Oil tak­ing on green sheen

Kuwait Times - - HEALTH & SCIENCE -

The com­pa­nies that drill black gold are go­ing a lit­tle bit green: tak­ing stakes in re­new­able en­er­gies that are grow­ing rapidly, en­abling oil firms to di­ver­sify rev­enue and show com­mit­ment to fight­ing cli­mate change. In the past, such swings have been writ­ten off by en­vi­ron­men­tal cam­paign­ers as green­wash, and just as likely to be re­versed once low oil prices go up again. But an­a­lysts say that, even though only a tiny per­cent of oil ma­jors’ in­vest­ment goes into re­new­ables, the in­ter­est this time seems to be sus­tained, and un­der­pinned by solid profit.

“It is not a purely eco­nomic trend” driven by low crude prices, said Francis Per­rin, pres­i­dent of SPE, which pub­lishes a num­ber of en­ergy-re­lated pub­li­ca­tions. “It’s more pro­found: it’s the adap­tion of cer­tain oil in­dus­try ma­jors to a cer­tain num­ber of en­ergy and eco­nomic up­heavals.” Per­rin sug­gested oil com­pa­nies were more cog­nisant of the threat posed by cli­mate change and the po­ten­tial that re­new­able en­ergy will be­come big business. Al­ready present in the man­u­fac­tur­ing of so­lar pan­els via its unit Sunpower, France’s To­tal ear­lier this year in­vested in a US com­pany that in­stalls mini wind tur­bines for homes and busi­nesses.

Italy’s ENI plans to in­vest 1 bil­lion eu­ros ($1.1 bil­lion) over the next three years in so­lar projects, while Shell, BP and Sta­toil are con­cen­trat­ing on wind power. In the US, Chevron is switch­ing its bets from geo­ther­mal to bio­fu­els, al­though ExxonMo­bil re­mains lag­ging in the green en­ergy field.

Prof­itable = sus­tain­able

With the price of crude in the dol­drums, “the pri­or­ity for oil com­pa­nies is cre­at­ing value” said Jerome Sa­bathier, head of the eco­nom­ics depart­ment at IFPEN, a French gov­ern­ment body that sup­ports re­search into the re­new­able en­er­gies, the en­vi­ron­ment and trans­porta­tion. Most oil com­pa­nies are try­ing to cut costs and re­duce their debts, sell­ing off non-strate­gic as­sets. In­ter­est­ingly, though, they have been loath to sell off re­new­ables, which have been a source of growth. Per­rin said the in­ter­est isn’t only due to low crude prices, how­ever. “The trend started be­fore oil prices be­gan to tum­ble in the sum­mer of 2014 and will con­tinue if they re­bound,” he said.

While oil com­pa­nies have been slash­ing in­vest­ment as they seek to cut costs, the chief ex­ec­u­tive of To­tal, Pa­trick Pouyanne, noted the com­pany has con­tin­ued to al­lo­cated $500 mil­lion per year on re­new­able en­er­gies. And of­ten their ef­forts are sup­ported by pub­lic funds. “There are a cer­tain num­ber of fi­nanc­ing mech­a­nisms and sub­si­dies for re­new­able en­ergy that cre­ate a real fi­nan­cial in­ter­est for com­pa­nies,” said IFPEN’s Sa­bathier. But To­tal’s CEO said that the key to sus­tain­abil­ity is profit. “You will not build sus­tain­able business just be­cause its green, you will build it be­cause it will be prof­itable and be­cause ecol­ogy meets econ­omy,” said Pouyanne at a re­cent con­fer­ence. Even if they are not ini­tially prof­itable, re­new­able in­vest­ments also pro­vide an enor­mous pub­lic re­la­tions ben­e­fit to oil com­pa­nies. “It’s the cherry on the cake,” said Per­rin.

Share­hold­ers, in­clud­ing big in­vest­ment funds, have also been keep­ing a close eye that oil com­pa­nies cor­rectly eval­u­ate the fi­nan­cial risks posed by mea­sures that may be adopted by coun­tries as the global com­mu­nity aims to keep global warm­ing lim­ited to 2 de­grees Cel­sius. The OPEC oil car­tel, even with lim­ited im­ple­men­ta­tion of cli­mate change mit­i­ga­tion ef­forts, sees oil de­mand grow­ing at a much slower rate than nat­u­ral gas over the next 25 years. But an ex­pected near dou­bling of pas­sen­ger cars on the roads as con­sumers in de­vel­op­ing coun­tries pur­chase ve­hi­cles should drive de­mand for oil higher. How­ever, if coun­tries fully honor their pledges to cut down on the use of fos­sil fu­els which cause global warm­ing, OPEC be­lieves oil de­mand could be­gin de­clin­ing by 2030.

In any case, oil com­pa­nies are not turn­ing their backs on their main business for the mo­ment. In­vest­ments in re­new­able en­er­gies re­main mar­ginal-less than 3 per­cent of the bil­lions pumped into oil and gas projects ev­ery year, ac­cord­ing to a re­cent report by the Sia Part­ners con­sult­ing firm. The in­ter­est by oil firms in nat­u­ral gas is un­der­stand­able as it is seen by the In­ter­na­tional En­ergy Agency as the only fos­sil fuel whose share in the en­ergy mix is to in­crease in the com­ing decades as elec­tric­ity pro­duc­ers switch from coal, which causes far more pol­lu­tion.

Ten oil ma­jors, mem­bers of the Oil and Gas Cli­mate Ini­tia­tive, also want to con­tinue re­search into the devel­op­ment of car­bon cap­ture tech­nolo­gies. “If you ad­vance in that area, you can de­velop in the long term fos­sil fu­els with­out these en­ergy sources con­tribut­ing to cli­mate change as in the past,” said Per­rin. —AFP

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