Cross currents: Big oil and the energy transition

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Well before the oil price rout caused by the coronavirus pandemic, commentators and shareholders were calling on Big Oil to make step-out energy transition acquisitions.

Now, with economies in lockdown and corporates fighting to survive, the oil sector’s incremental move into new energy looks over-cautious. As the value of their fossil fuel assets tumbles, the coronavirus lays bare these companies’ exposure to a world of massively smaller oil and gas demand, offering a glimpse of the EV revolution to come.

And environmental groups are keeping the pressure on oil companies during the crisis even as they cut capital spending, arguing that once economic activity picks up again, new investment should be channeled into stable renewable energy jobs.

In the last three years, global oil and gas companies have branched out into new sectors, ramping up investments in the power sector, low-carbon technologies and mobility, as they respond to intensifying climate campaigning that has also spurred activism among their traditional investors.

The new strategies on display raise questions about how far – and how fast – the giants of fossil fuel production are willing to go in their pursuit of decarbonization. The start of 2020 saw France’s Total fly out of the energy transition blocks, winning Europe’s largest EV charge point contract in the Netherlands, partnering Groupe PSA in a pilot EV battery facility and taking a 2 GW Spanish solar position.

Others are adding to incremental gains in renewables. Lightsource BP, which is 43% owned by BP, has just closed financing on a 250 MW Spanish solar portfolio while late last year Shell bought out floating wind pioneer EOLFI.

Now BP’s aspirations, although thin on detail, have upped the ante with new CEO Bernard Looney in February committing the company to net-zero carbon emissions by 2050, implying a fundamental shift over the coming decades to renewables and carbon abatement. Shell followed suit in April, also announcing a target of net-zero emissions by 2050, along with greater cuts to the carbon footprint of its products compared with previous announced goals.

While the coronavirus pandemic presents a grave risk to near-term electricity demand, electricity price and on-time project deployment, the fundamentals remain in place for renewables to dominate energy capital disbursement once the crisis eases.

Speaking to investors March 19, Enel CEO Francesco Starace said Europe’s Green New Deal was “an ideal vehicle” for kick-starting economies stalled by the virus. In the meantime the company noted Chinese equipment supply delays of just 40-45 days, pushing deployment of 200 MW back from December 2020 to January 2021. Meanwhile, in a week almost devoid of positive newsflow mid-March, it was Total making headlines with two new energy plays in onshore and floating wind.

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