Oil and gas industry majors are pushed to reconsider their strategies in the future as wind and solar energy are set to play a major role in the energy market.
This presents a threat to legacy oil and gas operations, but also an opportunity to diversify and future-proof portfolios, consultancy Wood Mackenzie said.
A niche energy market now, renewables will be much bigger by the middle of the next decade, as oil and gas demand growth slows.
The value proposition is also competitive versus some upstream investments, with long-life cash flow a key attraction, according to WoodMac.
The consultancy notes that the majors have already taken the first steps to move beyond the core oil and gas business into wind and solar power, as well as energy storage.
However, a large number of players are still considering their options and are yet to make significant moves into 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 commercialisation, M&A and exploration fail to deliver, or economics weigh against continued development,” WoodMac said.
Although portfolios of industry majors will not change for decades there is a substantial opportunity in investing in renewables.
“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,” according to Wood Mackenzie.
With the shift only at the beginning, and the scale is yet uncertain, wind and solar energy will be increasingly important strategic growth themes that cannot afford to be ignored as the majors plan to 2035 and beyond.