The oil and gas industry is a global powerhouse. It is considered to be the largest sector in the world, employing hundreds of thousands of workers worldwide and generating billions of dollars globally each year.
The energy sector has three key areas; upstream, midstream, and downstream. Upstream is the exploration and extraction of crude oil and natural gas reserves, while midstream entails the transportation, storage, and processing of oil and gas. Downstream refers to the process of refining, distributing, and selling these products to the consumer.
The Energy Act 2011 (EA 2011) includes provisions regarding upstream petroleum infrastructure and downstream gas processing facilities, such as the necessary acquisition of rights to use (s 82) or modify upstream petroleum infrastructure to increase their capacity (s 84) and the acquisition of rights to use gas processing facilities for downstream purposes (s 92).
The industry is associated with environmental disasters. Furthermore, the prices of the two fuels, especially oil, are highly volatile with fluctuations directly impacted by political and socio-economic events. Nevertheless, more than 100 countries across the world produce oil and/or natural gas and the two fuels are expected to maintain their importance for many decades to come.
What is the Renewable Energy Industry?
The renewable energy industry focuses on renewable technologies which use natural energy such as wind, wave, marine, hydro, biomass and solar to make electricity.
The UK is the first major economy to pass a net-zero emissions law, which can be found in the Climate Change Act 2008 (CCA 2008), with a target to bring greenhouse gas emissions to net-zero by 2050, while encouraging investment in low carbon technologies. The UK government will also set the world’s most ambitious climate change target in law to reduce emissions by 78% by 2035 compared to 1990 levels.
Official data from the Department for Business, Energy & Industrial Strategy has revealed that renewable energy made up 47% of the UK’s electricity generation in the first three months of 2020, breaking the previous quarterly record of 39% in 2019. The substantial increase in the UK’s total renewable energy output was mainly driven by a growth in electricity generated by solar panels and windfarms which climbed by more than a third over 2019.
Further, the world’s renewable energy industry grew at its fastest pace since 1999 last year, despite the disruption caused by the Covid-19 pandemic and according to the International Energy Agency (IEA), may have established a standard growth in the future. The renewable energy industry has become far larger in the last two decades. This exceptional increase is set to become the new normal for renewable energy as it continues to expand in the years ahead.
How are Oil and Gas Companies managing the transition to Renewable Energy?
The oil and gas industry is facing increasing demands to explain the contributions that they can make to reduce greenhouse gas emissions and to achieve the goals set out in the UN Paris Agreement and by the UK Government in the CCA 2008. As Dr. Fatih Birol, IEA Executive Director states, ‘no energy company will be unaffected by clean energy transitions. Every part of the industry needs to consider how to respond. Doing nothing is simply not an option’. Therefore, what strategies, plans and targets are being implemented by energy companies?
Royal Dutch Shell’s green energy targets are among the most ambitious in the oil and gas industry. However, the Anglo-Dutch firm was at risk of falling short on its plans to invest in green energy projects by the end of 2020 as the sum was well below the $4bn and $6bn target. In February 2021, Shell accelerated the drive for net-zero emissions with a customer-first strategy and in April 2021, presented its Energy Transition Strategy publication to shareholders for an advisory vote at the company’s AGM on May 18th 2021. Further, Shell claims to fully support the goals of the UN Paris Agreement and the UK Government’s ambitious target of net zero emissions by 2050.
Shell is the first energy company to submit an Energy Transition Strategy to shareholders and will be publishing an update every three years until 2050. Also, every year, starting in 2022, they will seek an advisory vote on their progress towards their plans and targets. Shell is clearly trying to transform into a provider of net zero emissions energy products and services. Shell acquired UK-based electricity and gas provider First Utility, as well as Europe’s largest electric vehicle charging company NewMotion.
Nonetheless, total carbon emissions for the company peaked in 2018 and oil production peaked in 2019. One can question why this occurred and if it is likely to happen again in the future, despite these strategies made? This seems to have been rectified as in February 2021, Shell announced that it was cutting back on oil production by 1-2% per year and is speeding up their timeline to reduce the net carbon intensity of each unit of energy it produces, showing their commitment to achieving the target of net zero emissions by 2050, which is mandated by law in the UK under the CCA 2008, s1.
BP was the first oil major to commit significant capital to renewable projects, such as wind and solar from 1980 onwards. BP’s ambition is to become a net zero company by 2050 or sooner and to help the world get to net zero. BP has five aims to achieve net zero as a company, five aims to assist the world to reach net zero and five aims to improve people’s lives. Further, BP has outlined their 2030 aims which includes low carbon electricity, integrated gas, hydrogen and carbon capture, utilisation and storage (CCUS) and bioenergy.
However, at BP’s AGM in May 2021, a resolution from a climate activist group demanding BP set tougher emission reduction targets was supported by only 20.6% of shareholder votes. Although the level of support at the company’s AGM meant that the resolution was rejected, it was significantly higher than the last climate resolution in BP’s AGM in 2019, which won 8.4% support, pointing to growing investor pressure.
Nonetheless, BP is pivoting from an international oil company to an integrated energy company. In March 2021, BP’s proposed project in Teesside would be the largest hydrogen project in the UK and in June 2021, the energy company opened the UK’s first fleet rapid charging hub on Park Lane in London and intends to open many hubs in London and other European cities.
BP’s green energy targets will be tough to meet as the company will need to invest tens of billions of dollars over the next decade and may have to accept lower returns than it can get from oil. Despite this, the need for the major transition from oil and gas to renewable energy is required if the target of net zero emissions by 2050 set out in the Paris Agreement and in the CCA 2008, is to be met.
Notably, Total will be rebranded as TotalEnergies, a shift that shareholders voted overwhelmingly in favour of and approved the firm’s environmental goals. Total’s aim is to reach carbon neutrality by 2050, in part by investing in more solar and wind projects.
ExxonMobil’s targets only apply to its own operations and it seems as though US producers lag far behind European energy majors. However, ExxonMobil and Global Clean Energy have expanded their five-year agreement to increase ExxonMobil’s purchase of renewable diesel up to 5 million barrels per year, renewing their commitment to the Paris Agreement.
The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 requires all UK quoted companies to report on their greenhouse gas emissions as part of their annual Directors’ Report. This obligation holds companies to account for their emissions. However, companies need to outline strategies, plans and targets in order for them and the world to achieve the target of zero net emissions by 2050. Major oil and gas companies such as Royal Dutch Shell, BP, Total and ExxonMobil are undergoing a significant transition from oil and gas to renewable energy and appears to be committed, despite some setbacks, to achieving their targets and the target of net zero emissions by 2050. This transformation will still take longer than many would wish but the pace of change will outstrip the current conventional forecasts. Ultimately, this would create a sustainable future energy system for the world.
Can Renewable Energy ever be like Oil and Gas?
The transition from oil and gas to renewable energy has barely begun. Scaling up renewable energy to match the scale of today’s oil and gas industry is a huge undertaking. However, even though it is desirable and achievable, it would not be quick and easy.
There are various benefits to using renewable energy. It reduces your carbon footprint, there is a potential infinite energy supply, it is not subject to price fluctuations and money can be saved depending on the energy resource, because of reduced costs. However, there are some drawbacks. Renewable energy is weather-dependentcooperation, meaning that no energy is produced depending on the climate. Also, it may require a large sum of initial investment to cover the cost of development apart from it being visually unappealing for some individuals and substantial levels of noise can be generated.
Nonetheless, there are pros to the oil and gas industry. Oil and gas is readily available, has a wide range of uses, can be stored easily and is reliable as it can be used as a constant supply of energy. Arguably, the environmental costs may not be worth it as oil and gas produces toxic pollution and oil spills are possible. Drilling for oil and gas is dangerous and hazardous. It is a non-renewable resource and it takes time to explore and find.
Due to the horrible environmental disasters which could occur within the oil and gas industry, there are several requirements and regulations in place. The Merchant Shipping Act 1995 implements in the UK the OPRC Convention which aims to increase the level of effective response to oil pollution incidents and to promote international co-operation. It applies to ships and offshore installations and requires operators to have Oil Pollution Emergency Plans (OPEP) which needs to be approved. The Merchant Shipping (Oil Pollution Preparedness, Response and Co-operation Convention) Regulations 1998 introduced into UK law, the oil spill planning requirements and legal oil spill reporting requirements of the OPRC Convention. These Regulations were recently amended by the Merchant Shipping (Oil Pollution Preparedness, Response and Co-operation Convention) (Amendment) Regulations 2015.
Renewable energy is not the same as oil and gas and may never be. However, this is preferable as both brings its own advantages and disadvantages. Rightfully, in order to meet the target for 2050, renewable energy is rapidly becoming an important part of the global energy mix.
Conclusion
Renewable energy is taking an increasingly important role. The oil and gas industry would not be abandoned anytime soon but several oil and gas majors such as Royal Dutch Shell, BP, Total and ExxonMobil are expanding their businesses into the renewable energy industry. If the UK and the world is to meet the target of ensuring that the carbon amount for 2050 is at least 100% lower than the 1990 baseline, which is enshrined in law in the CCA 2008, s1 and the UN Paris Agreement, the transition from oil and gas to renewable energy must continue. If not, there will be devastating consequences, not only for the environment but for the global economy as agriculture, infrastructure, tourism, human health and productivity would suffer.
The question remains however – how do these companies transform their businesses using only renewable energy within the foreseeable future, in order to protect the environment, when oil and gas remains an essential commodity which generates revenue and drives the expansion and success of these companies?
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