PETROLEUM. Analytical journal. New projects, fields’ development, production, processing and transportation of oil and gas, presentation of the companies, statistics on the production of hydrocarbons, monitoring of investment legislation.

Olga Savenkova, Senior Analyst at Upstream Rystad Energy Research Department

 

Different oil demand scenarios have different forecasts of investments in the hydrocarbon exploration and production sector. In the medium term, we do not expect the recovery of investment in exploration and production to the pre-crisis level, despite the stabilization of prices.

 

This is because many oil and gas companies either redirect investments into low-carbon projects or prioritize the payment of dividends and thus redistribute their free cash flow, which last year reached record levels for the global exploration and production industry. Investments in the low-carbon sector are growing, as many companies have set a goal to achieve carbon neutrality by 2050 and some by 2030. And accordingly, to achieve this goal, their investments will be redirected to diversification and reducing the carbon footprint.

 

The energy transition is a multifaceted topic since there is no single approach to achieving sustainable development goals for both companies and the industry. We have studied how large oil and gas companies approach this issue and systematized the information received. Today, three pillars of the energy transition can be distinguished – diversification, sustainable portfolio development, and decarbonization.

 

Diversification. Turning to the diversification analysis, we see that more and more companies are investing in clean energy following their decarbonization commitments. Large oil and gas companies have already announced how much they promise to invest in low-carbon areas in the next 5-10-15 years. And these investments are significant. For example, Shell plans to allocate about $5 billion, 25% of the total budget, to low-carbon development by 2025. European companies such as BP, Repsol, Shell, Total plan to transform from oil and gas companies into energy companies. And in this regard, they will expand the business in all directions – renewable energy, hydrogen, CO2 burial, energy storage, low-carbon fuel.

 

At the same time, American companies intend to continue focusing on oil and gas but plan to significantly reduce carbon footprint, for which they will make hydrogen and CO2 capture/burial the main directions of energy transfer. The latter is a key technology – 55 of the 130 largest companies analyzed from the USA, Canada, and Europe focus on it as a support for their decarbonization strategies.

 

Sustainable portfolio development. It seems to me that this area is most important for Russian players. It includes the management of energy transition risks – revenue and cost. The revenue directly includes a decrease in oil prices, which narrows the company's free cash flow, and the risk of a decrease in production because some fields will become unprofitable due to lower oil prices, which is present in all climatic scenarios. In this case, a scenario of the unclaimed assets appearance that have no value in the climate scenario is possible.