Commitments to a low carbon energy transition among many oil majors is accelerating, with emission reduction pledges and renewable energy targets mounting, shifting company profiles.
That’s what analysts at Fitch Solutions Country Risk & Industry Research stated in a report sent to Rigzone this week, adding that, as the topic of climate change gains traction globally, companies are being driven to change their business strategies and adopt low carbon practices.
“More stringent government environmental policies, increasing regulatory requirements, rising carbon taxes and growing adoption of carbon pricing mechanisms will pose climate-related risks for high carbon emitters,” the analysts said in the report.
“Ultimately, the demand for emissions-intensive products will fall and companies will face shrinking demand pools and lower price levels, leading to weaker profitability, degraded balance sheets and potential asset stranding,” the analysts added.
“As a result, oil majors have recognized this risk and are pivoting to the renewable energy sectors. This is evident through their transition plans as part of their climate action ambitions. Subsequently we expect this to bring these companies ever more into the role of an energy company, fundamentally changing their business strategy,” the Fitch Solutions analysts continued.
In the report, the analysts noted that Fitch Solutions’ Key Projects Data (KPD) confirms their view that many companies are making the switch from a traditional fossil fuels supplier to one that supplies electricity generated from grid connected renewables.
“In order to facilitate this transition, the renewable energy sector has experienced capital injection from oil majors,” the analysts stated.
“This has taken the form of them being sponsors of renewable power projects globally. One such example is BP’s acquisition of a 40.5 percent stake in the 26 gigawatt Asian Renewable Energy Hub (which will have a mix of solar and wind power projects) in Australia,” they added.
“In total, we register in KPD that oil majors are involved across $25.6 billion worth of renewable power projects that are currently in the pre-construction and construction stages, although this value is likely higher as not all firms publicly announce project value,” the analysts continued.
The analysts highlighted that the transition from oil and gas companies is spurring growth in the renewables sector as they develop increasing levels of capacity in house or utilize subsidiaries.
“We expect that growth in the renewables sector to be supported by this ramping up of investment and pivoting to renewables by oil majors,” the analysts said.
“This expansion will be evident over the coming years as oil majors commission a 70GW strong pipeline of non-hydropower renewables projects, as captured in our KPD,” they added.
In the report, the analysts outlined that BP, Chevron, Eni, Equinor, Repsol, Shell, and TotalEnergies all have a 2050 net zero target, as well as key interim climate related targets prior to 2050.
In a separate market comment sent to Rigzone this week, Fitch Ratings noted that state-owned enterprises (SOEs) have a key role to play in the energy transition and will shape the growth of low-carbon technology.
“SOEs are dominant across many industries in key emerging markets of Asia-Pacific, Latin America and sub-Saharan Africa and their contribution to global emissions is substantial,” Fitch Ratings said in the comment.
“While investor engagement with industries such as coal, steel and oil and gas over climate change has focused on the private sector, SOEs are critical participants in reducing global emissions and mainstreaming low-carbon technologies,” Fitch Ratings added.
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