What is next in the energy transition?

The energy transition will be ongoing for quite some time. Based upon the developments in the energy transition during the last two years, as well as the information that companies have presented in their most recent reporting, there are a few things we can expect as the energy transition progressing in the near term.

Globally, the direction of climate change policy will continue to solidify around a clearer target of limiting temperature change to less than 2-degrees C. We will see more countries implementing and refining their strategies toward this overall goal, though there is unlikely to be full global cooperation along these lines.
Near and medium term, oil and gas companies will still continue to invest in oil and gas, balancing that with the energy trilemma regulators and governments are wrestling with globally – the need for energy security, that energy be cost effective and the drive to energy transition.
Reporting and financial disclosure around emissions, targets and climate finance will become even more unified. All the companies in our sample will eventually produce a report which conforms to that type of disclosure. That said, the US-domiciled companies will likely continue to produce separate financial and sustainability reports since the US is likely to lag in terms of accepting the UN SDG framework in the near future.
The “diverse portfolio” companies will continue to expand their renewable power generation asset bases. They are also the most likely to divest higher carbon operations since European targets are more stringent than in most of the rest of the world (albeit there is some criticism of companies reducing carbon intensity by divesting as opposed to decommissioning, given the carbon generating activities do not disappear as a result – they simply transfer from one entity to another). We envision these companies to forge partnerships with companies in economies for which fossil fuel energy remains a priority but where renewable power might fit into a company’s resource base.
The companies with a “core focus” trajectory are unlikely to adopt renewable power generation as a new business aim. They will, however, look for opportunities to expand use of renewable power as a way of producing the electricity they consume in their own activities. Their investments are likely to focus on helping their customers to decarbonise for the future, using solutions the companies develop with them to create a lower carbon future. They are also likely to put more investment into development of carbon capture and hydrogen and spreading the adoption of these technologies in industrial settings.
Each of the “national champions” will develop their net zero path in line with their own country’s goals for climate change and emissions reduction. As a result, these strategies might fluctuate somewhat as countries solidify their national goals. These companies are likely to continue to expand upon their existing strengths. They will tap into global best practice in the new areas they pursue that are in line with their national mandate.
The demand for oil and gas depends largely on the adoption of electric vehicles (EVs) and on the speed at which natural gas power generation is replaced by renewables. In both cases, the energy transition has been progressing faster than expected. If this continues, the oil and gas companies will have to accelerate their decarbonisation efforts.
Use of petroleum for feedstock is an often overlooked part of the hydrocarbons industry and will also play into the future considerations of oil and gas companies and their move to energy transition - this is separate from the energy transition in many ways and projected to increase from today’s requirement of around 15% of global oil demand.

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