Outlook for investment

It is very clear that most O&G majors are moving in the same direction, investing more in renewables and planning to reduce emissions over the next decade.

For example, we would expect the majors to buy into renewables in East Asian markets and the US, which is now more attractive with the new administration. But how fast is that energy transition likely to be, and what are the wider implications of a faster or slower transition?

We have analysed the outlook to 2030 under two scenarios: 1) existing policies continue, and 2) a rapid energy transition. The overall direction of travel is the same in both, but the speed of transition varies considerably, as does the destination reached by 2030.

Scenario 1: Existing policies continue

The current levels of investment in renewables remain constant as a share of total energy demand across the forecast horizon.

The forecasts for underlying energy demand are based on the Planned Energy Scenario of the International Renewable Energy Agency (IRENA). This incorporates national governments’ current energy plans and other planned targets and policies as of 2019 including Nationally Determined Contributions under the Paris Agreement, unless the country has more recent climate and energy targets or plans.

Under this scenario, demand for renewable energy increases by 1.5% a year, and O&G majors’ investment in renewables stays at 2.7% of global investment in renewables up to 2030.

Scenario 2: Rapid energy transition

The current levels of investment gradually increase over the same period. This describes an ambitious but realistic energy transformation pathway based largely on renewable energy sources and steadily improved energy efficiency. This scenario would set the energy system on the path needed to keep the rise in global temperatures to well below 2 degrees C and towards 1.5C during this century.

Under this scenario, demand for renewable energy increases by 5.0% a year, and the O&G majors’ investment in renewables rises to 5.2% of the global total in 2030.

Total investment in renewable energy by sample of 15 major oil and gas companies, under Capital Economics’ two scenarios (USD billion)

Comparative table for our two scenarios

 

Scenario 1 – Existing Policies Continue

Scenario 2 – Rapid Energy Transition

 

Forecast based on IRENA’s

 

Planned Energy Scenario

Transforming Energy Scenario

Demand for renewable energy to increase by

 

1.5% a year

5.0% a year

O&G majors’ annual investment in renewables in 2030

 

$10.4bn

$28.0bn

O&G majors’ annual investment in renewables as % of their total investment

 

4.1%

11.1%

O&G majors’ annual investment in renewables as a % of total investment in renewables to 2030

 

Remains constant at 2.7%

Rises from 2.7% to 5.2%

Under the second, more bullish scenario - Rapid Energy Transition - the O&G majors’ investment could therefore rise to $28bn annually by 2030, which would account for 11.1% of their total combined capital expenditure. On the more conservative scenario of Existing Policies Continue, annual investment in renewables would still rise to $10.4bn by 2020, compared with $8bn currently.

If oil and gas majors stick to their pledges, investment in renewables could account for over 11% of their total spending by 2030, compared to just 3.6% today

Total projected investment in renewable energy by sample of 15 major oil and gas companies, under Capital Economics’ ‘Existing Policies Continue’ scenario by country/region (US$bn)

If existing policies regarding investment in the energy transition persist at the current pace, investment in renewable energy by the oil majors could reach USD 10.4bn by 2030. This would be roughly equivalent to 4.1% of their annual budgets.

Total projected investment in renewable energy by sample of 15 major oil and gas companies, under Capital Economics’ ‘Rapid energy transition’ scenario by country / region (USDbn)

If oil and gas majors ramp up their commitment to the energy transition, their total investment in renewables could reach USD 28.0bn by 2030, equivalent to 11.1% of their total capital expenditure on average

*Note that six companies out of our sample of fifteen oil and gas majors are European, and thus, Europe will account for a relatively large share of our total investment projections.