Due to shortage or limited availability of oil and gas, companies today are evaluating how they can harness alternative energy sources. The alternate fuel market is targeting hydro and thermal power plants, however solar and wind are catching up fast as preferred energy sources. There are still reservations about nuclear energy considering the risk of nuclear waste or manufacturing of nuclear weapons. However, strategies are shaping up to minimize the risk and maximize the profitability potential. Until then, sources such as solar and wind are being focused upon more and new sources like biofuels are explored extensively.
How will the shift towards alternate energy impact traditional oil and gas market?
There have been huge investments in the different alternate energy avenues by most of the big oil majors. These heavy investments on various alternate technologies by big oil majors and other oil companies around the world indicates a positive outlook towards the scope of clean fuel energy. However, the feasibility of its application is still questionable. Whether or not it will be able to meet the energy needs of the world while upholding its profitability is a question that is bothering the world.
Let us understand what the shift means for the companies in the energy sector.
Rate of employment
Among all renewable energy sources that have been studied, bio energy has been most influential. The fuel is created and transported within a confined space. The work is extremely labor-intensive and hence scope of employment increases. Hydropower and wind power will generate job opportunities during construction and project development phase. However, once the unit is commissioned only few operational staff will be required to perform the operational work.
Traditional energy is more expensive than renewable energy. If renewable energy can be produced on large scale, it can eliminate the gas shortage. Even other forms of renewable energy are much cheaper in comparison to traditional oil and gas sector. The cost benefits will be transferred to the consumers and they’ll be able save considerable amount on utility bills.
Improved Brand Image
It makes good business sense to make a move from traditional energy resources to renewable ones. The environmentalists have been arguing about the negative impacts of using and overusing the non-renewable source of energy. The shift towards alternate energy will boost the brand image of the traditional oil and gas company.
Higher market penetration and Mass access to energy
Due to dependence on fossil fuels which are non-renewable sources and expensive, a significant number of people in the world have no access to power. A chunk of people in Asian and Sub-Saharan Africa area are still using traditional biomass for cooking. However, if the alternate energy can completely replace the traditional oil and gas then it will have a deeper penetration into the market and majority of people will have access to it.
Ethical Investment Avenue
Renewable sector is considered as an attractive and ethical investment avenue for the ones who wish to invest outside traditional channels and are futuristic in outlook. The rising investment on alternate energy is impacting the job creation and community cohesion, which is again a positive move.
How the alternate energy is transitioning the oil and gas?
Big oil companies and other oil companies are making practical, well-researched, and steady approach towards renewable energy spanning from solar panels to genetically engineered algae. However, there are still many companies which are in research/experimentation phase and do have a concrete plan in place.
The pathway to clean fuel technology that operates with efficiency and profitability is getting paved. More than 100 countries in developing as well as developed nations have set a clean fuel target and are working towards it. The European Union has set a goal to meet its 20% energy requirements via renewable sources by 2020.
The world has acknowledged climate change and are working together to shift from carbon-intensive to carbon-neutral environment which might pave the way for generations to come.
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Headline crude prices for the week beginning 10 February 2020 – Brent: US$53/b; WTI: US$49/b
Headlines of the week
Global liquid fuels
Electricity, coal, renewables, and emissions
The final set of financial numbers for 2019, and for an interesting decade in terms of oil prices, came to an end as a tale of two parts. With the quarter characterised by stubborn crude prices despite OPEC+’s efforts and slumping gas prices amid a global glut, it was always going to be a challenging quarter. Most numbers from supermajors and majors came in as disappointing, but there were several bright spots where even the most optimistic expectations were exceed.
Shell, the first to report, set the tone for the cycle, showing a 48% fall in net profits from a 19% y-o-y drop in revenue. Citing weaker refining and chemical margins from slowing global growth with China and the US still locked in a trade war, the weaker results led Shell to scale back the pace of its US$25 billion share buyback programme. With only US$1 billion of shares to be bought back in Q12020 – down from the regular US$2.75 billion per quarter. Shell warned that the programme’s schedule was still at risk due to the softening global economy. It is likely that Shell will miss its deadline of completing the buyback by end-2020; investors were not impressed, and sent Shell’s share prices down to a two-year low in response.
The US supermajors came next, with both ExxonMobil and Chevron failing to meet market expectations. For ExxonMobil, revenue and net profits were both down by 5%, with the company blaming the ‘tough environment’ and depressed margins for its oil, gas, refining and chemicals businesses that will spill into 2020. Its financials, however, were boosted by the sale of its non-strategic assets in Norway, and noted that its oil extraction in Guyana was going ahead of schedule and could have a positive impact on Q1 financials. Unlike ExxonMobil, Chevron did not have strategic asset sales to fall back on. In fact, it went the opposite way. Having warned investors that it was preparing to take a major write-down on a collection of assets, including shale gas production in Appalachia and deepwater projects in the Gulf of Mexico, the final charge came in at US$10.4 billion. That wiped Chevron’s profits out, reporting a net loss of US$6.6 billion for Q419. Segment performance was stable, beating analyst expectations in some cases. But the pressure of low oil and gas prices will persist.
Things then got better. In the final results for retiring CEO Bob Dudley, who will be replaced by Bernard Looney, BP reported net profits of US$2.57 billion, exceeding even then highest analyst estimate. With a solid upstream performance and boosted by its in-house trading arm, BP bucked the negative trend, allowing it to raise its dividend level, a notion that it had rejected in the last quarter, while also completing a US$1.5 billion share buyback programme. Rounding off the quintet, Total also exceed the expectations of the market. Although the French company was also affected by slumping natural gas prices, along with strikes at its French refineries, record production boosted net profits to US$3.17 billion, almost unchanged y-o-y. The ramp-up of key natural gas projects, Yamal in Russia and Ichthys in Australia, along with the start of the Egina and Kaombo crude oil projects in West Africa, raised upstream output by 9% over a quarter where all other rivals saw their production decline.
When the decade started in 2010, crude oil prices were riding high at US$80/b. It would soon peak at nearly US$120/b in 2011, stay elevated for 3 years, halving by end-2014, slumping down to US$30/b in 2016 before beginning a gradual recovery. This 10-year see-saw ride has been mirrored in the financial performance of the energy supermajors. With a new decade starting with plenty of uncertainty, the fiscal discipline adopted since 2015 by the supermajors will be key to supporting their business activities going forward in troubled times.
Supermajor Financials Q4 2019: