The energy transition is upon us – Greta Thunberg and Extinction Rebellion continue to generate more headlines than Greenpeace and, in Europe at least, there is significant societal pressure to move from fossil fuels to renewable or alternative sources of energy.
What is the “Energy Transition”? There are many interpretations and this report does not seek to narrow the taxonomy. It would be premature and probably unhelpful to do that, as the transition needs to be looked at in many different ways. As a transition from fossil fuels to renewables. As a transition from high carbon intensity to low carbon intensity. As a transition from a fragmented energy sector to one in which the various strands (oil and gas, power, renewables, retail, transport, industry, heat and others) are unified in a single interconnected and integrated sector. As a transition from a sector that met the needs of our past industry to one that takes full advantage of recent innovations and the technological possibilities these unlock. The key is to have a sector that is optimal and right for the way in which society and industry are organised in the future, and that rises to our collective social and environmental priorities.
The energy transition has been one of the key areas occupying time at board level for many of our oil and gas clients. The age of oil and gas will not last forever and the transition will happen, but it is generally accepted by global institutions such as the World Bank and the IEA that this will take time. Oil and gas will continue to play an important (if decreasing) part in the energy mix for decades to come. For many the key question is whether and how they transition themselves into broader energy companies and respond to the fundamental shift in the oil and gas industry. For many, an economic case is necessary to play a full part in transition.
While oil and gas companies can decarbonise their own operations and look to invest in alternative energy, society as a whole has the most important role – we are all reliant on hydrocarbons in practically every aspect of our lives, not just in relation to energy use but also the products we use and the houses we live in etc.
CMS has recently undertaken new research on the oil and gas sector, looking at a diverse mix of 15 of the world’s largest international oil and gas companies, including key regional players, supermajors and national oil companies to assess whether they are now looking at and changing their strategies, and investing in a more diverse energy portfolio.
Our research suggests that nearly all the oil and gas companies in our sample are addressing the energy transition due to a combination of multiple drivers and pressures in the market. Yet this is still some way from becoming the norm, with only three percent of those companies’ CAPEX being committed to alternative and new energy portfolios.
All the big players are doing this to some extent, and many of the medium-sized companies in the oil and gas sector are likely to follow suit in the following years and decades. We also see this forcing change upon the supply chain, which generally has been slow to react to the energy transition.