Energy • From Big Oil to Big Power? At the Heart of the Renewable Energy Boom, Oil Producers Are Dreaming of a Low-Carbon Future

Under pressure, the oil majors are turning to low-carbon services and renewable energies. However, their declarations of hope in the climatic situation are hardly convincing, and their emergence on the wind and solar energy markets is challenging the sector's pioneers

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Climate Chance Observatory

Cornered by pressure from their shareholders and civil society, some of the major oil producers are envisaging a future in low – carbon services, and producing renewable energy. However, their declarations of hope in the climatic situation are hardly convincing, and their emergence on the wind and solar energy markets is challenging the sector’s pioneers.

  • Covid-19 is rearranging the energy market landscape. The gap has increased between the dynamics across the booming renewable sector and the oil and gas sector, which greatly suffered from the health crisis.
  • Climate change is an ‘existential problem’ for the oil & gas sector. Private companies have reduced their optimism regarding the revival of oil demand to pre-crisis levels. They are facing double pressure: on the one hand, shareholders want to maintain high dividends rather than invest in costly and difficult drilling. On the other hand, regulators, investors and NGOs are pushing the industry to reduce its emissions and play a key role in the energy transition.
  • There are several studies which highlight that the low-carbon strategies also have the disadvantage of greatly relying on technologies which have not yet been developed on a large scale, so their efficiency is often the subject of debate, as is the capture, use and storage of CO2 (CCUS). In comparison, multiple researches predict an increase in the production capacities for generating renewable energies.
  • Although a majority of the investments are in solar and wind energy, the diversification strategies of the European majors is not limited to a single energy producing sector. With carbon neutrality becoming the guide for global climate action, European companies are even searching to become what could be called “low-carbon service businesses”, rather than renewable energy producers.

In the context of depletion of existing wells and increasing exploration and exportation costs of new fields, which are increasingly difficult to access, oil companies are now restricted to processing things faster to keep with the times. The dependence on oil represents a medium-term risk for the industry, which is looking to benefit from favourable trends in the energy transition, so that companies can carry out the transition along own economic models. However, the accelerated break through of some of the major oil companies in renewable markets since 2018 has not resulted in the abandoning oil for the benefit of renewable electricity. It is precisely the cashflow created from oil producing activities which allows the Oil Majors to expand upon their activities, not only relating to renewable energy production, but across all of the low-carbon services in development. These strategies are more likely to lead to a desire to increase and preserve the interests of the shareholders with a genuine support for combatting climate change, as is proven by the weakness of their fixed objectives in their climate plans. The main vehicle for this transition is the mergers and acquisitions carried out by the Oil Majors to buy low-carbon shares, which shape the renewable market, which is increasingly concentrated in the hands of very few of the dominant players. This is similar to the inflation in concessions prices for offshore wind farms, caused by the entry of oil companies in the bidding.