Oil & Gas Majors are adjusting their strategies by taking into consideration the changing role of fossil fuels in the global economy.
The COVID-19 pandemic significantly strengthened the energy sustainability trend, placing it at the core of economic recovery and future development plans. Most of the important energy forecasts, including the publications from Shell, Total, BP, DNV, IEA and OPEC, acknowledged the peak oil demand as one of the realistic scenarios. As a result, Oil & Gas Majors make the strategic adjustments, but investors and consumers expect them to adjust even faster.
The immediate strategic priority of Majors should therefore be decarbonizing oil and gas operations. At present, the most critical risk facing the oil and gas companies is losing their social license to operate, which can be avoided by:
- First, a radical change in the way strategic investment and divestment decisions are made. This ensures that portfolios are optimized for both sustainability and profitability.
- Second, decisions for design of facilities should incorporate net-zero targets. For example, LNG plant or an offshore platform will be in operation for more than 20 years and should not become a liability for achieving the net-zero targets. This implies drastic decisions on design, power generation schemes, etc.
- Third, “low-hanging fruits” in existing and new assets should be addressed as soon as possible. They often rely on digitalization, thus advanced condition monitoring coupled with artificial intelligence and machine learning can be implemented to avoid unwanted emissions.
- Fourth, carbon capture, utilisation, and storage (CCUS) initiatives should be introduced. Majors should have a strategic focus on development and deployment of carbon abatement technologies, such that oil and gas operations no longer emit CO2, and CCUS becomes a tool for reducing the total amount of CO2 in the atmosphere.
- Further, broadening of the product portfolio, including biorefining, chemical plastics recycling and bioplastics, will help to switch to low-carbon offering.
Majors should see decarbonizing oil and gas operations as investments for building a future competitive advantage, rather than additional costs. Players that invest in decarbonization will maintain their social license to operate, while governments, investors and consumers will consider them as part of the solution rather than the source of the problem.
Additional opportunities for the Majors also lie in areas such as electricity management and electricity trading. All this will require companies to start thinking as, and partnering with utilities, real-estate developers and IT leaders.
To stay in line with the energy transition, Oil & Gas Majors should engage their customers, offering them support to identify and undertake the energy transition they need to achieve their desired future. This means engaging with the automotive, shipping and aviation industries, building and construction industries as well as packaging and consumer goods industries.
Taken altogether – adopting an energy transition strategy, broadening business operations, and enhancing awareness about sustainability of consumer choices – this will enable Oil & Gas Majors to manage shareholder demands and expectations. Thereby ensuring their continued success during the age of the energy transition.
Schneider Electric helps its customers to address the energy transition and integrate sustainability in future strategies.
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