The research showed the companies are all placing their bets on one energy source or technology rather than building portfolios of diversified low-carbon solutions to spread risk. Some are betting on wind, others solar, while some stick closer to their core business with biofuels. This suggests a wealth of options but no obvious way forward that works for the industry and the world as a whole.
The question that must be asked is whether an oil company’s core skills and culture can be translated to the renewable energy business. What is it that makes an oil company successful, and does it lead to success in the renewable power business?
In many ways renewables would seem to play to some key oil and gas sector strengths. The industry has capital to invest, investment-grade credit ratings, technology know-how, large-scale energy project management capabilities and years of community engagement experience. If those things were all that mattered, oil companies could have built and owned nuclear power plants. Who thinks that would work out?
So far, success in the renewable power space has been built on relationships with regulated power distribution companies and regulators (not a core strength of big oil). In the here and now, renewable power doesn’t always compete on efficiency or economics (a core strength of big oil).
If we look at it objectively, the oil companies’ natural and probably most profitable investment in the power sector is in a business they are already in — natural gas
Isn’t a natural gas producer actually a power company?
In Europe and the US, concerns about greenhouse gas regulations will make it difficult to find capital to maintain coal operations as a power source for electricity. Commitments to control climate change will continue to make coal-fired plants unsustainable globally. The emergence of hydraulic fracturing techniques has made gas plentiful and secure. The substitution of gas-fired for coal-fired electricity (with new renewables just about covering demand growth) has been the trend.
What does the future look like? Renewables will grow, too, but not enough to keep cheap gas from also growing.
If we look at it objectively, the oil companies’ natural and probably most profitable investment in the power sector is in a business they are already in — natural gas.
Summary
Oil and gas companies should start looking to the future while maintaining their unique strengths and perspective.
