Adapt and Survive

July 20, 2019

The hardiest plants and animals are those that adapt to changes in their environment, and the same applies to companies. Companies that survive in the long term are the ones that are the best prepared to weather gradual change and catastrophic upheavals. In the wake of mounting evidence of the adverse effects of fossil fuel extraction and combustion, governments around the world are adopting stricter standards for fossil fuel extraction and emissions. Consumers increasingly embrace electric vehicles, solar panels, and wind energy. What are the largest petroleum-producing companies doing to adapt?

A recent review article by Matthias J. Pickl in Energy Strategy Reviews looks at eight major oil companies and how they are planning for a less carbon-intensive future. Perhaps not surprisingly, three of the four companies that sit on the largest petroleum reserves are also the least active in embracing energy sources like wind and solar. This strategy is likely to work well for the time being, as more than half the world’s demand for oil goes for transportation (and more than half of that goes to passenger cars). However, European oil companies, with smaller oil reserves and customers who are moving more aggressively away from fossil fuels, have seen the handwriting on the wall and are actively investing in a more diversified future.

U.S. companies Chevron and Exxon Mobil and Brazil’s Petrobras, each with proven oil reserves between 6 billion and 14 billion barrels, are currently the least active in renewable energy sources, Pickl found. Contrast this with Norway’s Equinor, Italy’s Eni, France’s Total, and the Netherlands’ Royal Dutch Shell, each with less than 6 billion barrels of proven oil reserves. Each of these companies rates as a leader in renewable energy activities. British company BP, an outlier in this distribution, has 10–12 billion barrels proven oil reserves, but also devoting significant resources to its renewables efforts.

Royal Dutch Shell, the most active renewables developer among the eight companies, launched its New Energies division in 2016 as a part of its diversification strategy. That year, it devoted US$200 million to new energy investment (hydrogen, electric vehicle charging stations, biofuels, and renewables). The company is currently investing $1–2 billion annually, with some 80% going into the power sector. Shell has been acquiring companies that provide utilities, electric vehicle charging, solar energy, off-grid power sources, and energy storage.

Exxon Mobil, by contrast, has no investment plan, budget, or strategy on the green energy front. The company retains a few legacy renewables projects, but it devotes the bulk of its carbon footprint efforts to biofuels development, reducing greenhouse gas emissions, and carbon capture and storage technologies (where it holds interests in some one-third of the world’s capacity).

Chevron, which dedicated efforts to solar, wind, and geothermal projects in 2000, had largely abandoned these efforts by 2016, citing low returns on investment. The company is working to reduce gas flaring and methane leaks to reduce emissions and improve efficiency, and it retains some legacy wind and solar projects.

BP also started out strong on renewables in the early 2000s, going so far as to launch a “Beyond Petroleum” ad campaign, but its investments proved to be premature. The 2010 Deepwater Horizon oil spill dealt a damaging blow to BP’s renewables effort, and by 2013, BP had divested its renewables assets, except for its wind business (for which it couldn’t find a buyer). At present, BP does not have a clear vision for renewable energy, but the company is investigating opportunities for future investment. In 2006, the company set up a venture capital effort that has put more than $300 million into emerging and disruptive technologies.

Petrobras has focused its efforts on its upstream oil and gas business and improving its financial situation in the aftermath of the recent Lava Jato (Operation Carwash) corruption scandal. The company divested its biofuels production business in 2017 to reduce its debt load, and its current renewables efforts focus mainly on thermal electricity generation. Company representatives have stated a desire to prepare for a low-carbon economy, and the company has signed a nonbinding agreement with Total to assess opportunities in Brazil for onshore wind and solar power generation.

The European oil majors are pursuing more intentional strategies for transitioning from traditional oil and gas producers to full-spectrum energy companies, driven in a large part by a desire to diversify their energy portfolios. Total is investing in power generation and renewables, but it has also stepped up activity in refining, chemicals, shipping, and marketing. In 2014, Eni became the first company to convert a traditional refinery to a biorefinery, and it has a dedicated energy solutions department and a venture capital fund devoted to renewables. Equinor, formed by the merger of Statoil and Norsk Hydro, adopted its current name in 2018 as a part of a strategic effort to grow its renewables portfolio in relation to its oil and gas businesses. The company, which already has a strong presence in wind power generation, has invested in solar energy, trading, technology innovation, electric vehicle charging infrastructure, and energy storage.

BP’s Energy Outlook (cited in Pickl’s review) predicts that renewables will be the fastest-growing part of the energy sector, providing 14% of global primary energy by 2040. Although they foresee fossil fuels meeting about two-thirds of a predicted 40% rise in energy demand by 2035, “non-fossil fuels are growing fast from a small base.”