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What To Watch: Majors – Topic 1, Tech Investments

August 1, 2019

The international oil and gas majors are putting hundreds of millions of dollars into new, lower carbon energy technology and services – bringing a novel kind of leadership into the “energy of the future” conversation. Are these efforts superficial and symbolic? Farfetched and risky? Smart research and development? Sophisticated risk mitigation?

This is the first installment in my latest series, What to Watch: Majors, looking at how the international majors — and some forward-thinking large independents — are engaging as energy companies of the future. Their efforts chart the way, buy your company some time, and ultimately set the stage for stakeholder expectations for your company’s vision of the energy future.

Both of these things are true:

  • Oil and gas companies depend on demand for their products to ensure their financial and operational future. 
  • International oil and gas majors are increasingly investing in an energy future that doesn’t resemble the current energy mix.

The problem path forward:

The oil and gas industry is best positioned to reimagine and reinvent the energy future because of its resources, ingenuity, and scale. International majors are leading the way, particularly in making investments in new technology and energy services. 

Large oil and gas companies are making five types of investments in the future.

  • Research and development. In May of 2019, Exxon announced the company would invest $100 million over 10 years in emissions-reduction technologies with the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) and National Energy Technology Laboratory (NETL). These collaborations will focus research on biofuels; carbon capture; storage projects in the power generation, transportation, and industrial sectors; energy efficiency; and greenhouse gas reduction projects. Now that is powerful rebranding for Exxon.
  • Stakes in utilities. In 2018, Total purchased Direct Energie, a French alternative power supplier, giving the company a portfolio of gas-fired and renewable energy power plants. Shell has made several investments in utilities, including a Brazilian gas-fired power plant and a United Kingdom (UK) utility. Shell renamed the UK utility Shell Energy and switched all the utility’s customers to 100% renewable electricity. That is some serious asset diversification.
  • Carbon removal. The venture arms of Occidental Petroleum and Chevron have invested an undisclosed amount into Carbon Engineering, a company developing direct air-capture technology. They plan to build “the world’s largest facility for sucking carbon dioxide out of the atmosphere, a project that would use the trapped CO2 for boosting oil production.” The company’s investors also include Bill GatesNow that’s good thinking. Total has also allocated 10 percent of its R&D budget to carbon capture utilization and storage (CCUS). Equinor has been working in carbon capture and storage (CCS) since the 1990s and has five CCS projects ranging in maturity feasibility studies to operations. A perfect example of energy innovation and carbon reduction within the traditional oil and gas space.
  • Stakes in electric vehicles and charging. As Total announced their acquisition of Direct Energie, they also rolled out acquisition of G2mobility, a provider of electric charging stations. This is a significant step toward Total’s 2035 goal to have 20 percent of their assets in low-carbon energy. Investing in a competitive technology.
  • Stakes in renewables, particularly offshore wind and solar. In 2017, Equinor made numerous renewables investments at significant scale, including: the world’s first commercial, floating offshore wind farm; a 40 percent stake in a 162 megawatt solar project in Brazil; and a $200 million venture capital fund focused on renewable energy companies, Equinor Energy Ventures. Shell is exploring doubling its annual investment in green energy to $4 billion. Shell is also a member of The Carbon Trust’s Offshore Wind Accelerator, which is working to reduce the barriers and costs offshore wind development. Embracing renewables is a powerful narrative shift.

It matters because:

Increasingly, investors (both public and private) and policy makers (from international to local) will have a choice in the companies they do business with. Your important stakeholders want to work with a company who holds a vision for its future success. And soon, they will demand of you not just that unique vision, but clear investment in its implementation. 

The critical mistake companies are making

  • Eye rolling at the efforts of the international majors — and increasingly, large US independents — rather than looking for inspiration and opportunities for their own company’s future.
  • Companies risk being left behind more starkly when other oil and gas companies are articulating and investing in the future.

Seize the daySuccessful companies will: 

  • Articulate your company’s strategy to invest in a dynamic, quickly evolving energy future. And if not now, then why and when.
  • For those companies who want to ride out the oil and gas markets as we know them today, how will you convince your investors that you will be the last company standing?

We are all in this together, in unmapped waters. Fortunately, the international majors are charting paths forward, which is both providing cover and buying some time for your company. I’d like to hear how your company envisions its role in the energy future, and how you are thinking about your investments.

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