KEYFACT Energy
It is often said that the best victory is when the opponent surrenders of their own accord.
The energy transition is a battle already won. With many of the largest oil companies committing to reinventing themselves as energy companies with zero net emissions by 2050 or earlier, the path is firmly set. A conflict that began in the mid-1990s about climate change and reducing emissions is decisively over. It never became a war.
The victory was in large part because oil companies rely on geologists. Those same geologists who are able to see the best places to find oil and gas could also see the dramatic impacts of climate change in the geological rock record. It was not only about recognising that dinosaurs were quickly extinct due to a sudden climatic change brought about by a large asteroid impact at Chicxulub on the Yucatán Peninsula in Mexico. It was about discovering multiple other climatic events in the rock record. Rapid heating events, glaciations, sudden greenhouse effects combined with features such as mass extinctions and large changes in the mineralogy of soils and sediments, all weighed in with further evidence of the effects of climate change. So the very people finding oil and gas could at the same time see and articulate many examples of climate change. Their eyes are trained to evaluate data and the features of rocks and to understand the significance and consequences of events. This is partly why climate change never became a war.
What we see today is major oil companies actively engaged in changing themselves. It is no longer a case of green-washing by oil companies talking up their investments in renewables in recent decades. Fundamental shifts in strategy and investment are happening; many are recently announced, others are being prepared for announcement. Tepid acknowledgment of climate change and vague CO2 emissions policies on oil company websites is no longer the norm. These are being replaced by commitments. This change in corporate culture is being demonstrated. The need for a lower carbon footprint and lower emissions is no longer debated; it is accepted. Visible change is spreading; it is currently most prominent amongst the large European oil companies.
Organisational change is occurring too at a furious pace. Only a few years ago, the hot topic at industry conferences was the impending ‘great crew change’, a time when a generation of 1970s and 1980s oil recruits handed the reigns to a younger more diverse generation of oil & gas managers. This crew change is now hardly relevant as these companies instead jump to reinvent themselves rapidly shifting away from oil and becoming net zero energy companies that need different skills sets.
In the rush to re-invent themselves, a smooth and steady transition now appears unlikely with some companies making what initially seem like sudden green investments. A good example is offshore wind power. Here many oil companies have already accumulated extensive offshore engineering skills and decades of operations experience. It makes for a comfortable move – large numbers of offshore facilities now targeting wind rather than oil and gas. In less than 10 years, Europe has quickly become home to most of the largest offshore wind projects in the world – offshore UK, Germany, Netherlands, Belgium and Denmark. Many others are located offshore China. Mexico clearly has vast untapped offshore wind potential.
In addition to offshore wind, hydrogen is rapidly emerging as a realistic clean source for industrial scale power and for transport. Today, most hydrogen is being produced using natural gas as a feedstock, Eventually producing hydrogen at large scale by electrolysis of water using solar and wind power may be viable. But for the moment, the process to form hydrogen from natural gas produces CO2 so ideally this needs facilities that capture this CO2 and take it by pipeline to reinject it underground and store it. So again, geologists are essential! They have roles in both finding natural gas and also in identifying the best sites for safe storage deep underground.
The oil industry has never been frightened of mergers and acquisitions as a way to grow and evolve. The scene is now set for multiple green acquisitions as oil companies seek to reinvent themselves. Yes, they can and will grow organically and invest in a range of emerging green technologies and look to upscale new technologies for low carbon fuels and power. But the quickest way to change is through major acquisitions. Many large oil companies are seasoned players at growing inorganically through acquisitions in stock markets. There are rich pickings, some will no doubt involve hostilities, a fight or two perhaps, but not a war. They will not wait until 2050.
Mr. Chris Sladen runs an advisory service offering insights to inform, shape a decision, and guide the next steps for energy ventures. Chris has a unique global experience having worked in the energy sector of over 40 countries. This is underpinned by extensive knowledge of petroleum systems and where best to find oil and gas, notably in the Gulf of Mexico & nearby areas, and NE & SE Asia, as well as the development of midstream, downstream & renewables investments in many emerging economies. Chris has extensive experience acquired on the Boards of companies, subsidiaries, business chambers & organisations. Chris has a career of over 40 years in the energy sector, living in Mexico (2001-2018), Russia, Vietnam, Mongolia, China & UK.