Economic activities propose green requirements
Oil and gas giants have generally set high emission reduction targets. BP announced that it will set zero greenhouse gas emissions in its own business operations by 2050. Shell plans to reduce greenhouse gas emissions by 50% by 2030 compared to 2016.
Behind these goals are regulatory and corporate financing pressures. Only by setting high goals can enterprises meet regulatory requirements and gain competitive advantages. For example, the EU requires oil and gas companies to purchase carbon dioxide credits to offset their offshore activities. Meanwhile, the United States provides preferential treatment for green production through the Inflation Control Act (IRA).
The financing issue has also had a significant impact on the industry’s strategy. In 2021, American investment firm Engine No.1 successfully dispatched three environmental experts as directors to ExxonMobil to promote decarbonization. Large companies such as Shell and Chevron have recently received shareholder proposals regarding climate change.
Under the dual pressure of regulatory agencies and shareholders, oil and gas companies are working to achieve business diversification and invest in green businesses. However, the energy transition still has a long way to go. For example, the production of renewable aviation fuel (SAF) is still less than 0.1% of global aviation fuel consumption, and carbon dioxide capture technology is still in its infancy.
Giants prioritize three major areas of focus
Recently, CB Insights conducted a comprehensive study on the activities of 15 global oil and gas giants in six key technology areas, and summarized in which areas they have invested, acquired, and cooperated in supporting energy transformation. Research has found that 15 global oil and gas giants prioritize investing in "renewable energy," "long-term energy storage," and "hydrogen energy" to meet regulatory and market demands. Shell and Norwegian National Petroleum have been the most active investors, but due to high oil prices and energy security needs, oil giants such as Shell have reduced their activities since 2023. SAF and other "low-carbon fuels" will continue to rise in the important field of energy, and future regulations may support this trend.
Hydrogen energy projects play a crucial role in energy transition, especially in areas where decarbonization is difficult. In March 2024, American clean energy company Bloom Energy partnered with Shell to produce hydrogen using Bloom’s solid oxide electrolysis technology. Compared with traditional electrolysis methods, this technology has increased hydrogen production by 25%. This is an important step in replacing grey hydrogen in oil and gas refining, improving efficiency, and reducing hydrogen production costs.
In terms of renewable energy, oil and gas giants are increasingly accepting all incoming sources. In the field of geothermal power generation, BP Ventures participated in the B-round investment of Eavour Technologies in Canada in 2021 and 2023, respectively. Eavour’s "closed-loop geothermal power generation system" aims to solve the problem of unstable supply of other renewable energy sources through stable geothermal energy, providing flexible and stable clean energy.
Long term energy storage is a supplement to unstable renewable energy, and its function is to stabilize the power grid. In September 2023, BP signed an agreement with Harmony Energy Income Trust. BP will be responsible for trading and optimizing the electricity of Harmony’s two battery storage systems, storing electricity during periods of low demand and delivering it to the grid during peak periods.
Clear direction of industry investment activities
Since 2023, major companies have revised their decarbonization targets in response to the soaring oil prices, resulting in a significant slowdown in industry investment activities. In response to the soaring oil prices and the demand for energy security, companies such as BP and Shell have increased their oil production and lowered some decarbonization targets. BP has lowered its 2030 carbon dioxide reduction target, Shell has stopped increasing its annual spending on renewable energy, and ExxonMobil is withdrawing from its algae based biofuel development project.
However, the ultimate decarbonization goal of oil and gas giants has not changed. Oil and gas giants are still investing in technologies and directions with clearer decarbonization capabilities. Among oil and gas giants, Shell has the most active investment activities. Since 2021, the company has participated in a total of 160 investment activities. In February 2024, the company signed a renewable energy related power purchase agreement with Google and jointly developed a 478MW Dutch offshore wind farm with Dutch renewable energy giant Eneco. Norwegian National Petroleum ranks second in terms of the number of investment projects it has participated in, with a total of 126. In October 2023, Norwegian National Petroleum Venture Capital participated in the Series C financing of Electric Hydrogen. Electric’s goal is to produce green hydrogen on a large scale using electricity generated from renewable energy sources. The company’s Series C financing also received participation from well-known funds such as Amazon’s Climate Commitment Fund and Microsoft’s Climate Innovation Fund.
In addition, although oil and gas giants have reduced their investment in sustainable technologies, the investment amount is still considerable and the investment direction is clear. Recently, low-carbon fuels such as SAF have become key elements of energy transformation strategies and have also attracted investment from oil and gas giants. The cooperation between Shell and Delta Air Lines demonstrates Shell’s SAF production goals. On April 23rd, Shell pledged to supply up to 10 million gallons of SAF to Delta Air Lines over the next two years to support the airline’s goal of achieving a 10% share of SAF in aviation fuel by 2030.
Renewable natural gas (RNG) is also a key area of focus for oil giants. In October 2022, BP announced the acquisition of US RNG giant Archaea Energy for $4.1 billion. This is BP’s largest acquisition in history. One month later, Shell announced the acquisition of Danish RNG giant Nature Energy for $2 billion, with the aim of strengthening Shell’s RNG business and establishing production bases in Europe in addition to its existing US operations.