Hydrocarbons producers say the switch to new fuels needs to be gradual, and that oil and gas revenues are needed to fund the shift, writes Konstantin Rozhnov
Europe's largest oil firms see the global energy transition gaining momentum, but they continue to defend what they see as low-cost, low-emissions hydrocarbon projects while working towards making their renewables investments profitable.
BP's oil and gas investments in Russia and the Middle East fit into the firm's view on "resilient hydrocarbons" as part of its transition plans, chief executive Bernard Looney told the Argus Crude Live virtual conference on 26 January. The company aims to cut its oil and gas output by 40pc and emissions by up to 40pc by 2030, but these targets exclude its 20pc stake in Russian state-controlled Rosneft. In the Middle East, BP operates the Rumaila oil field in Iraq, has oil assets in the UAE and gas assets in Oman.
"Lifting costs in Russia are less than $3/bl. The greenhouse-gas intensity of Russian production is actually less than most of the majors, including BP," Looney argues. "The Middle East — long-life, low-cost, environmentally efficient barrels." Oil and gas revenues "fuel" the energy transition, he adds. "People I think would like us to be able to switch off the hydrocarbons tonight and switch on our new business tomorrow. [But] this a transition," Looney says.
Total chief executive Patrick Pouyanne sees a similar dichotomy. "When I am entering a new country to produce oil, it takes 10 years to get some returns, [but] I think people are asking renewables to be immediately profitable," he told the Future Investment Initiative conference in Saudi Arabia on 27 January. By embracing new technologies, lowering costs and scaling up renewables projects, companies such as Total will be able to make them profitable, he predicts.
The fact that renewables are destined for local markets creates a local risk for investors, and "the answer to that for a company like Total is to invest globally, to look for opportunities to diversify the portfolio", Pouyanne says. The firm wants to invest in renewables in 30 countries by 2030, he says. Renewables and gas are the two pillars of Total's growth in the coming years, he says — a pairing that is reflected in its ventures with Indian group Adani. "We need the right combination [of energy] for many emerging countries," Pouyanne says.
Greening with envy
Looney says the success of what he calls "greening companies" such as BP, which are cutting their carbon intensity, is as important as that of "green firms", such as solar and wind companies. Spanish firm Repsol's manager of energy and climate change, Antonio Lopez Rodriguez, told Argus Crude Live that oil and gas firms "will be part of the solution in this energy transition". Fair and stable regulation able to guide the decarbonisation, as well as a level playing field for all energy sources and technologies needed for the transition, should be put in place, he says.
IEA chief economist Laszlo Varro told Argus Crude Live that investment in upstream oil and gas needs to continue throughout the transition. Covid-19 resulted in oil and gas companies cutting upstream investment by a third last year to around $300bn — "broadly speaking the same volume of investment that you need year after year during the energy transition to supply this gently declining demand", Laszlo says. "The projects at the companies [that] survived the baptism of fire [in 2020] are actually quite well positioned for the transition."
And oil and gas firms are embracing energy transition technologies because they offer the best growth prospects, Norwegian state-controlled Equinor's chief economist Eirik Waerness told the conference. "The world is full of financial capital and is looking for projects that can deliver returns," he says. "Large portions of the industry have prepared themselves for this super-cycle. This is going to take time, but I think professional investors appreciate that."
