Facing falling oil prices and profits, big energy companies are investing in renewables, energy storage, and clean tech.
For most of the 20th century and up until the modern day, major oil companies and energy providers have stayed loyal to oil and other fossil fuels while remaining hesitant to embrace the shift to renewable energy.
Amid volatile oil prices, a steep drop in profits, and the growing pressure of global warming, the largest oil companies of the world have found themselves in a “fight or flight” situation.
Instead of trying to suppress their development, many major oil companies are now fully embracing renewable energies. There are a number of reasons behind this change, and a number of key companies which have caused this shift.
Let’s take a closer look at these elements.
Renewables, an Existential Risk to Big Oil
The recent and gradual rise in oil prices hasn’t drastically changed society’s reliance on fossil fuels, but gradually, the energy revolution is taking a more solid shape.
To find new sources of growth and ensure their survival, traditional energy players have had to transcend fossil fuels and accelerate the shift towards renewable energy, clean technologies, energy storage and distribution, and carbon-capturing.
It seems that the oil and gas industry has finally realized that it’s no longer possible to keep ignoring the unstoppable progression towards a low-carbon world.
According to the research group Wood MacKenzie, for these oil companies to keep a renewable market share similar to that they currently have in oil and gas (12%), Big Oil will have to invest around $350 billion into a number of vital industries.
“Wind and solar are poised to radically reshape energy markets,” said the Wood Mackenzie report. “The shift to alternative energy is underway,” the report said. “The transition is forcing the oil and gas industry to rethink its future.”
Although a $350 billion investment is an “unlikely scenario” that even big oil companies can’t afford, renewables are still set to represent over a fifth of capital allocation after 2030.
The old-guard of the oil industry is trying to cope, but it is hard to see how they will hold on for long. Some companies are still reeling from past mistakes while others are capitalizing on their experience in special areas. Acquisitions of renewable energy companies have become common while other industry members are still standing still while trying to figure out how to keep a foothold in a decidedly changing energy industry.
BP, Beyond Oil… Back to Oil?
In 2001, BP abandoned its former name “British Petroleum”, and announced their change in energy focus with the new title, “Beyond Petroleum.”
As part of its “Beyond Petroleum” campaign, BP changed its logo to a sun at its center surrounded by green while advertising promises to spend billions of dollars on solar and wind.
Once dubbed the “greenest oil company in the world”, BP’s strategy, unfortunately, didn’t really pan out as planned. The oil spill in Gulf of Mexico (2010) was a major incident that brought BP to its knees.
About a decade later, BP exited the renewable market. in 2011, the company shut down its solar panel business and, the next year, tried to sell its wind farms in the U.S but was unsuccessful in finding a buyer.
BP, who now claim to have faith in fossil fuels, didn’t scrap their renewables strategy altogether, but has become far more cautious in its approach. Now, BP is making smaller bets such as its $200 million solar investment in Lightsource and lowering its bar of expectations.
Royal Dutch Shell Doubles Down on Renewables
Shell, the major Anglo-Dutch oil firm, submitting to rising pressure from shareholders, recently renewed its commitment to renewables and the Paris Accord.
According to Ben van Beurden, Shell’s chief executive, Shell’s New Energies division will invest up to $2 billion per year on renewables and charging stations for electric vehicles from 2018 to 2020. This is compared to a previous plan of only $1 billion a year during the same time frame.
Two billion dollars may not seem like much if we consider Shell’s total annual investment ($25-30 billion), the biggest chunk of which goes to conventional oil and gas, deepwater drilling, and shale. However, it’s a start.
Shell has also pledged that, by 2035, it would cut carbon emissions of its products by a fifth, and in half by 2050.
With six onshore wind power projects in North America and one offshore farm in Europe, Shell doesn’t want to put all its eggs in the wind basket. Seeking an access point to low-carbon transport, Shell has bought NewMotion, a company that operates over 30,000 EV charging stations in Europe.
Statoil’s Offshore Wind Power
Penalized by the falling prices of oil, the Norwegian group Statoil has taken drastic measures to soften the blow. In addition to job cuts and an aggressive savings policy, Statoil is desperately trying to find its place on the renewables arena.
Believing that the renewables market will see a rapid growth over the next decades (up to 10% a year), Statoil is building on its offshore oil and gas experience to develop offshore wind farms at a blistering pace.
As a beginning effort, the Hywind 30MW wind farm, located 25 kilometers off the coast of Scotland, will provide power to 20,000 nearby households.
Such power calls for efficient energy storage solutions and Statoil and Masdar have thought about that. Named Batwind, a 1MWh Lithium battery storage facility is planned to be built and linked to the Hywind farm.
Total, Renewables Strategy Based on Acquisitions
Total, the French oil group, has chosen the road of acquisitions to position itself on the renewable energy market.
Back in 2011, Total launched its renewable energy roadmap with the takeover of SunPower, a California-based solar panel manufacturer.
Then, in 2016, the French oil group acquired a majority share of Lampiris, which supplies the Belgian residential market with natural gas and green electricity.
Then, last September, Total unveiled its plans to build on its first foray into the clean energy market with two separate transactions: a 23% acquisition of the capital of Eren Renewable Energy (EREN RE), and the acquisition of GreenFlex.
Founded in 2012, EREN RE is a French renewable energy company with assets in solar, wind, and hydroelectric resources.
GreenFlex is another French company specializing in energy efficiency, with over 600 clients and registered €350 million in revenue last year.
ExxonMobil: Renewables? Maybe!
While most of the major oil companies have started the shift towards renewables, seeking to diversify their business, Exxon Mobil, the world’s largest oil and gas company, is still very oil-centric.
ExxonMobil has announced a plan to invest $20 billion over five years (2017-2022) to further develop its refinery projects along the U.S. Gulf Coast.
In comparison, since 2000, the oil major has only spent a “measly” total of $8 billion on low-carbon technologies.
Though its oil and gas exploration-production activity is dwindling year after year, Exxon is approaching renewables cautiously and discreetly, focusing more on research into five to 10 key areas like carbonate fuel cells and algae biofuels.
“These areas are massively challenging, and if we can solve those, they will have huge impacts on our business,” Vijay Swarup VP of Research and Development at Exxon told Bloomberg. “We bring more than money. We bring the science, the commitment to research.”