Multinational oil and gas energy companies’ renewable strategy transformation
Experts have predicted that an increasing number of multinational fossil oil and gas companies will be investing in the renewable sector, as the potential for wind and solar energy grows globally and the costs of renewable decline with technological innovations. Many of the leading multinational oil and gas companies have also recognised the importance to compile with the new clean energy and emission policies introduced by various governments in emerging economies and developed countries globally, as part of their efforts to meet their Paris Agreement commitments. Many oil and gas companies have developed new corporate strategies which have included expansions into clean energy and reductions in GHG emissions.
Many multinational oil and gas companies have created new clean renewable energy business divisions to invest in renewables and to promote their clean renewable energy transformations. The oil and gas industry has already seen some of the sector’s largest companies, including Shell, Total, BP etc., announcing that they are making big investments in renewable and clean energy projects. Recent analysis showed that Big Oil’s cumulative investments in renewable acquisitions over the past five years have reached over USD3 billion, most of which have been into solar renewables (CBC Business, Big Oil, 2018).
The rising renewable investments by oil and gas companies globally have been driven by a number of key factors, including climate change, fossil to renewable transformation, GHG emission reductions and technology innovations. In addition, the renewable generation costs have reduced significantly with technological innovations and cost reduction measures. Good examples included cost reductions of 50-70%in solar and wind renewable power generation in recent years with various technological innovations and cost reduction measures (IRENA, 2018).
Looking ahead, experts are predicting more renewable growths with rising investments. These arc driven by renewables becoming cost competitive against fossil generation options, with government subsidies no longer required in future. A good industrial example is that as renewable generation costs have come down significantly recently, the power generation price required to justify an investment in solar or wind power generation should be cheaper than that of a natural gas co-generation plant in emerging economies and developed countries.
Looking ahead, energy experts have predicted that natural gas will continue to be an important fossil transitionary fuel for some time globally. Many emerging
Renewable strategy management 191 economies and developed countries have promoted gas power generation and domestic consumptions as part of their new energy policies to reduce coal consumptions and to improve environmental pollution. There are also important complementary roles for natural gas with renewable applications. A good example is that wind and solar renewable power generation are currently not yet able to supply power continuously around the clock, 24/7. The integration of natural gas with solar or wind renewable power generation can be a win-win partnership in terms of providing reliable power supplies on a continuous basis.
A lot of new investment capital has been coming into the renewable sector from different sources. These included investments from energy companies, pension funds and life insurance companies plus sovereign wealth funds, etc. A good example is Norway’s $1 trillion government-owned sovereign investment fund. Norway’s sovereign wealth fund has announced its new strategic objectives to combat climate change whilst creating value and being good stewards of the national funds. The Norway investment fund managers have said, in early 2019, that it would be divesting off 134 companies which have been developing fossil oil and gas businesses. These included oil and gas companies such as UK-based Tullow Oil, Premier Oil, Soco International, Ophir Energy and Nostrum Oil & Gas. The fund managers have also said that they will be retaining their investment positions in Royal Dutch Shell and BP because both have adopted new clean energy strategies and established new renewable energy business divisions. The Norway fund managers have also announced that they will be redirecting the funds, which they have earned from their oil and gas investments, and invest them in clean energy projects instead (Forbes Energy, Big Oil Dipping into Green Energy, 2019).
At present, most oil and gas companies are continuing with their investments into their tradition oil and gas pillar business, whilst also making new investments into renewable and clean energy businesses. In 2018, experts have estimated that oil and gas companies globally have spent about 1-1.5% of their investment budgets on renewable energy sectors. These have included wind and solar plus power battery storage and carbon capture. CDP, formerly known as the Carbon Disclosure Project, has reported that Europe’s Equinor, Total, Shell and Eni have ranked highest for leading the low-carbon transition whilst China’s CNOOC, Russia’s Rosneft and US Marathon Oil have lagged further behind. CDP has also reported that since 2016 over 145 deals have been made in alternative energy and carbon capture. A total of USD22 billion has been invested in renewable and alternative energies since 2010 (CDP, 2017).
A good oil and gas business example is Equinor. It has developed new corporate strategies which aim to rebrand the oil and gas company into a broad energy company. As part of its new clean energy strategic shifts, it is planning to invest 15-20% of its future capital expenditures in renewable and new energy solutions by 2030.
There are also growing pressures from ethnical impact investors globally on many multinational companies, including oil and gas companies. Financial experts have estimated that some $26 trillion globally is being invested in line withthe environmental, social and corporate governance (ESG) criteria. In the USA alone, investments of about $6-7 trillion are being invested in line with the ESG principles. Climate Action 100+ has also reported that multinational companies focusing on the triple ESG bottom lines, including economics, environment and social, have been outperforming other broader market indices globally. Investment experts have also reported that well-managed renewable infrastructure investments have been bringing steady, stable returns, making them attractive investments globally.
Many major multinational oil and gas companies have also come under intensive scrutiny from ethnical investors, climate activists, stakeholders, etc. These have been asking companies to become more transparent about how they manage their climate risks and reduce their CO2 emissions. These have driven many of the oil and gas companies to develop new climate and renewable investment strategies. In addition, these have driven some oil and gas companies, including Chevron, ExxonMobil Corp, and Occidental Petroleum, to join the Oil and Gas Climate Initiative, which is developing new clean energy and carbon capture solutions. Some other leading oil and gas companies, including BP, Shell, Statoil and Total, have also been reviewing carbon emission trading system and carbon tax applications plus discussing these with relevant governments globally.
We shall examine further below two leading oil and gas companies on their new renewable corporate strategies and renewable investments together with international business examples.
Shell renewable strategy case study
Royal Dutch Shell is taking the clean energy transition seriously. The latest Shell global energy scenarios have predicted strong future growths in renewables, clean energy, green transportation and smart cities. It showed that there are good international growth opportunities in renewables, clean power, wind, biofuel, EV charging and c-mobility, in both emerging economies and developed countries. Their analysis has shown that the share of electricity in final energy consumption is currently around 22%. Looking ahead to 2070, they have predicted that global electricity consumption will be more than twice, to over 50%. These include growths in many end-user energy consumptions as electrification expands into transportation, home heating and cooking, and industrial sectors. These green growths will be driven by global decarbonisation efforts to address climate change and to shift to a net-zero energy system globally (Shell, Sky Scenario, 2018).
As part of Shell’s new corporate strategy, a new integrated gas and new energy division has been established. One of its key business objectives is to develop Shell’s renewable business and investments to become one of the largest clean power companies in the world by the early 2030s. It is planning to create a new global clean energy business that is more holistic than businesses of other companies. It hopes to offer its customers the opportunity to buy all their energy
Renewable strategy management 193 requirements from the company, covering both fossil fuel and renewable energies. It believes that this will be a unique competitive edge as many other power providers cannot make these links and customer propositions (GTM, Shell New Energies, 2019).
A good clean power business example is that Shell has renamed its UK-based energy supplier First Utility as Shell Energy Retail, under the broader Shell Energy brand. It has started serving all of its British residential customers with 100% renewable electricity. Shell’s renewable energy offerings are being certified by the Renewable Energy Guarantees of Origin. It will certify that for every unit of electricity that Shell Energy supplies to its customers, a unit of renewable electricity will be supplied into the grid by renewable power generators in the UK. Shell Energy Retail will also be rolling out a range of smart home technology offers throughout the year, starting with the free Nest smart thermostats for UK customers who sign up for a three-year, fixed-price contract and discounts on home EV charging. Shell is also enhancing customer’s loyalty by connecting the Shell Energy electricity customers to Shell’s existing loyalty system for its fuel network. It will enable its renewable customers to get a discount when they fill up their cars with fossil fuel products at any Shell fuel retail stations in the UK (GTM, Shell New Energies, 2019).
Shell also plans to become a major regional clean electric power player in the USA in future. It is planning to invest in various deregulated US states where it would be possible for international power companies to compete. A good example is that Shell has invested in 2018 in the US retail power supplier Inspire Energy, which already offers clean energy plans in deregulated US states. In 2018, Shell also purchased Texas-based MP2 which has been expanding its power offerings to corporate and industrial customers. Shell New Energies has also purchased a major stake in US solar developer, Silicon Ranch.
Shell is currently investing $1-2 billion per year on renewable and new energy solutions, out of a total investment programme of more than $25 billion. Good examples of recent clean energy investments included the acquisition of the German home energy storage firm Sonnen and the purchase of the Dutch electric vehicle EV charging provider NewMotion. Shell has also invested in two Singapore-based solar firms, Sunseap Group and Cleantech $olar, which have been building solar farms for corporate customers across South and Southeast Asia (GTM, 2019).
In line with global ethnical impact investor developments, rising numbers of Shell’s international investors and shareholders have been asking the Shell management to demonstrate that its investments are a force for good in the world. In response, the Shell management has been trying to show these investors that their investments can do good, whilst also delivering good returns. A good new energy business example is Sonnen, the new Shell Germany clean energy subsidiary. Sonnen has been selling new home-based clean energy optimisation solutions built around a battery system, together with advanced digital software systems connecting and optimising various aspects of energy application in the home. As their customers are purchasing the new energy products for theirhome applications, Sonnen’s balance sheet is effectively zero, whilst maintaining a growing and profitable business on a sustainable basis.
Shell’s experience in the fossil fuel industry could actually be an asset in the clean energy sector. Shell’s business records have shown that the company has historically been able to find ways to be successful in establishing new difficult and competitive businesses. In addition, many of their technical and commercial competences and expertise in the oil and gas sector can be applied in the new renewable and clean energy sectors. A good example is that Shell’s global oil fuel retail network experience can be applied in its new EV charging retail venture which aims to establish new EV charging stations and retail networks in the USA, Europe and Asia.
In other renewable energy sectors, Shell is also actively developing onshore and offshore wind projects in North America, Europe and Asia. In context to biofuel, Shell has established a USD12 billion joint venture with Cosan, Raizen, which is focusing primarily on Brazilian sugarcane and first-generation ethanol.
British Petroleum renewable strategy case study
BP’s energy scenario forecasts have shown that renewable energy is the fastest growing segment of the global energy industry with over 7.5% growth each year between 2011 and 2030. BP has announced that it is planning to invest significantly in the renewable sector in future. BP’s alternative energy division has strategised to focus its renewable energy portfolio on various renewables, especially biofuels and wind energy. This is mainly because BP has forecasted that by 2030 renewable energy from these sources is likely to meet around 6% of total global energy demands (BP, Global Energy Scenarios, 2018).
In context to biofuels, BP has invested in sugar cane ethanol mills in Brazil for bioethanol manufacturing. BP has also been producing biofuel from its biofuels joint venture, Vivergo Fuels, in the UK. As far as wind renewables arc concerned, BP has been developing onshore and offshore wind farms in various locations. A good example is that BP has been developing wind farms in different US states, including Kansas, Pennsylvania and Hawaii.