How the world will manage the transition to clean energy, in particular the oil and gas companies.

According to the latest IEA projections, global demand for both oil and gas is set to peak by 2030. If governments deliver on their national energy and climate

pledges, demand would fall 45% below today's level by 2050. In the transition to clean energy, all oil and gas companies will be affected so every stakeholder needs to consider how to respond with effective measures to reduce carbon emissions, investing in carbon capture and storage technologies, and supporting research and development of cleaner energy alternatives. The various developments related to the transition have implications for the geopolitical landscape as it evolves with countries moving away from fossil fuels, and the need to ensure a just transition for workers and communities dependent on fossil fuel industries. The very first question is how will advancements in renewable energy technologies impact the demand for oil and gas in the coming decades?

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“As the world grapples with decarbonisation and targets that have been taken up by most countries, we are seeing a transition to cleaner energy. And this means that oil & gas, which has been a bellwether in the energy mix with around 30% of overall energy consumption, will shrink, some estimates say even be halved in the next 15-20 years,” says Manas Majumdar, Partner and National Leader Oil & Gas, at KPMG. “The question then remains on where the impact is expected to be felt and the speed of this transition. And this can be better understood by looking at where oil is consumed most – transport and mobility, industrial usage, power, and petrochemicals. Of this transport is the biggest consuming segment accounting for more than half of the usage but also the one which would transition a bit slowly given the significant stock and variety of ICE vehicles. But with green regulations and vehicle bans like in EU and emergence of EVs (and potentially hydrogen vehicles) this will start impacting on 2W, 3W and on commercial 4W and also passenger 4W, though trucking, marine and aviation will take a decade or more to really switch to cleaner options,” he adds.

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According to G Balaji, SVP, Head of Energy Industries Division, ABB India, while we add new, renewable energy sources into the mix, we will still need to access

traditional energy infrastructure. Balancing the need to meet the energy demands of a growing population with the imperative to move towards a low-carbon future is crucial. This ongoing transition underscores the urgency of finding more sustainable methods to produce oil and gas. “One key aspect of this transition is focusing on net additions of energy consumption while simultaneously lowering the carbon footprint. By shifting towards more automated and eventually autonomous operations, we can significantly reduce carbon emissions during production. This approach ensures that we not only meet current energy demands but also progress towards a more sustainable energy future. For a developing economy like India, it is critical that the needs of energy security, affordability, availability are also addressed,” he opines.

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“The rapidly declining costs of renewables, particularly solar and wind, coupled with increasing efficiency and energy storage capabilities, are reshaping the global energy landscape; perhaps why advancements in renewable energy technologies are poised to substantially impact the demand for oil and gas in the coming

decades,” says Titli Chatterjee, Senior Lead Analyst, ISG Research. “According to the International Energy Agency (IEA), renewable electricity capacity is set to expand by 50% between 2019 and 2024, with solar photovoltaic systems leading the charge. This surge in renewables is expected to mitigate the demand for oil and gas in power generation. Furthermore, electric vehicles (EVs), driven by advancements in battery technology and supportive policies, are poised to revolutionise transportation, potentially displacing millions of barrels of oil demand per day by 2040, as projected by BloombergNEF. Consequently, as renewable energy technologies continue to advance and become more cost-competitive, the demand for oil and gas is likely to face sustained downward pressure, fundamentally reshaping the dynamics of the global energy market,” she adds.

While it is evident that demand for fossil fuel based energy is certainly going to shrink, in the near future, growing energy demand means that oil and gas companies have time to recalibrate their strategies. What exactly is the course major oil and gas companies are pursuing in order to adapt to the transition to green energy?

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“As of 2024, major oil and gas companies are increasingly recognising the need to adapt to the global transition to green energy. They are implementing a variety of

strategies to diversify their portfolios, reduce carbon emissions, and invest in renewable energy sources,” says Sunil David, Digital Technology Consultant, who has listed some of these as follows:

1. Diversification into Renewable Energy: Investment in Wind and Solar: Many oil and gas companies are investing heavily in wind and solar power projects. For example, BP, Shell, and TotalEnergies have significant investments in offshore wind farms and large-scale solar power plants.

2. Development of Green Hydrogen: Firms like Shell and TotalEnergies are investing in green hydrogen projects, which use renewable electricity to produce hydrogen from water. Building infrastructure for hydrogen production, storage, and distribution is another focus area.

3. Carbon Capture, Utilisation, and Storage (CCUS): Companies are developing and deploying carbon capture technologies to reduce emissions from their existing operations. This includes capturing CO2 from refineries and chemical plants and storing it underground or using it for enhanced oil recovery.

4. Electrification of Operations: Transitioning to electric equipment and machinery in oil and gas extraction processes to reduce emissions.

5. Biofuels and Advanced Fuels: Companies are investing in the production of biofuels from sustainable sources.

6. Sustainable Practices and ESG Initiatives: Setting ambitious targets for reducing greenhouse gas emissions and improving energy efficiency.

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“It makes a lot of business sense for oil companies to adopt sustainability strategies. Adopting a sustainability strategy can eliminate a significant amount of waste in the form of reduced emissions, eliminating oil spills and pipeline leaks, and capturing countless metric tonnes of methane and other substances that are released into the atmosphere,” says Larry O'Brien, Vice President, Research, ARC Advisory Group. “But the oil companies are not focused on existing oil and gas related processes alone. The large integrated oil and gas companies are transforming themselves into energy companies, making huge investments in sustainable power, in the form of wind, solar, and hydrogen, and are entering into long-term energy contracts with large end users like Amazon to provide renewable energy at scale,” he adds.

Darshana Thakkar, Founder, Transformation – The Strategy HUB, believes that advancements in renewable energy technologies will significantly reduce the demand for oil and gas over the coming decades. This transition will be driven by cost reductions, policy support, technological innovation, and changing consumer preferences. “Major oil and gas companies are using various strategies to adapt to the transition to green energy. These strategies include diversification into renewable energy sources, investments in new technologies, partnerships and acquisitions, and commitments to sustainability and carbon reduction goals,” he adds.

Many of the solutions promoted as an alternative to fossil fuels and measures to reduce the carbon footprint are rooted in technology. So what role do emerging technologies, such as carbon capture, utilisation and storage (CCUS), play in extending the lifespan of oil and gas assets while mitigating environmental impact?

Manas Majumdar draws attention to the fact that technologies such as CCUS do extend the usage of oil & gas, even as some people are not convinced of their ability to decarbonise truly and reach net-zero targets fast. “But one must realise that any climate solution has to look at a portfolio of solutions which has both completely green technologies and also partly green/emission reductive technologies as there are implications on availability and affordability of fully green technologies. So till net-zero green technologies are more commonplace, CCUS can help in reducing emissions and ensure a lower-carbon economy in a stage-wise manner till we reach net-zero,” he says. However, one must understand that CCUS technologies cannot be deployed everywhere and have size, scale and locational considerations. This is because these are large scale installations which need to bring in CO2 and store them in underground reservoirs (or convert them into carbon-based products like CO2-to-methanol), so a minimum viable volume of CO2 is required. “Also locationally, these projects need to be close to large emitters like coal-based power plants, gas turbines, flaring stations (else cost of pipelines is added to the project) and also need to have large, depleted oil fields or underground caverns where they can be stored (properly sealed and impervious as we wouldn’t want leakage). Hence CCUS technologies by their nature can play a somewhat limited role given their source and sink requirements,” he explains.

While in agreement with the efficacy of CCUS technologies, G Balaji of ABB points out that for countries to achieve their net-zero commitments, CCUS uptake by industry needs to grow 120-fold by 2050, according to McKinsey & Company analysis. “If successful, CCUS alone could be responsible for reducing carbon emissions generated by the industrial sector by 45%. CCUS can be integrated into enhanced oil recovery (EOR) processes. In EOR, captured CO2 is injected into oil reservoirs to increase oil extraction efficiency, thereby maximising the output from existing oil fields. This not only improves resource efficiency but also helps defer the decommissioning of oil and gas infrastructure,” he adds.

“CCUS technology involves capturing carbon dioxide emissions from industrial processes or power generation facilities, compressing it, and injecting it deep underground for long-term storage. By implementing CCUS, oil and gas companies can significantly reduce their carbon footprint, thereby enhancing their environmental sustainability credentials,” says Titli Chatterjee. “Additionally, CCUS can enable the continued operation of existing fossil fuel infrastructure by offsetting emissions, allowing for the extraction of resources while minimising environmental harm. For example, the Sleipner project in Norway, operated by Equinor, has been successfully capturing and storing CO2 since 1996. By capturing and storing over one million tonnes of CO2 annually, the project has not only reduced emissions but also extended the lifespan of the natural gas field it serves, demonstrating the viability and potential of CCUS technology in the oil and gas industry's transition towards a more sustainable future,” she elaborates.

The transport segment is one of the largest sources of CO2 emissions globally and about 80-90% of the automobile’s environmental impact comes from fuel consumption and emissions of air pollution and greenhouse gases. So how will the electrification of transportation and the rise of electric vehicles impact the demand for oil products, such as gasoline and diesel?

The electrification of transportation and the rise of electric vehicles (EVs) are developments which, according to Sunil David, would have a significant impact on the demand for oil products, such as gasoline and diesel, in the future. In support of his assertion, he has underlined the following trends:

• Increasing adoption of electric cars, driven by advancements in battery technology, reduced costs, and supportive policies. Many governments are implementing stricter emissions standards and offering incentives for EV purchases.
• The rise of e-commerce and the need for sustainable logistics solutions are driving the adoption of electric delivery vans and light-duty trucks. Many businesses are committing to sustainability goals, including transitioning their vehicle fleets to electric.
• Many cities are transitioning to electric buses to reduce urban air pollution and greenhouse gas emissions. Although the electrification of heavy-duty trucks is slower due to technical challenges, advancements in battery technology and the development of hydrogen fuel cell trucks are starting to make inroads.
• For applications where battery electric vehicles are less practical, such as long-haul trucking, hydrogen fuel cells are emerging as a viable alternative. Hydrogen-powered trucks and buses will further reduce diesel demand.
• Major oil companies are diversifying their portfolios by investing in renewable energy sources, such as wind, solar, and biofuels. This shift helps them reduce reliance on traditional oil products and align with the transition to a low-carbon economy.

Various market analyses and projections indicate that global oil demand may peak in the next decade, driven largely by the electrification of transportation, says Sunil David.

“I think a better question to ask is how the oil and gas majors are preparing themselves to remain competitive in an environment where EV sales continue to expand. ExxonMobil, for example, became a huge Lithium producer in 2023 with the acquisition of 120,000 gross acres of the Smackover formation in southern Arkansas, one of the most prolific resources of its kind in North America. The direct lithium extraction that will be used by ExxonMobil utilises 2/3 less carbon intensity than conventional extraction methods,” says Larry O’Brien, obviously referring to the evolving battery ecosystem for EVs.

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According to Darshana Thakkar, the electrification of transportation and the rise of EVs are expected to profoundly impact the demand for oil products such as gasoline and diesel. Passenger vehicles account for a significant portion of global oil consumption, and widespread EV adoption of passenger

vehicles can substantially reduce the gasoline demand. The electrification of commercial vehicles, including buses, delivery vans, and trucks, will also reduce diesel consumption. Adoption of EVs due to cost benefits, emission regulation, climate goals, and improved battery and charging infrastructure will increase significantly, reducing fossil fuel demand. “The pace of change will depend on various factors, including technological progress, policy support, and market dynamics – however, the overall trend points towards decreasing reliance on oil in the transportation sector,” she explains.

Now given the pace of electrification of transportation, how are oil-dependent economies preparing for the decline in oil revenues and transitioning towards diversified, sustainable economies?

“The energy transition is a challenge for all countries but as the question indicates a bigger problem for oil-rich economies. Mostly these are countries in the Middle East (and somewhat Russia, Venezuela) which have grown their economies primarily through petro-dollars. Now it is clear to them that the burgeoning oil-driven world economy is going to change, and it is just a question of time,” says Manas Majumdar. “In this context there are a couple of considerations – some countries are looking to leverage their cost competitiveness and oil reserves to manage the pricing and supply dynamics and production of oil (OPEC cartel is a key example) to still make money as oil demand shrinks. The second approach is a diversification away from oil focus towards tourism and trade or even renewable energy and infrastructure and hence have a more vibrant and sustainable economy. Saudi Arabia for example with its Neom supercity is investing in significant renewable infrastructure, and also setup a sovereign wealth fund to invest in green assets and build a new pillar of economy away from oil; similarly, UAE has long started to focus on creating Dubai and now Abu Dhabi as tourism and trade centres between Europe and Asia,” he elaborates.

G Balaji believes many oil-dependent economies are investing in large-scale renewable energy projects, environmental conservation initiatives, and sustainable infrastructure to reduce their carbon footprint and mitigate climate change risks. “This not only contributes to economic diversification but also enhances long-term resilience and competitiveness. For instance, the UAE has invested heavily in renewable energy projects such as the Mohammed bin Rashid Al Maktoum Solar Park, aiming to generate 75% of its energy from renewable sources by 2050. Saudi Arabia has launched Vision 2030, a comprehensive economic reform plan aimed at reducing the country's dependence on oil revenues. The plan includes initiatives to diversify the economy, promote private sector growth, and invest in sectors such as tourism, entertainment, and technology. Saudi Arabia is also investing in renewable energy projects, including the development of large-scale solar and wind farms,” he elaborates.

“Oil-dependent economies are taking proactive steps to prepare for the decline in oil revenues by transitioning towards diversified and sustainable economies,” observes Titli Chatterjee, and points out how this involves implementing various strategies such as investing in renewable energy projects to reduce reliance on fossil fuels, diversifying industries beyond oil and gas, promoting innovation and entrepreneurship, and enhancing education and workforce development to support emerging sectors. “Additionally, many oil-dependent countries are prioritising fiscal reforms, improving governance, and attracting foreign investment to foster economic resilience and sustainability in the face of fluctuating oil prices and declining revenues. These efforts aim to create more resilient and inclusive economies that are less vulnerable to the volatility of the oil market while fostering long-term growth and prosperity,” she asserts.

Finally, are there any joint initiatives between the oil and gas industry and renewable energy sector to accelerate the energy transition in mutual interests?

“Yes, there are several joint initiatives between the oil and gas industry and the renewable energy sector designed to accelerate the energy transition. These collaborations aim to leverage the expertise, resources, and infrastructure of both industries to create a more sustainable energy future,” says Sunil David and cites a few examples:

• Equinor and SSE Renewables: Equinor, a major oil and gas company, has partnered with SSE Renewables to develop offshore wind farms. Projects like the Dogger Bank Wind Farm in the UK, set to be the world's largest offshore wind farm, exemplify such collaborations.
• BP and Ørsted: BP had announced a partnership with Ørsted, a leader in offshore wind, to develop a large-scale renewable hydrogen project in Germany. The project aims to produce green hydrogen using offshore wind power, highlighting the integration of oil and gas expertise with renewable energy technologies.
• OGCI Climate Investments: The Oil and Gas Climate Initiative (OGCI) is a consortium of major oil and gas companies investing in technologies that reduce greenhouse gas emissions. They support innovations in carbon capture, utilisation, and storage (CCUS), energy efficiency, and renewable energy.
• Breakthrough Energy Ventures: Founded by Bill Gates and supported by several major oil and gas companies, this fund invests in cutting-edge clean energy technologies. The aim is to accelerate the commercialisation of innovations that can significantly reduce greenhouse gas emissions.

“All major integrated oil and gas suppliers are investing in renewable energy in a major way. In 2022, BP announced an investment in the Asian Renewable Energy Hub, buying a 40.5 percent stake in the massive renewable and green hydrogen project in Australia. The hub is projected to develop up to 26 gigawatts of combined solar and wind, as well as provide capacity to develop 1.6 million metric tonnes of green hydrogen per year,” says Larry O’Brien. “More recently, Saudi Aramco is eyeing a stake in the renewables business of Repsol, which is valued at close to €6 billion. Aramco has a target to ‘invest in up to 12 GW of solar and wind energy by 2030, and is exploring for geothermal energy in the Kingdom’, according to the company’s 2023 sustainability report. Aramco also has a 30 percent stake in the Sudair solar PV plant in Saudi Arabia and is one of the largest solar plants in the region,” he adds.

Darshana Thakkar also quotes some notable examples:

Shell and ITM Power: Shell has partnered with ITM Power to build large-scale hydrogen production facilities using electrolysis technology.

ExxonMobil and Global Thermostat: ExxonMobil has partnered with Global Thermostat to advance CCUS technology. This collaboration aims to capture CO2 emissions from industrial sources and the atmosphere, reducing greenhouse gas emissions.

Chevron and Microsoft: Chevron has joined forces with Microsoft to explore and develop CCUS projects. Chevron's expertise in carbon capture & Microsoft's digital technologies enhance the efficiency and scalability of CCUS solutions.

“These joint initiatives exemplify the collaboration between the oil and gas industry and the renewable energy sector to accelerate the transition. By pooling resources, knowledge, and expertise, these partnerships aim to develop innovative solutions that drive sustainable energy development and contribute to global climate goals,” she concludes.

Note: The responses of various experts featured in this story are their personal views and not necessarily of the companies or organisations they represent. The full interviews are hosted online at https://www.iedcommunications.com/interviews)