Oil and Gas Supermajors Rebrand as Energy Companies

The adoption of renewable energy sources is on the rise worldwide as countries transition energy, transportation and industrial infrastructure away from fossil fuels to meet the climate change and sustainable energy goals set out in the Paris Agreement. 

The International Energy Agency forecasts significant growth in the renewable sectors from 2020 to 2025. The extraordinary growth in cumulative global wind and solar installations since 2000, refer to bar chart below, can be used to extrapolate that the renewable share of global primary energy consumption may approach 10 percent by 2040, refer to graph in figure below.

The oil and gas (O&G) sector is now in a quandary. On the one hand, it has always been scapegoated for the world’s climate change problems, and this is true to an extent. According to a recent report, 20 fossil fuel companies are responsible for one-third of all greenhouse gas emissions in the modern era. Chevron, Exxon, BP and Shell account for more than 10 percent of the world’s carbon emissions since 1965 while Saudi Aramco has produced more than 4 percent on its own. On the other hand, there has been unprecedented upheaval in the O&G industry due to a catastrophic drop in oil prices, increasing costs of exploration and extraction, and a precipitous drop in demand due to COVID-19.

Keeping these factors in mind, O&G companies have begun pivoting toward the renewable sector and diversifying portfolios to reposition themselves as energy companies rather than just O&G companies. Which strategies are companies employing to progress along the path of reinvention into a renewables business?

The British multinational was the first supermajor to significantly commit capital to renewable-energy projects for the development of solar-and wind-energy developments from 1980 to 2010 and seen as an industry leader on environmental issues. It invested around $8 billion in renewable energy in the early 2000s and even spent $200 million on rebranding itself from British Petroleum to Beyond Petroleum in 2001. All the progress was waylaid by the Deepwater Horizon oil spill in the Gulf of Mexico. BP then had to shift focus on paying damages and improving its existing O&G operations, so it sold off many of its less-profitable solar assets. The company also tried to sell off its wind business—2200 MW in the U.S. alone—in 2013, but was not able to find a buyer. It is now working on getting back into the game.

In a press release titled “From International Oil Company to Integrated Energy Company,” BP defined its future targets. By 2030, it aims to produce 40 percent less O&G than it did in 2019, helping it achieve a 30-35 percent emissions reduction related to the fuels it extracts. One of the most significant claims was that it aims to stop exploring for new oil reserves, but only in countries where it does not already have operations.

BP had already established a venture capital arm in 2006 called BP Ventures, through which it has invested over $300 million into an active portfolio of more than 40 entities comprising emerging and disruptive technologies across the upstream, downstream and green-energy sectors.

In 2017, BP acquired a 43 percent stake in Lightsource—a solar power developer with projects in Europe, Asia and the U.S.—essentially outsourcing its solar expertise after closing shop on its previous solar business in 2011. Then 2018 turned out to be a bumper year for BP’s evolvement to a low-carbon future. First, it invested $20 million in StoreDot, a developer of ultra-fast batteries. Second, it made an investment of $5 million in FreeWire, a U.S. company working on fast-charging infrastructure for electric vehicles (EVs). Third, it bought UK’s largest car charging firm Chargemaster for more than $160 million and combined its 6,500 charging points with its own gas stations.

The Anglo-Dutch conglomerate is also in the process of overhauling its business and focusing more on the renewable energy and power markets to position itself not as an O&G company but an energy-transition company.

In May 2016, Shell combined its existing low-carbon and renewables interests—hydrogen, EV charging, biofuels and renewable power—to focus on long-term energy transition themes as part of its diversification strategy. Recently, it is shifting more capital allocation to the renewable and low-carbon sector. Shell has also promised an energy investment budget of $1 billion to $2 billion per year from 2017 onward, of which around 80 percent will go into the power sector.

In that vein, Shell started by acquiring First Utility, a UK-based electricity and gas supplier, and NewMotion, Europe's largest EV-charging company. 2018 began with the company buying a 44 percent stake in the U.S.-based solar developer Silicon Ranch for more than $200 million and agreeing to a long-term power purchase agreement with British Solar Renewables for electricity from Bradenstoke, the largest solar farm in England. Additionally, Shell has led a $20 million equity investment in Husk Power Systems, an India-based company that provides renewable power to rural communities and businesses through distributed off-grid installations. The investment allowed Husk to expand in the African and Asian markets with mini-grids. Furthermore, Shell also bought Texas electricity group MP2, which generates its power mostly from wind and solar. Finally, it invested in grid-edge and energy-storage companies, such as GI Energy, Axiom Energy and Sonnen.

The French oil major, like BP and Shell, is emerging as one of the leaders among the oil majors when it comes to transforming from a traditional O&G producer to a full-range energy company. Total has also revealed an investment plan of $500 million per year to grow its renewables to 20 percent of its asset database over the next 20 years and aims to power 100 percent of its European operations with renewables by 2025.

In 2011, Total spent $1.4 billion to buy a 60 percent majority stake in U.S. solar specialist SunPower and currently holds a 51.25 percent stake. In 2016, Total purchased the French battery manufacturer Saft for $1.1 billion, gaining access to some of the most advanced technology for storing energy—which in turn will support the further development of renewables. In the same year, Total acquired the Belgian green power utility Lampiris in a deal valued at $224 million. In September 2017, Total spent $286 million for a 23 percent stake in the French renewable company Eren, which holds a diversified asset base in wind, solar and hydro, with an option to buy it outright after 2021. Simultaneously, Total fully acquired the French energy-efficiency leader GreenFlex. In in the same year, Total made an investment of more than $200 million to transform its La Mède refinery into the first biorefinery in France to produce 500,000 metric tons of biofuels per year from various types of oils, including vegetable oils. In 2018, Total purchased a 74 percent stake in the French electricity retailer Direct Energie for $1.7 billion and became one of the top utility providers in France. Finally, Total took a 25 percent stake in Clean Energy Fuels Corp for $83 million. Clean Energy uses heavy-duty trucks that run on natural gas and has a network of over 550 stations in North America providing natural and renewable gas fuel for cars and trucks.

Total also established a venture capital arm in 2008 called Total Energy Ventures. It has invested almost $200 million in over 20 innovative start-ups since its inception. The overall portfolio includes solar, wind, marine energy, energy storage, distributed energy tech, hydrogen, biofuels and chemicals. In 2016, the fund acquired an interest in United Wind, a company leasing small wind turbines (10–100 kW) to rural businesses and homes in the U.S.

In 2014, the Italian multinational company started up the world’s first conversion of a traditional refinery to a biorefinery producing green diesel, green naphtha, liquid petroleum gas and jet fuel. In 2015, Eni established a dedicated energy solutions department to identify and implement renewable growth opportunities. During the same year, Eni established a venture capital fund. Since then, it has engaged in joint research with numerous universities to conduct research and development of promising renewable technologies and applications.

The U.S. supermajor’s focus has remained on the O&G sector following low returns in the renewables projects it had invested in over the past 20 years, though it remains committed to reducing emissions by improving energy efficiency, reducing flaring and fixing methane leaks. However, Chevron has launched a Future Energy Fund, with an initial investment of $100 million to invest in breakthrough technologies.

Like its fellow U.S. counterpart, ExxonMobil has not shown much interest in following the European supermajors into the renewables sector, with no budget allocated for future projects. Its strategy is limited to reducing greenhouse gas emissions, advancing biofuels, and carbon capture and storage (CCS) technologies. Notably, ExxonMobil holds interests in roughly one-fifth of the world’s CCS capacity and captures about 7 million metric tons of carbon dioxide for sequestration every year. It also announced an agreement to partner with FuelCell Energy to develop carbon capture fuel cell technology that could considerably reduce costs. 

ExxonMobil has signed a 12-year agreement with Danish energy company Orsted to purchase wind and solar power in West Texas and use cheap, clean energy to power its expanding operations in the Permian Basin. Another agreement has been undertaken with Global Clean Energy Holdings to purchase 2.5 million barrels of renewable diesel per year for five years starting in 2022.

With respect to advanced biofuels research, the company funds and conducts research through a broad portfolio approach including algae, non-food based biomass feedstock and agricultural waste, with an aim to produce 10,000 barrels of algae biofuels a day by 2025. In July 2017, ExxonMobil announced a breakthrough in algae biofuels research involving the modification of an algae strain that more than doubled its oil content without significantly inhibiting the strain’s growth.

Many other companies are following the supermajors’ footsteps of incorporating renewables into their business model. These initiatives definitely bode well for the future. However, investment by O&G companies outside their core business has been less than 1 percent of total expenditure, with the largest recipients being solar photovoltaics and wind, except for ExxonMobil. Energy storage seems to be the next booming field with the expected rise in EVs. Biofuels and CCS are also finding willing investors. Notably, none of them are investing in geothermal energy, and hydro is only represented by Total. 

A much more significant increase in overall capital allocation is required to help accelerate the energy transitions, and the O&G sector needs to move faster to ensure climate change targets can be met.