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Large Oil Companies Vigorously Promote the Development of Clean Energy Projects
A big cut in oil production, an equally big push for clean energy project development, and ambitious emissions reduction targets: this was Big Oil’s promise for the future last year. It’s worth acknowledging that the coronavirus pandemic had an impact on oil demand, pushing oil companies to diversify outside their core businesses, but the motivation was already there as investor pressure to conduct energy business in a greener way began to grow.The professionals themselves are confident that Big Oil has the capabilities and expertise to become the global utilities of the future. They’ve made big bets on power generation and distribution, electric vehicle charging, and of course wind, solar, and hydrogen, and it seems like it’s all smooth sailing, but maybe not.
Big Oil’s renewable energy perspective has been welcomed by many, as well as criticized by many who at least remember the previous efforts of the oil and gas supermajors to switch to clean energy. However, the situation now is different from previous green attempts: as ESG investing enters a steady trend, pressure from governments and investors increases, and environmentalism reaches new levels across all industries. So what are the challenges? First, Big Oil has a talent shortage.
Vicki Knott, CEO of Crux OCM, a provider of automation solutions for control room operations, said the problem is not new or unfamiliar, but it can be serious. On the one hand, the industry has an aging workforce that is reluctant to change, Knott said. These employees remember how their businesses were impacted by the last green initiative and have reservations about taking those risks again. On the other hand, oil and gas companies are having an increasingly difficult time finding new talent, especially because of the negative impressions that younger generations have about oil and gas.
Employee behavior and attitudes are factors that are easily overlooked when promoting change efforts at oil and gas companies, but they are factors. There is a lot of optimistic talk about retraining the current workforce in the future that is not exclusively focused on the oil and gas sector, but the actual execution of those retraining programs can be tricky.
Then there is competition. Sure, Big Oil has plenty of money to buy solar and wind projects, and it is using those funds for that purpose, but it is not the only player in this space. Indeed, Exxon is pushing further into a densely populated sector with utilities like Spain's Iberdrola and Italy's Enel, and renewable energy companies like NextEra, which infamously replaced Exxon as the most valuable U.S. energy stock last year.
These companies have been doing what Big Oil hopes to start doing now, which gives them an advantage over the supermajors, even as they have organic and inorganic expertise in issues related to power generation and distribution. Knott points out that Big Oil has the relevant expertise. It has been operating a massive supply chain for decades and has the ability to build new supply chains around renewable energy and operate them efficiently. However, it looks like Big Oil's biggest advantage in the renewable energy race is its core business. Big Oil has a mature supply chain infrastructure that distributes oil and gas for energy purposes. It also has an infrastructure that can both affordably heat and cook homes. Big Oil is also able to reliably meet baseload needs at power plants. ”
Most of the world’s largest oil companies have pledged to become net-zero businesses by 2050. To many, that’s an impossible task, with environmental lobbyists pointing out that the industry’s lofty goals sound better than they actually are. Commenting on the findings last year, Dutch shareholder rights group Follow This said: “Every one of them wants to remain a fossil fuel giant, they just don’t look like one. Clearly, it will take more pressure from society and responsible investors for oil executives to see the writing on the wall. But maybe Big Oil doesn’t really need to be Big Power, or at least Big Renewable Power. It may be wisest to reduce emissions while playing to their strengths, but without having to make a complete and potentially risky transformation.”
