U.S. FALLS BEHIND IN ENERGY TRANSITION
European firms invest in renewables amid diverse opinions on the future
In a stark divide over the world’s energy future, U.S. companies are doubling down on oil while their European counterparts increase investments in renewable power and natural gas.
It remains to be seen how fast electric vehicles and alternative energy technologies will spread and which approach — American or European — will prove right. But analysts say that U.S. companies risk being left behind as technological and regulatory change threaten to erode oil’s dominance and transform global energy markets.
“The European companies are investing as if there might be some big disruptions that might accelerate the energy transition, and they want to be ready for that,” said Muqsit Ashraf, the global managing director of energy for Accenture Strategy, a consulting and research firm. “If there is going to be a massive disruption, they are placing broader bets.”
The diverging outlooks on either side of the Atlantic have been on display throughout a global energy conference in Houston this week, but perhaps no more starkly than when Rick Perry, the U.S. secretary of energy and former Texas governor, called the global shift from fossil fuels “immoral,” one that will harm developing nations that need abundant, cheap energy to lift their people out of poverty.
Shortly after Perry addressed CERAWeek by IHS Markit, the chief executive of Royal Dutch Shell, Ben van Beurden, said the oil industry has a moral obligation to address climate change, pledging to invest in low- and no-carbon technologies that would reduce net carbon emissions from its operations and products by half by 2050.
“There’s no other issue with the potential to disrupt our industry on such a deep and fundamental level,” van Beurden said of climate change.
‘A bit of pie in the sky’
The global response to climate change, including an international agreement that committed nearly 200 countries to dramatically reduce carbon dioxide emissions, has made the future of the oil industry uncertain. As electric vehicles become more common and renewable technologies such as wind and solar take larger shares of the power mix, the energy industry is entering a period of transition.
The debate underway in the industry is how fast that transition will happen. European companies project that global oil demand could peak within the next 20 years; U.S. companies have discounted such predictions, arguing that peak demand is nowhere in site.
The divide augurs poorly for the transition to clean energy, which many scientists say is vital to the planet’s long-term survival, analysts said. At a time when companies should be aggressively investing in alternative forms of energy and diversifying their mix of energy products, the different outlooks on either side of the Atlantic will likely slow the growth of wind, solar and other renewable energy sources, analysts said.
“The Europeans think of the other energy mix as renewables. The US thinks of the energy mix as gas and oil,” said Vivek Chidambaram, managing director of Accenture Strategy Energy. “It’s a very clear belief difference as to how long (oil) will stay in the mix.
For U.S. oil companies, the future is still about oil. At CERAWeek, U.S. executives vowed to lure investors back to the oil industry after worst downturn in decades with more production and bigger returns for shareholders.
They trumpeted record output in West Texas’ prolific Permian Basin, touted increased dividends for shareholders and, in one case, described a world powered by renewable energy as “a bit of pie in the sky.”
Ryan Lance, CEO of ConocoPhillips, the largest U.S. shale driller, talked about an industry that destroyed its value with shareholders and needs to make amends by increasing returns. Mark Papa, the former CEO of the shale oil pioneer EOG Resources of Houston, noted that oil demand has not only grown, but exceeded estimates in recent years.
“This is not a sunset industy,” said Papa, now CEO of Centennial Resource Development, a Denver oil and gas company. “It’s a growth industry.”
Renewables role debated
Chevron CEO Mike Wirth told analysts this week that the company remains unsure what role, if any, renewables can play in the company’s portfolio.
“There are certain renewables that have become more competitive on an unsubsidized basis, things like wind and solar,” Wirth said. “And you have to ask yourself, do I have a distinctive competency that allows me to compete in some of these segments? I would say that in wind and solar, I’m not sure that we do.”
But executives of European companies, including the British oil major BP, Norway’s Statoil and the French company Total, said they are increasing investments in wind and solar farms, as well a cleaner burning natural gas. Statoil has invested around $2.6 billion in renewables over the past five to six years, with most of its focus on offshore wind farms.
The company spends $500 million a year on renewable energy and plans to eventually boost that to as much as $2 billion, executives said. Renewables are expected to account for as much as 20 percent of the company’s annual investments by 2030, said Bjorn Otto Sverdrup, Statoil’s senior vice president of sustainability.
The company is already a larger player in offshore drilling and now considers itself a pioneer of offshore wind farms.
“Being of the world’s largest offshore oil and gas companies,” Sverdrup said Tuesday, “we believe we have competence, capital, brains and experience to help develop offshore wind into a very attractive large scale business.”
Transitioning to new business models that incorporate renewables won’t be easy for oil companies, said Andrew Smart, the head of Accenture’s global energy practice. But as global temperatures rise and the pace of innovation and regulation accelerate, the oil industry could find itself in the same decline as the coal industry, which has flagged in the face of cleaner and cheaper forms of energy.
“It’s easy to think you are going to be here forever,” said Smart. “Until you’re not.”