In Brief
Research analysts say that the largest oil and gas companies must invest heavily in renewables by 2035 to avoid risk to their core business. This simple financial reality may support the climate change goals of the Paris Accord.

Global Changes In Energy

According to a report from the research group Wood Mackenzie, the analysis of how worldwide changes in demands for energy will transform the sector in the next decade proves that the largest oil and gas companies should place at least one-fifth of their investments in wind and solar power. Dwindling demand for oil and other fossil fuels and rising demand for renewable energy will drive this change in the sector, which will, in turn, necessitate new investment strategies.

The biggest energy companies today now enjoy a market share in oil and gas of about 12%. To maintain that share, analysts say, the companies will need to spend more than $350 billion (£275 billion) on wind and solar power by 2035. Even if they don’t spend enough to maintain that market share, Wood Mackenzie forecasts that renewables may account for one-fifth, or more, of their capital allocation from 2030 onward.

*4* Largest Oil and Gas Companies Must Invest Heavily in Renewables by 2035

This level of investment arises from a recognition, even by fossil fuel companies, that demand, availability, climate change, and policies designed to cope with climate change are all permanently changing the industry. “The momentum behind these [renewable] technologies is unstoppable now,” Wood Mackenzie director of research Valentina Kretzschmar told The Guardian. “They [the oil companies] are recognizing it is a megatrend; it’s not a fad, it’s not going away. There is definitely a risk to their core business.”

Image Credit: Ben_Kerckx/Pixabay
Image Credit: Ben_Kerckx/Pixabay

The Immediate Future

Statoil of Norway, which currently employs around 100 people in energy solutions, including wind and carbon capture, will deploy the world’s first offshore floating windfarm this year. Shell is also investing in windfarms off the coast of the Netherlands and will spend $1 billion annually on hydrogen, biofuels, and renewables by 2020. In 2016, Total of France employed 13,000 people and spent $4.7 billion on batteries, biofuels, and solar along with gas. 62% of Exxon shareholders recently voted to promote more transparency on climate change.

Meanwhile, the future for fossil fuels is looking dimmer and dimmer. Oil and gas revenues are 33 times those of renewables right now, but will narrow to 13 times, or less, by 2035. As Wood Mackenzie points out, while returns for oil and gas production were twice those for renewables, renewable assets like windfarms enjoy long-life cashflow which boosts their dividends over time. Furthermore, renewables may end up growing far faster than predicted, leaving oil and gas giants in the dust if they fail to sufficiently diversify now. The bottom line for these companies may simply be that complying with climate change goals such as those set forth in the Paris Accord is better for business.