At first glance, pairing renewable energy with the oil and gas sector would seem an unlikely match. But behind the curtain, romance could be blooming.
From 2000 to 2010, U.S.-based oil and gas companies invested roughly $9 billion in renewable technologies (such as wind, solar, biofuels) — roughly one-fifth of the total U.S. investment in renewables over the same period. And as Canadians come to recognize that meaningful and cost-effective climate action may be the key to unlocking market access for oilsands, the appetite for an even-tighter union between these star-crossed industries could be just around the corner.
Fig 1. Shell launches solar/wind-powered autonomous well platform in North Sea
Act 1: A Match Made in Heaven?
In many places, the economic tide is turning in favour of renewables over fossil fuels. Wind power recently beat out new coal in Australia, and it’s becoming increasingly competitive with natural gas in Texas.
Developing renewable energy plays to the strengths of the oil and gas sector, which include energy market insight, technology know-how, mega-project management excellence, rock-solid credit and community engagement experience. Renewables offer a means for diversification in the face of volatile energy input costs, and a hedge against peaking oil demand in key markets. Renewable energy investments can also earn oil and gas companies favourable political capital among climate-conscious community members and decision makers.
The oil and gas sector’s key financial partners — institutional shareholders, banks and insurers — are also demanding aggressive carbon management. As we discussed in a previous post, finding cost-effective or indeed profitable ways to shift carbon off the balance sheet is becoming urgent, threatening to strand reserves and cut into market valuations. Under the revised Equator Principles, for example, project developers will increasingly be obliged to demonstrateconsideration of “cost-effective options” to reduce greenhouse gases as a condition for project finance. In short, oil and gas companies have both the opportunity and the imperative to invest in renewable energy.
Act 2: A Volatile Courtship
Oil and gas companies have been dabbling in the renewables business for a long time. In the wake of the oil shock of the 1970s, OECD governments established a range of incentives and subsidies for energy independence. This sparked a first wave of standalone renewable business ventures by the oil patch, focusing on solar, wind and geothermal energy. Today, Chevron is the world’s largest private producer of geothermal power, for example.
But government matchmaking proved a fickle friend. When public incentives for renewable technologies were withdrawn in the 1980s, most companies abandoned their alternative technology investment and refocused on their core petroleum business.
A second wave of oil and gas companies got into renewables in the late 1990s and early 2000s as momentum built around reaching a global climate agreement. When the global economic downturn hit and industrialized countries failed to match rhetoric with action, ventures in solar and wind by BP and Shell, among others, were sold off or quietly shuttered.
Today, ethanol blending mandates in the U.S., E.U. and Canada are driving a third wave of oil and gas ventures, with Shell now the world’s leading vendor of biofuels. But this wave too faces the possibility of reversal, given a growing backlash against widespread use of various biomass resources for fuel, and concerns about competition with food crops.
Act 3: Couples’ Therapy
The chemistry between oil and gas companies and renewables ventures is likely to continue to ebb and flow with the economics and politics of the times. Yet believing these two industries have tremendous opportunity for synergy, the Pembina Institute brought a group of leading oil and gas companies together with renewable energy industry advocates last year. The objective was to better understand the dynamics at play, and to help advance the integration of renewable energy opportunities into decisions made by the oil and gas companies.
Every relationship has hang-ups, and we uncovered some significant barriers in our research and discussions, including: