A new report from Wood Mackenzie indicates that there is a compelling case for the world’s largest oil and gas companies to invest more heavily in the renewable energy space.
Could renewables be the Majors' next big thing? says while renewables remain a niche market at the moment, they will be a much bigger market by the middle of the next decade as a result of slowing demand. The report also contends that the value proposition for renewable energy is a competitive one since it provides long-life cash flow.
Below is a synopsis of the report.
The Majors have taken the first steps to move beyond the core oil and gas business into wind and solar power, as well as energy storage. But most are still weighing up the options and have yet to make telling strategic moves in renewables.
A potential tipping point for the shift into wind and solar could be an anticipated decline in the Majors’ hydrocarbon production. With new resources needed to sustain volumes beyond 2025, wind and solar could step in to the breach if discovered resource commercialization, mergers and acquisitions and exploration fail to deliver, or economics weigh against continued development.
Although it won't change the Majors' portfolios materially for decades, investment in renewables presents a substantial opportunity. At current costs, achieving the same market share the Majors have in upstream oil and gas would require US$350 billion in wind and solar investment out to 2035. While this seems an unlikely scenario, renewables could account for over one-fifth of total capital allocation for the most active players post-2030.
The Majors are only just starting to sow the seeds for the radical changes that lie ahead. There are still question marks over scale. But wind and solar will be increasingly important strategic growth themes that cannot afford to be ignored as the Majors plan to 2035 and beyond.