For Most International Oil & Gas Majors, Energy Transition Projects Lag Behind Goals

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Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--On the road to 1.5˚ by 2050, the biggest engines driving progress are the national and international supermajor oil companies. How they set goals and whether they make the investments required to meet them represents a significant impact on the whole world.

In its early May webinar, "Decarbonization of the E&P industry -- roadmaps to get there and are they delivering?," Rystad Energy identified gaps in goals versus performance. There are also variations in what is considered progress, with some supermajors simply selling high CO2 assets to someone else.

Why It Matters: Oil and Gas's Current Carbon Footprint
Jon Marsh Duesund, partner consulting for Rystad Energy, began by pointing out the size of the industry's current carbon footprint. He said combustion and flaring of oil and gas makes up 50% of global CO2 emissions. "For oil and gas, the big chunk of CO2 comes from the Scope 3 part, or the end use, of the different products." Scope 3 amounts to 2 gigatonnes of CO2 emissions per year, he said.

Industry emissions of methane, considered a more potent greenhouse gas, are harder to track because current numbers rely on self-reporting. Current numbers show oil and gas companies responsible for about a fourth of all methane emissions, which come mostly from leaks or spills, or "basically unwanted venting of methane. So in theory, you would think that these emissions would have negative abatement costs," he said.

High Profits Equal High Investment in Transition? Not Necessarily
In a second presentation, Steinar Spinnangr, project manager at Rystad, discussed the supermajors' goals versus their actual investments. He noted that profits in 2022, benefitting from instability stemming from the Russian invasion of Ukraine, were at record highs. Did some of that cash bonus get cycled into renewable research and development?

No.

The chart at right (click to enlarge) shows free cash flow rising to $13 billion in 2022, while the percentage of cash investment in green energy dropped to 28%. One might look at the massive cash flow increase and think that there still might be green investment growth in absolute dollars spent, even as the percentage dropped.

As this second chart shows, that assumption would be incorrect. The bars on the left show a drop from $6 billion in 2021 to $5.8 billion in 2022. The line on the right shows where the money went instead, to dividends and share repurchases.

What About Goals?
Spinnangr categorized majors by how ambitious their carbon reduction goals are. From there he concentrated on examining the performance of companies whose stated goals are in the top tier of commitment levels. To track this, he used five companies as examples.

In the third chart at right, the gray bar shows a company's goals in percentage of greenhouse gas emissions reductions by 2030, while the blue bar shows actual progress as of 2022. While BP (NYSE:BP) (London, England) shows to be close to its goal, Duesund noted that, so far, most of the progress announced by that company and Shell plc (NYSE:SHEL) (London, England) have come from sales of oil sands assets to smaller producers, who "tend to be companies that are less transparent and open about their emissions and their plans for abatement."

In Spinnangr's view a great place to start actually reducing GHG emissions is by examining flaring practices. Chevron Corporation (NYSE:CVX) (San Ramon, California), he said, has completely eliminated flaring in the Permian Basin, and others have also made significant reductions.

"So what do they need to invest to reach the goals?" Spinnagr asked, quantifying that in terms of power capacity in gigawatts (GW) that would need to be switched from fossil fuels to green energy. Rystad research shows that 50% of oil companies' capex must be invested in renewables by 2030. At current rates, European majors are tracking toward 27% and U.S. majors toward 13%.

The fourth chart, at right, shows relative oil and gas investments versus renewables. It recognizes that energy affordability and availability--and retention of market share for oil majors--requires at least a certain amount of continued oil and gas investment during the transition. But by 2026, the majority of dollars should begin to flow into renewables.

To illustrate, Spinnagr used BP as an example. Its current project pipeline totals 16 GW of power capacity, with a goal of 30 GW, meaning the company is short of its goal by 14 GW.

Using 20-megawatt offshore wind turbines as a way to measure the cost of making up the 14 GW shortfall, that would equal 1,500 turbines, which would require approximately $100 billion by 2040. This is the amount for a single company's goals.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).