The endless world of opportunities for oil and gas companies in a free-carbon economy – Part 1
Based on all the trends existing towards strongly promoting generation and use of renewable energies, a common citizen might fall in the trap of believing that major oil and gas corporations could feel threatened. It is natural to think that the international agreements and initiatives toward reducing the emission of greenhouse gases (GHG) to the atmosphere might affect their business. However, after analyzing the strengths and development of such corporations, evidence shows that they are primed to thrive in the energy business in the coming decades, and that some companies are actually embracing (rightly so) that possibility. They are extremely well positioned to be the next world energy and electricity providers.
Here are some of the reasons and findings that lead me to say this:
Majors have important cash reserves that allow them to perform several actions
(Staatoil website - April 2018)
Thanks to the last boom in the commodities cycle (between 2010 and 2014, approximately), major oil corporations created important cash reserves that are fueling their actions in the coming years. Several of such decisions are focused on decoupling their future existence and growth from oil and gas extraction (at least partially). A few concrete examples:
Some corporation are developing renewable energy projects. Staatoil and BP (even though in the last case it seems the strategy was different a few years ago) are among the corporations that decided to invest massively in building and operating renewable energy projects. Other corporations are following the same strategy, which clearly signals that they do not plan to stick with oil and gas as the sole source of income in the next decades.
Several corporations have established funds to support and fund start-ups developing solutions to tackle the energy problem from different angles. From energy efficiency alternatives to storage technology, oil and gas corporations are getting seriously involved (as shareholders) in the development of new goods and services energy related, which can prove to be a strong source of revenue in the future. They are not doing this only by funding start-ups, but actually oil and gas companies are out shopping other corporations that have developed other business lines related to energy generation, storage, transportation, efficiency, among other areas.
However, the development of new solutions does not stop here. Corporations are taking right advantage of a long standing partnership with academia (here I insert a reference to my beloved alma mater, the Longhorns), in order to develop solutions to the new challenges that climate change and GHG emissions are posing to this industry (See here a current example of this kind of alliances). This would create more knowledge, that in its turn would give these companies more technological advantage in the fight against climate change.
Even if the cash reserves were not enough, or for strategically reasons, major oil and gas corporations have long standing and solid relationships with banks and funders, which have been around them for decades, and thus are trusted partners. This support can be vital for the development of certain projects, and only a few global players have such strong connections with the finance world.
In following posts, I will analyze other reasons that these companies might have to be optimistic, as well as the situation of other actors, such as national oil companies. I insist, the future looks even brighter for major oil and gas corporations, even considering climate change regulations and limits.