Oil majors embracing renewable projects: report
Wind, solar seen as competitive
CALGARY Major oil and gas producers will put more of their capital into wind and solar developments as returns from renewables are poised to exceed some hydrocarbon projects, according to a report from Wood Mackenzie.
The report released Monday predicts multinational energy companies could spend billions on renewable projects between now and 2035, as “the all-in returns for wind and solar stack up against” higher-cost oil and gas plays, exploration projects and acquisitions.
Wood Mackenzie analysts note that some North American onshore oil projects can generate a 22 per cent rate of return at US$65 per barrel oil prices. They also show that fullcycle exploration and marginal plays earn an average 10 per cent rate of return.
As a result, the returns from onshore and offshore wind power projects and solar projects compare favourably and could compete for US$90 billion in capital, earmarked by the majors in those higher cost oil and gas plays.
“There has been a convergence of the returns because the cost of renewables has been coming down, pushing their returns up,” said Wood Mackenzie director, corporate research Valentina Kretzschmar.
She added that a decline in the price of oil has hurt the returns from upstream projects. West Texas Intermediate oil prices were up slightly in Monday trading to US$46.07 per barrel.
However, even if the price of oil rises, Kretzschmar said demand forecasts for both oil and renewables illustrate the need for energy majors to allocate their capital toward wind and solar.
“They can’t afford to ignore it, they can’t afford not to be there and gain the experience,” she said, noting that renewables demand is growing.
While renewables will increasingly compete against oil and gas for capital, the International Energy Agency’s most recent outlook predicts the global demand for oil will continue to rise until 2040.
The Wood Mackenzie report indicated that while European oil majors would be among the first to transition spending away from higher cost oil and gas projects toward renewables, many Canadian companies have also allocated capital for wind projects.
At an investor day last week, Calgary-based Enbridge Inc. executive vice-president Vern Yu called renewable power the company’s “smallest and our newest, but also our fastestgrowing business unit.”
Shell Canada Ltd. is preparing to bid on renewable power projects in Alberta as the province looks to transition to green energy.