OIL MAJORS EMBRACING PUSH TO GREEN ENERGY: REPORT.
ALL-IN RETURNS FOR RENEWABLES CAN COMPETE, WOOD MACKENZIE SAYS
• 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 full-cycle exploration and marginal plays earn an average 10 per cent rate of return.
As a result, 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. 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 f or 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 and chief development officer Vern Yu called renewable power the company’s “smallest and our newest, but also our fastestgrowing business unit.”
“We are able to make investments in this business where the investment proposition is right in the middle of the fairway where the risks and rewards are very similar to our core pipeline and utility businesses,” Yu said.
Enbridge, North America’s largest pipeline company, expects to spend $ 7 billion during the next five years in offshore wind pro- jects in Europe, which Yu said is becoming cost- competitive with “hydrocarbon power generation.”
A new generation of wind turbines, which once could generate only 2 megawatts of power, are now on their way to producing 10 megawatts and more, Yu said, which helps drive down costs.
Similarly, Shell Canada Ltd. president Michael Crothers told the Financial Post last week that his company is preparing to bid on renewable power projects in Alberta as the province phases out coal- fired power by 2030 and looks to replace that capacity with green energy.
“Where the Shell strategy would see growth in Canada would be shales, would be new energies and would be chemicals,” Crothers said.
Parent company Royal Dutch Shell PLC owns significant wind power generation in the U.S. and Germany.