Creating an Energy Transition Ecosystem

Oil and gas now must adapt to the new reality. It is one part of an energy industry where decarbonisation a requirement not just an expectation. Remaining isolated by being faithful to hydrocarbons alone, is no longer an option. The industry has to diversify into alternative energy, just to remain relevant.

We see lots of headlines about this diversification in various oil and gas majors, but I feel like it's natural to ask how earnest those attempts are. Do you see these companies really trying to use their institutional knowledge and built up electricity, clean energy wings that can be just as big as their fossil fuel operations? Or are they doing enough to look like they're moving with the tides while doing what they can just as much to ensure their oil and gas reserves remain relevant and needed in future decades? 

Notably, offshore renewable energy is now on a deflationary cost curve, achieved through a combination of economies of scale and standardisation of design and installation. By contrast, offshore oil and gas is on an inflationary cost curve, as hydrocarbons become harder (and therefore more expensive) to find.

A few questions remain, however, among which include:

1. Will oil prices rebound enough to chase oil companies back to their "core" businesses? How far and for how long?

2. How much diversification into renewables does it take to put an oil company seriously into the renewables realm, without it being a token nod in that direction? Have the Elfs and Shells and BPs of the world differentiated themselves from Exxon?

We may start to get real answers to those questions in the next year or two.

Given so many upstream producers in U.S. are independent operators and not multi-nationals (e.g. Exxon, Shell, BP, etc). These operators work mainly in the exploration and production of oil and gas (upstream). Their budgets are focused on production volume stability and enhancement by improvements in well fracture operations. Any discussion on a energy transition toward less oil & gas would be tied to improvements and cost efficiencies. A recent move to electric use involves powering pumps with mobile electric generation. There are several all-electric frac fleets operating in several basins. These take advantage of clean-burning, lower cost natural gas to power natural gas turbine generators on location.

The midstream market (pipeline transmission) rely on natural gas for power and energy.

The downstream market (refining & petrochemical) are diverse in how they provide a range of petrochemicals used as raw materials for just about everything we use in our consumer world. The production of transportation fuel is stable and driven by the winds of the economy. The EV market represents less than 1 or 2% of the transportation market so its not an influence on fuels.

Upstream independent oil and gas operators use of renewables will likely be isolated to solar panels and wind turbines for office and facilities.