Global oil companies are no longer engaged in green
tokenism (like planting trees!) but preparing their companies to
transition to mixed energy companies which will also include electricity
utilities.
Increasing electrification of global economies is fast replacing fossil fuels.
Electrification,
justified on renewable energy, is facilitated by ever evolving
technologies which are fast driving unit costs down while enhancing
applicability.
Oil and gas are an ongoing casualty of electrification especially in areas of transportation and mobile machinery.
energy projects, guided mainly by
need to align their future business models with the ongoing global
transition from fossil fuels (coal, oil, gas ) to renewable energy
(mainly wind and solar). Renewables is a fast-growing investment sector
with full support from multilateral and commercial banks and equity
capital.
It is also common news these days for oil
majors to announce major budgetary cuts on new oil and gas projects.
Also ongoing are balance sheet write-offs of marginal oil and gas
reserves, which are deemed as already overtaken by the ongoing fossil to
renewable energy transition. These are the hard boardroom decisions
being taken by oil majors these days.
Global oil
companies are no longer engaged in green tokenism (like planting trees!)
but preparing their companies to transition to mixed energy companies
which will also include electricity utilities.
Increasing
electrification of global economies is fast replacing fossil fuels.
Electrification, justified on renewable energy, is facilitated by ever
evolving technologies which are fast driving unit costs down while
enhancing applicability. Oil and gas are an ongoing casualty of
electrification especially in areas of transportation and mobile
machinery.
The European oil companies (Total, BP,
Shell, Equinor) are far ahead in renewable energy investments, while
their American counterparts including ExxonMobil and Chevron are much
slower, explained mainly by lukewarm government energy and climate
change policies which over the past four years have emphasized more oil
and gas production. Will the November US elections result in a change of
these policies?
Total, the French oil major recently announced major investment
commitments to manufacture high performance electric vehicle (EV)
batteries in Europe. By partnering with auto manufacturers, Total is
planning to perpetuate its participation in motoring industry which is
gradually shifting from petrol and diesel to electricity.
Earlier
this year Total committed to several solar power investments in Spain
and a wind farm off Scotland. The company also bought an electric and
natural gas utility in Spain and is joining Shell and BP in expanding
its electric vehicle charging business.
Total is also
investing in energy storage systems which will enhance distribution of
intermittent solar and wind generated electricity. Shell will build a
vast offshore wind farm off Netherlands, while BP is investing in solar
power generation on UK waters using floating solar panels.
What
the oil majors are doing is to transfer vast research, engineering,
production and distribution skills and experience gained in oil and gas
projects and business to the renewable energy sector. A winning strategy
indeed as this excellence will ensure their dominance in the wider
energy sector.
Further, the weakening oil demand and
price since 2014 and which was accentuated by the Covid-19 pandemic , is
a wake-up call for multinational oil firms that sustainably of
shareholder values cannot be guaranteed in an oil and gas sector full of
volatility and uncertainty.
The European Union (EU) is
a major motivator of transition to green energy through effective
regulatory and fiscal policies, and this has kept the European oil
majors ahead in the renewable energy game. A win-win formula for climate
change goals. And China, as always, is matching every success point
achieved by Europe. Yes EU, oil majors, and China are emerging as the
“unlikely team” driving renewables and climate change goals.
What
does all the above mean for Kenya? There will be reduced appetite for
global oil majors to invest in new or existing oil and gas exploration
projects in Kenya, and even harder for banks to provide capital for oil
projects. Recently we saw African Development Bank refuse to participate
in funding the Uganda/Tanzania crude oil pipeline, arguing it is not a
renewable energy project.
Kenya will see increased
competition by renewable energy investors, especially in the quick-win
wind and solar. It should not surprise us to see a major oil company
investing in solar or wind energy projects in Kenya, to indirectly (via
KPLC) supply renewable energy for their “EV charging service stations
“to service electric vehicles. Yes, I bet this will be happening in five
to ten years.
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