A review conducted by Reuters on companies in the oil and gas sector has revealed that Europe’s top oil and gas companies believe that the novel coronavirus induced global health crisis will have a long-term drop in fossil fuel demand and have therefore shifted a large portion of their investments and cash to green energy projects since the pandemic outbreak began.
These measures and shift in focus for the large companies in the industry including BP, Royal Dutch Shell and Total also align with the efforts of the European Union to shift to a lower carbon energy based economy and reduce its reliance on reliance on fossil fuels. The moves also show the widening gap in the thinking of oil and gas companies of Europe and their peers in the United States where the focus of both the government and the companies are largely still on fossil fuel.
“We are all living differently and there is a real possibility that some of this will stick,” BP Chief Executive Bernard Looney told Reuters in a recent interview while putting up huge declines in air and road travel and an enhancement in telecommuting as the reasons.
As the coronavirus pandemic spread across the world and governments imposed strict travel restrictions and lockdown to curb the spread of the pandemic, there was a sharp decline in the price of oil globally to record lows which prompted many of the global oil companies to sharply reduce capital spending
According to the Reuters report, focus on terms of investments is being given to renewables and low carbon businesses by the top five producers of Europe – BP, Shell, Total, Eni, and Equinor, and have cut down their spending and investments mainly in oil and gas activities.
Demand for fossil fuel will likely reach its peak earlier than previously thought, said company executives and investors. On the other hand, the coronavirus pandemic and the urge to align clean energy production with the ambitions of the Paris agreement to fight climate change is prompting the EU is to focus its economic stimulus on green energy infrastructure which has made investing in the clean energy sector more attractive.
A focus to make climate policies the EU’s “motor for the recovery” was announced by European Commission President Ursula von der Leyen recently.
Despite a 20 per cent companywide cut on spending for the current year, BP plans to keep its previously planned $500 million in spending on low-carbon initiatives intact.
In a similar move, the New Energy division of Shell that focuses on renewables and low-carbon technologies, will also not be subjected to the massive expenditure cuts lof the company, said the company’s CEO Ben van Beurden. “We still believe there is an energy transition under way that may pick up speed in the recovery stage and we want to be well-positioned,” van Beurden said.
Total’s CEO Patrick Pouyanne said in an interview with French paper Le Figaro on May 6 that the company plans to invest between $1.5 and $2 billion on its low-carbon business even while the company has earmarked a target of $3 billion cut in expenditure for current year.
Similar focus on clean energy projects will also be kept by Equinor and Eni.
However the largest and gas companies of the United States have adopted a different approach amid the pandemic related crisis. There is hardly any focus on investing in businesses outside of fossil fuel – partly because of the vocal support of the US government for expansion of fossil fuel production.
Chevron expects demand for oil and gas to rebound after the coronavirus pandemic lifts, said the company’s CEO Mike Wirth to investors in a conference call on May 1. “The world is not ready to transition to another source of energy in large part anytime soon,” he said.
In a call with analysts on the same day, the same rhetoric was echoed by Exxon Mobil CEO Darren Woods. “I know that there are a lot of different views on what the future holds, but I want to be clear on how we see it: The long-term fundamentals that drive our business have not changed.”
And according to the American Petroleum Institute, an industry representative body that also represents the largest oil and gas producers of the US as well as the likes of Shell, BP and Total, the drop in demand for oil because of the novel coronavirus pandemic was a blip.
(Adapted from BusinessWorld.com)