Home / Publications

Publications

Discover thought leadership and legal insights by our legal experts from across CMS. In our Expert Guides, written by CMS lawyers from across the jurisdictions where we operate, we provide you with in-depth legal research and insights that can be read both online and offline. You can also find Law-Now articles with focused legal analysis, commentary and insights to help you anticipate future challenges and much more.


Media type
Expertise
14 June 2021
En­ergy Trans­ition: The evolving role of oil & gas com­pan­ies in a net-zero...
After an ex­traordin­ary year of health and eco­nom­ic chal­lenges, the glob­al oil and gas sec­tor has an es­sen­tial role to play in the eco­nom­ic re­cov­ery. The same could how­ever be said of any eco­nom­ic re­cov­ery and ex­pan­sion over the past 100 years – dur­ing this time oil and gas com­pan­ies have provided most of the primary en­ergy that has fuelled huge eco­nom­ic growth. But this time does look dif­fer­ent. The oil and gas sec­tor will power eco­nom­ic re­cov­ery not just through oil and gas ex­plor­a­tion and pro­duc­tion, but also (and per­haps counter-in­tu­it­ively to some) through fa­cil­it­at­ing the trans­ition to a lower-car­bon eco­nomy and even­tu­ally a net zero fu­ture. This re­port presents a wide-ran­ging re­view of the role of oil and gas com­pan­ies in that fu­ture.
08 June 2021
Con­clu­sion
Dur­ing 2020 and so far in 2021 the en­ergy trans­ition as it af­fects the oil and gas in­dustry has gained fur­ther mo­mentum from con­sumer and gov­ern­ment led pres­sure to re­duce green­house gas emis­sions and mit­ig­ate the ad­verse im­pacts of cli­mate change. At an in­dustry-wide level, the dir­ec­tion of travel re­mains clear, al­beit the jour­ney has a long way to go and the des­tin­a­tion it­self is not yet clear in many re­spects.The dir­ec­tion of travel re­mains clear be­cause, as pro­jec­ted in our Janu­ary 2020 re­port, the oil and gas com­pan­ies in our sample have in­creased the per­cent­age of their cap­it­al ex­pendit­ure ded­ic­ated to en­ergy trans­ition activ­it­ies re­l­at­ive to their pure oil and gas cap­it­al ex­pendit­ure. Whilst the oil price crash in March 2020 and the Cov­id 19 pan­dem­ic are po­ten­tially con­found­ing factors whose im­plic­a­tions are yet to be fully played out, these cap­it­al ex­pendit­ure fig­ures demon­strate an atyp­ic­al, but non­ethe­less pre­dicted, re­sponse to crisis. Rather than hunker down and stick to what they know best, our sample has, at an ag­greg­ate level, leaned in fur­ther to the chal­lenges and op­por­tun­it­ies presen­ted by the en­ergy trans­ition. The jour­ney re­mains a long one as the world is not yet ready to do without oil and gas as a primary en­ergy source. Whilst we see peak oil de­mand hav­ing been brought for­ward to the early 2030s, a long tail of de­mand re­mains and the oil and gas in­dustry con­tin­ues to take a gen­er­ally prag­mat­ic ap­proach re­flect­ive of the world’s en­ergy needs. Rid­ing out that long tail will have far-reach­ing im­plic­a­tions at all levels of so­ci­ety, from in­di­vidu­al work­ers who may need to re­train or change ca­reers to gov­ern­ment rev­en­ues and geo­pol­it­ic­al ten­sion. These is­sues are worth watch­ing now and will only be­come more press­ing in the fu­ture. And in the mean­time, in­vestors with short- to me­di­um-term ho­ri­zons look­ing for strong re­turns from po­ten­tially un­der­val­ued as­sets are in­creas­ingly look­ing to the oil and gas sec­tor. Wit­ness the in­flux of private equity in­vest­ment in­to the United King­dom North Sea over the past dec­ade.The des­tin­a­tion is not yet clear due to net zero scen­ari­os de­pend­ing sig­ni­fic­antly on pro­cesses and tech­no­lo­gies that are either at a very early stage of their de­vel­op­ment, such as com­mer­cial CCUS, or not yet in ex­ist­ence. U.S. cli­mate en­voy John Kerry has said that 50% of the car­bon emis­sions cuts ne­ces­sary to achieve a net zero fu­ture need to come from tech­no­logy we don’t yet have. This rhet­or­ic can of course be viewed as an in­spir­ing chal­lenge to be ris­en to. The oil and gas sec­tor in­tends to play a large role in ef­forts to do so. Equally though, oil and par­tic­u­larly less car­bon-in­tens­ive gas can only be re­placed once oth­er primary en­ergy sources are ready at suf­fi­cient scale to do so. Fi­nally, the meas­ur­able steps be­ing taken to re­duce net green­house gas emis­sions from oil and gas ex­plor­a­tion and pro­duc­tion mean that oil and gas com­pan­ies can of­fer more en­vir­on­ment­ally-com­pet­it­ive products to their con­sumers. This year saw a U.S. oil com­pany de­liv­er what was de­scribed as the first cargo of car­bon-neut­ral crude oil to In­dia, as a first step to­wards a net zero oil busi­ness and with the car­bon neut­ral­ity com­ing from CCUS and geo­lo­gic­al se­quest­ra­tion of car­bon di­ox­ide.This re­port has been our second hon­est look at the role of oil and gas com­pan­ies in a net zero fu­ture. It presents a com­plex pic­ture that has evolved sig­ni­fic­antly over the past 18 months. We ex­pect this evol­u­tion to gain fur­ther mo­mentum in the com­ing years and de­vel­op in ways that we can­not yet fore­see. At the same time though, we ex­pect that mo­mentum to con­tin­ue to be driv­en by the back­bone of oil and gas pro­duc­tion.
07 June 2021
Eight O&G ma­jors agree en­ergy trans­ition prin­ciples
In Decem­ber 2020, bp, Eni, Equi­nor, Galp, Oc­ci­dent­al, Repsol, Roy­al Dutch Shell and Total an­nounced that they had agreed on six prin­ciples to ap­ply to their en­ergy trans­ition strategies. The aim is to cre­ate more con­sist­ency and trans­par­ency on the met­rics used to re­port on cli­mate-re­lated per­form­ance.Pub­lic sup­port for Par­is Agree­ment goals – in­clud­ing in­ter­na­tion­al co­oper­a­tion as a vehicle to en­sure that those goals can be achieved at the low­est over­all cost to the eco­nomy.In­dustry de­car­bon­isa­tion – re­duce emis­sions from their own op­er­a­tions and strive to re­duce emis­sions from the use of en­ergy, to­geth­er with cus­tom­ers and so­ci­ety. Meas­ure firms’ con­tri­bu­tions us­ing car­bon in­tens­ity and / or ab­so­lute met­rics at dif­fer­ent points in the value chain.En­ergy sys­tem col­lab­or­a­tion – col­lab­or­ate with stake­hold­ers, in­clud­ing en­ergy users, in­vestors and gov­ern­ments, to de­vel­op and pro­mote ap­proaches to re­duce emis­sions from the use of en­ergy in sup­port of coun­tries de­liv­er­ing their Na­tion­ally De­term­ined Con­tri­bu­tions to­wards achiev­ing the goals of the Par­is Agree­ment.De­vel­op­ment of car­bon sinks – con­tin­ue to sup­port and pro­mote the de­vel­op­ment of emis­sions sinks such as CCUS tech­no­logy and nat­ur­al sinks Trans­par­ency – provide dis­clos­ure re­lated to cli­mate change risks and op­por­tun­it­ies con­sist­ent with the aims of the re­com­mend­a­tions of the Taskforce on Cli­mate-re­lated Fin­an­cial Dis­clos­ures (TCFD).In­dustry and trade as­so­ci­ations – re­port in­form­a­tion about their mem­ber­ships of main in­dustry and trade as­so­ci­ations and their align­ment with the com­pan­ies’ key cli­mate ad­vocacy and policy po­s­i­tions.
07 June 2021
New UK agree­ment could be a mod­el for oth­ers
In the United King­dom, the role of oil and gas com­pan­ies in a net zero fu­ture will be in­flu­enced by a unique agree­ment between the gov­ern­ment and the oil and gas sec­tor that is set to spur in­vest­ment in de­car­bon­iz­a­tion and lower car­bon tech­no­lo­gies, and en­sure that the sec­tor is well pre­pared for the wider ef­fects of the en­ergy trans­ition.The highly an­ti­cip­ated agree­ment, the North Sea Trans­ition Deal (the “NSTD”), was pub­lished on 24 March 2021 and sets out a plan for the gov­ern­ment and UK off­shore oil and gas sec­tor to work to­geth­er to ac­cel­er­ate the en­ergy trans­ition whilst pro­tect­ing jobs and the eco­nomy.The NSTD con­tains pro­posed in­dustry and cor­res­pond­ing gov­ern­ment ac­tions, along with a joint com­mit­ment to in­vest up to £14-16 bil­lion by 2030 to re­duce car­bon emis­sions. The UK is the first G7 coun­try to agree to form a unique part­ner­ship of this kind, of­fer­ing an op­por­tun­ity to lead the way in the en­ergy trans­ition.The key ac­tions and out­comes of the NSTD re­late to five areas of de­vel­op­ment:Sup­ply de­car­bon­isa­tion: the NSTD fo­cuses on cut­ting in­dustry emis­sions with an am­bi­tious sec­tor tar­get to re­duce emis­sions 10% by 2025, 25% by 2027, and 50% by 2030 on 2018 levels;Car­bon Cap­ture Util­isa­tion and Stor­age (“CCUS”): in or­der to de­vel­op CCUS tech­no­logy, in­dustry has com­mit­ted to lever­aging ex­ist­ing in­fra­struc­ture to provide trans­port and stor­age fa­cil­it­ies;Hy­dro­gen: the gov­ern­ment will cre­ate a Net Zero Hy­dro­gen Fund to boost pro­duc­tion ca­pa­city and en­cour­age private in­vest­ment;Sup­ply Chain trans­form­a­tion: to sup­port the di­ver­si­fic­a­tion of the UK sup­ply chain, in­dustry has com­mit­ted to en­sure that, by 2030, 50% of de­com­mis­sion­ing and new en­ergy tech­no­logy pro­jects be­ing de­veloped are provided by loc­al com­pan­ies. Un­der­pin­ning this is the ap­point­ment of an In­dustry Sup­ply Chain Cham­pi­on to co­ordin­ate growth and job op­por­tun­it­ies with oth­er sec­tors; an­dPeople and Skills: a key aim of the NSTD is to de­car­bon­ise the eco­nomy whilst util­ising ex­ist­ing skills to pro­tect jobs and of­fer op­por­tun­it­ies for job cre­ation. This in­cludes a com­mit­ment to sup­port up to 40,000 new jobs and re­tain­ing the trans­fer­able skills of in­dustry work­ers al­low­ing them to work across the en­ergy sec­tor.The key chal­lenge to the suc­cess of the NSTD will be turn­ing sec­tor-wide in­ten­tions in­to ac­tions taken by in­di­vidu­al com­pan­ies to de­liv­er on those in­ten­tions. Whilst the NSTD has been broadly sup­por­ted by the sec­tor and whilst, as this re­port demon­strates, the ma­jor oil and gas com­pan­ies in our sur­vey have made and in­tend to con­tin­ue with sig­ni­fic­ant in­vest­ment in lower car­bon pro­jects, there re­mains a risk of an in­er­tia ef­fect res­ult­ing in the sec­tor as a whole not de­liv­er­ing as the NSTD pro­jects. The gov­ernance struc­ture of the NSTD should help in this re­spect, with im­ple­ment­a­tion led by a de­liv­ery group that in­cludes an in­dustry rep­res­ent­at­ive. We ex­pect that oth­er states with sim­il­ar reg­u­lat­ory struc­tures to the UK will con­sider sim­il­ar ap­proaches to the NSTD and will closely re­view the early stages im­ple­ment­a­tion of the NSTD as an in­dic­at­or of its po­ten­tial long term suc­cess.
07 June 2021
Why are European ma­jors tak­ing the lead?
European O&G ma­jors have set more am­bi­tious tar­gets and are fur­ther ad­vanced in the en­ergy trans­ition than their non-European coun­ter­parts for sev­er­al reas­ons.
04 June 2021
On the Pulse
Wel­come to ‘On the Pulse’ de­livered by the Glob­al Life Sci­ences & Health­care Sec­tor Group A video/pod­cast series, On the Pulse, brings to­geth­er CMS law­yers and ex­perts to dis­cuss key in­dustry top­ics...
02 June 2021
Meth­od­o­logy
CMS com­mis­sioned Cap­it­al Eco­nom­ics to as­sess the sig­ni­fic­ance of the ma­jor oil and gas com­pan­ies di­ver­si­fy­ing in­to re­new­ables, and to provide eco­nom­ic ana­lys­is to as­sess the out­look for in­vest­ment by these oil and gas com­pan­ies in the en­ergy trans­ition glob­ally.Our re­port and find­ings are based in part on an ex­tens­ive lit­er­at­ure re­view, which in­cludes a re­view of in­di­vidu­al com­pany re­ports, fin­an­cial state­ments and stated strategies of our sample of fif­teen oil and gas ma­jors. In ad­di­tion, we drew on re­spec­ted pub­lic sources to in­form our views on the cur­rent state of, and fu­ture longer-term trends in, the glob­al en­ergy mix in­clud­ing the In­ter­na­tion­al En­ergy Agency (IEA), BP, and the In­ter­na­tion­al Re­new­able En­ergy Agency (IRENA). We also used data from the World Bank and the United Na­tions to help un­der­pin our re­gion­al eco­nom­ic ana­lys­is.Our fore­casts for the out­look of in­vest­ment in re­new­able en­ergy are un­der­pinned by two scen­ari­os put forth by the In­ter­na­tion­al Re­new­able En­ergy Agency (IRENA). We used our ana­lys­is of the cur­rent levels of in­vest­ment in re­new­able en­ergy by our sample of fif­teen ma­jor oil and gas com­pan­ies, as well as as­sump­tions re­gard­ing the speed of trans­ition, to gen­er­ate plaus­ible pro­jec­tions for fu­ture di­ver­si­fic­a­tion.
02 June 2021
How well are they do­ing?
The Trans­ition Path­way Ini­ti­at­ive (TPI) is a glob­al ini­ti­at­ive to as­sess how far com­pan­ies are pre­pared for the trans­ition to a low-car­bon eco­nomy. 
02 June 2021
Tech­no­lo­gies be­ing used
The 15 com­pan­ies in our sample in­vest in a large and grow­ing range of re­new­able and clean en­ergy tech­no­lo­gies.
02 June 2021
Over­view of the strategies of O&G ma­jors
We have ex­amined the en­ergy trans­ition strategies of 15 of the world’s largest O&G ma­jors.
02 June 2021
The route to de­car­bon­isa­tion
Dur­ing 2019 the 15 O&G ma­jors in our sample in­ves­ted roughly 3.6% of their total budget in en­ergy trans­ition. That com­pares with 2.9% in 2018, and rep­res­ents a strik­ing jump in clean in­vest­ment in just one year. Much of that in­crease was driv­en by two European ma­jors - Eni and Total – who re­cor­ded a rise in the per­cent­age of their in­vest­ments go­ing to re­new­ables to 17% and 10% from 4% and 3%, re­spect­ively.Over­all cap­it­al in­vest­ment for the sample was $247.1bn in 2019, up 8.4% on 2018. Of that total, $8.8bn was in­ves­ted in re­new­ables, com­pared with the 2019 fig­ure of $6.6bn. The largest single in­vestor in re­new­ables in ab­so­lute terms was Roy­al Dutch Shell with $2bn, fol­lowed by Total ($1.7bn) and Eni ($1.6bn).These lead­ing com­pan­ies clearly in­tend to go fur­ther. Eni has pledged to raise its re­new­ables in­vest­ment to 21% of capex between 2021-25, and Roy­al Dutch Shell is tar­get­ing 26% by 2030. In fact, of the 15 ma­jors in the sur­vey, 10 had an­nounced net zero emis­sions pledges by the end of 2020, com­pared with just one (Repsol) at the end of 2019. 10 ma­jors in our sample have made net zero pledges as of early 2021, up from one at end-2019
02 June 2021
In­ter­view with Bob Hende­r­son, Shell
Shell is an in­ter­na­tion­al en­ergy com­pany that aims to meet the glob­al need for more and clean­er en­ergy solu­tions in ways that are eco­nom­ic­ally, en­vir­on­ment­ally and so­cially re­spons­ible. Bob Hende­r­son is As­so­ci­ate Gen­er­al Coun­sel, In­teg­rated Power and Re­new­ables & En­ergy Solu­tions. He heads the Shell leg­al team for in­teg­rated power and re­new­ables glob­ally.