production of combustion engine vehicles within the next 20 years.

Hydrogen makes progress

Hydrogen is a clean energy solution which continues to evolve, particularly in natural gas intensive operations like fertilisers and chemicals, albeit there tends to be criticism of blue hydrogen as a less viable long-term contributor to the energy mix than green hydrogen, the latter being much less carbon intensive than the former. As an example, ADNOC is building a facility to produce blue ammonia at its new TA’ZIA industrial ecosystem and chemicals hub. While the project will not be fully operational until 2025, it has sold its first demonstration cargoes of blue ammonia. ConocoPhillips has invested in hydrogen production technology with Ekona Power, Inc. and is working with JERA to evaluate the development of green and blue ammonia from the US Gulf Coast. Petronas has signed agreements with 12 international partners to produce hydrogen. Repsol has joined SHYNE, a consortium to promote renewable hydrogen in Spain.

The end markets to utilise hydrogen as a fuel replacement for gasoline or natural gas are still being developed, which is constraining the progress that the companies can make. This is an instance where national policy could help accelerate adoption but companies are moving ahead in any case. Specifically, Chevron is partnering with BNSF (a railway) and Progress Rail (which is a division of Caterpillar) to develop a locomotive power by hydrogen fuel cells.

CAPEX dedicated to renewables aligns along company trajectories

The one area which has separated the “diverse portfolio” companies from their peers in our sample group is in the implementation of renewable generation for activities outside powering their own oil and gas operations. It is not surprising given the location of the facilities that the US domiciled companies have found ways to utilise solar and wind generation in their own operations but have not acquired or developed generating assets beyond that because, unlike many of their peers, they are not electric utilities and do not have ambition to enter that line of business. As an example, ConocoPhillips is performing a study of an offshore wind project to power operations at the Ekofisk complex in the North Sea which would include two 11MW wind turbines and be operational by 2026.

The European-based companies have all invested in renewables generation over the last five years and many continue to do so. There is not a single, common strategy that is being employed, but rather a mix of activities which involve acquiring renewable energy developments, as well as developing their own projects, either alone or in partnership.

Equinor is developing its own onshore wind and solar projects to power its operations and has among many other things acquired BeGreen, a Danish solar developer with a strong project pipeline.

Repsol was particularly active in this regard. It acquired three wind farms and two solar plants from ABO Wind, adding another 250 MW to its existing 3,200 MW portfolio of renewable projects in Spain. The new assets will interconnect with Repsol’s own PI wind project and will begin operating by 2025. The company also acquired Asterion Energies, incorporating a 7,700 MW portfolio of renewable generation in Spain, Italy and France. Outside of Europe, along with partner Ibereólica Renovables, the company began to generate electricity at their second joint wind farm in Chile with 165MW installed capacity.

Shell purchased Nature Energy, a renewable natural gas producer, Holland Hydrogen 1, and renewable power developer Sprng Energy. It also integrated Savion, a solar and energy storage developer in the USA, into its asset base.

TotalEnergies increased its renewables spending through the acquisition of US-based Clearway Energy, which has a portfolio of solar and wind generation assets.

In the Americas, Brazil’s state-owned Petrobras has revamped its corporate strategy and now includes a renewables commitment in its future CAPEX plans.

Saudi Aramco has publicly announced a change in how it will approach the energy transition. Instead of committing the company to a renewable energy target, it is, instead, investing US$1.5 billion in a fund to promote low carbon technologies.

ADNOC, as part of the UAE strategy to become net zero by 2050, entered into a partnership in late 2021 under the Masdar name. The company has a committed capacity of over 23 GW of renewable energy, with the expectation of reaching well over 100GW by 2030.

Similar to what ExxonMobil did with its downstream low carbon solutions business, both Eni and Petronas have created specialised “satellite” business units which aim to develop, acquire and provide clean energy solutions in the future. Petronas said it intends to generate 30-40 GW via renewables by 2030.

PetroChina has a broader aim of utilising biomass, wind, solar and geothermal to reduce its carbon footprint in the future.