Renewables could account for over one-fifth of total capital allocation for the most active oil & gas majors post-2030, according to a report by research and consultancy group Wood Mackenzie.
Wind and solar energy are poised to radically reshape the energy market over the coming decades, presenting a threat to legacy oil and gas operations, but also an opportunity to diversify and future-proof portfolios, Wood Mackenzie said in the report, Could renewables be the Majors’ next big thing?.
The case for the majors to build a renewables position is increasingly compelling. A niche energy market now, renewables will be much bigger by the middle of the next decade, as oil and gas demand growth slows, Wood Mackenzie said. The value proposition is also competitive versus some upstream investments, with long-life cash flow a key attraction.
The majors have taken the first steps to move beyond the core oil and gas business into wind and solar power, as well as energy storage. But most are still weighing up the options and have yet to make telling strategic moves in 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, according to the report.
Although it won’t change the majors’ portfolios materially for decades, investment in renewables presents a substantial opportunity. At current costs, achieving the same market share the majors have in upstream oil and gas would require USD 350 billion in wind and solar investment out to 2035, but this seems an unlikely scenario.
The majors are only just starting to sow the seeds for the radical changes that lie ahead. There are still question marks over scale. But wind and solar will be increasingly important strategic growth themes that cannot afford to be ignored as the majors plan to 2035 and beyond.