June 11, 2025 • 29 mins
The oil and gas sector invested $33.4 billion in the energy transition last year. Yet while this figure suggests that decarbonization is a serious consideration for some fossil-fuel majors, just seven companies accounted for 85% of the sector’s low-carbon spend in 2024, and only 13 of 41 companies assessed raised low-carbon investment as a share of capex. So what are the different strategies oil and gas companies are pursuing when it comes to the energy transition? And why would a fossil-fuel company invest in clean tech in the first place? On today’s show, Tom Rowlands-Rees is joined by Claudio Lubis, an associate from BNEF’s downstream oil and chemicals team, to discuss findings from his note “Oil and Gas Energy Transition 2024: Clean Capex Jumps.”
Complementary BNEF research on the trends driving the transitions to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com
Links to research notes from this episode:
Oil and Gas Energy Transition 2024: Clean Capex Jumps - https://www.bnef.com/insights/36589
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This is Tom Rowlands Reese and you're listening to Switched
on the podcast brought to you by BNF. Energy transition
investment from the oil and gas sector rows six point
six percent last year to reach thirty three point four
billion dollars, while spending on low carbon technologies as a
share of CAPEX also saw arise, reaching seven point six percent.
While these increases may suggest that decarbonization remains an aim
(00:20):
of fossil fuel majors, when we dig into the figures,
the pictures become more nuanced, with seven investors accounting for
eighty five percent of twenty to twenty four's low carbon
spend and only thirteen of the forty one firms we
assessed raising low carbon investment as a share of capex.
So what lies behind the varying strategic approaches of oil
and gas companies, Which companies are increasing their focus on
energy transition investment and what impact has the Trump Administration's
(00:43):
review of clean energy tax credits had. Today I'm joined
by member of our Oil team, associate Claudio Lubis, and
we discuss findings from his note Oil and Gas Energy
Transition twenty twenty four Clean CAPEX jumps, which BINYEP clients
can find at BNF go on the Bloomberg terminal or
on com. All right, let's get talking about oil and
gas energy transition investment with Cloudio Claudio. Welcome to the podcast.
(01:17):
Is this your first time unswitched on? It is? Thank you.
So today we're speaking specifically about a report you recently
published that I think combines a lot of the things
that are part of your BNF analyst DNA, the Oil
and Gas Energy Transition Investment Trends for twenty twenty four.
Can you tell us a little bit more about the
report and yeah, what it's all about.
Speaker 2 (01:38):
Well, thank you, Tom, and it's great to be here.
This report essentially collates and analyzes the investment going into
the energy transition for forty one of the large publicly
listed oil and gas companies around the world up until
twenty twenty four, and the energy transition related sector here
pertains to the typical low carbon areas that BNF covers,
(01:58):
ranging from sol when technologies you know, other renewable technologies,
advanced transport which revolves mostly around electric vehicle charging, all
the way to the relatively more novel areas like carbon
capture and storage, hydrogen sustainable plastics and even renewable fuels.
Speaker 1 (02:16):
So so everything that we would call green basically, yeah,
from a climate perspective exactly.
Speaker 2 (02:22):
And just to quickly add on here that this is
pretty similar, if you want to view it this way,
to the Global Energy Transition Investment Trend Report, which is
an annual flagship from BNF looking into how much the
real economy invests in these so called green sectors. Except
for this report, it specifically focuses on the large oil
and gas players.
Speaker 1 (02:41):
And I'm right in assuming that this is and we
can dive into this a bit deeper in a moment,
but this is still something. I mean, they're oil and
gas companies, so presumably this is something of a sideline
for them compared to they're still investing in their core
business as well. Right, So in this report, we're not
trying to suddenly say that oil and gas companies are
now green. It's more just there is this part of
(03:03):
them that is pushing into these new areas.
Speaker 2 (03:07):
Absolutely, And if I could go into a very high
level numbers just to basically elaborate or what you meant here,
what we found was that off these forty one companies,
there are total capital expenditures, which includes you know, everything
they invested upon, ranged around four hundred and forty billion
dollars last year, which is, you know, a four percent
year on year increase, but at.
Speaker 1 (03:26):
The same across all forty one companies.
Speaker 2 (03:28):
That is right, yes, but if we look into the
external investment by these group of companies into the so
called low carbon sectors, we saw that annual figures actually
rebounded by around seven percent to hit over thirty three
billion dollars. So this saw the share of the energy
transition investment by these companies grew marginally to around seven
(03:49):
point six percent, up from around seven point four percent
the previous year or in twenty twenty three. So the
energy transition investment made by these companies, yes, it grew,
but at the same time it's still or quite a
minor portion of the group's overall investment figure.
Speaker 1 (04:04):
It's really interesting what you've just mentioned for a few reasons,
so I just want to make sure that we get
the full picture. So overall investment by these companies rose
in twenty twenty four in everything, but it rose slightly
more in proportional terms into the green stuff. Is that
what you're saying exactly?
Speaker 2 (04:22):
So in terms of the overall CAREBAX in twenty twenty four,
it grew at around three point five percent, But when
we look into specifically the energy transition related investment, that
actually grew almost seven percent.
Speaker 1 (04:34):
You know, you mentioned our Global Energy Investment Trends report.
The other thing I was thinking about is our ratios,
and we have this number for every dollar invested in
fossil fuels it has to before going into green energy.
So here it's something like zero point one, So I
mean unsurprising they're quite far off of that ratio. What
(04:56):
I find actually just interesting is and maybe slightly hopeful
from environmental perspective, is that it's not zero. And because
these companies have a lot of money and they can
move the needle if they chose to dive into an area,
is that a fair thing to say? Yeah?
Speaker 2 (05:09):
Absolutely, I think the four to one ratio which you've mentioned,
which is based on our research across different Parris aligned
net zero and one point five degree aligned climate scenarios,
that represents the whole economy, or the entire global real economy,
whereas this research focuses specifically on the oil and gas company,
so they're definitely not there yet.
Speaker 1 (05:27):
In terms of the four to one. But you know,
and in fairness, I don't think we should ever expect
them to make it there because they're specifically no, I mean,
and that's I think the point I was trying to
make is that at least they're on the map from
a green perspective. You hope they'll invest more in these areas,
but it's not insignificant, I suppose. I mean, thirty three
billion dollars is a lot of money, whichever way you
look at it. Precisely. Yeah, one of the things you
(05:49):
talked about in the report. I mean, you look at
these forty one different companies, and they're not all generic.
You know, there's quite a lot of difference that you
see between Well, firstly, what kind of companies they we say,
oil and gas companies. Those come in many flavors and
you know, many different ownership structures, positions within the value chain.
But then also in terms of you know, some are
(06:10):
investing maybe more, you know, especially if we're thinking in
terms of these ratios, So who's who's leading the way here?
What types of companies are leading the way?
Speaker 2 (06:18):
Yeah, that's a that's a great set of questions to answer.
The first part of that questions within Within the forty
one companies that we covered, we try to encapsulate an
entire range of the oil and gas companies. So this
revolves around let's say integrated oil majors. So integrated companies
are those that covers the entire value chain of the
oil and gas industry, ranging from upstream or production all
(06:38):
the way to marketing and downstream so you know, the
processing of the fuels and also selling it towards the
end users. We also have those that are very focused
on the downstream site, so most likely revolving around refineries.
We then have those that focus on exploration and production,
essentially those that focuses on the upstream sectors or getting
the oil out the ground, drilling it and then producing it.
(07:00):
And we have other companies who also fall within the
integrated majors, but more towards the national oil companies rather
than the integrated big oil that we often hear like Shell,
BP Total. And to your second point regarding who's been
leading within this avenue per se, I think it's worth
noting that each of these forty one companies, they have
(07:20):
different financial capabilities, they're different to one another, and one
way we can look at this or one way that
we've been looking at this is to understand and quantify
how much clean investment they're making as a share of
their overall capital expenditures. And as a key takeaway or
as a key high level conclusion is that refiners and
the integrated oil majors in Europe essentially sit amongst the
(07:44):
leaderboards here now when we look into the integrated oil
majors in Europe, so this includes the big oil companies
you often hear specifically BP, Total Shell, any equinor, but
we also include GULP and repsol within this categorization.
Speaker 1 (07:59):
These companies have been.
Speaker 2 (08:00):
Invested somewhere around ten to over twenty percent of their
overall investment figures into clean technologies, and a part of
this stems from mainly the fact where they're based there
is arguably a structural decline and demand for the fuels
that they sell. But at the same time, Europe's also
home to quite a lot of stringent climate policies, so
de carbonization for these companies has become an integral focus
(08:22):
over the past few years.
Speaker 1 (08:24):
Can I just just want to dig into one thing
about the some of the European oil majors because you know,
in the figures you were just quoting were for twenty
fifteen to twenty twenty four, and so there has over
that decade been a trend of those companies investing more
and more in green technologies. But also there's been news
made with some of those companies pulling away. So a
(08:45):
question I have is, how did those companies change, say,
in twenty twenty four compared to previous years. Is there
proportional investment in green technology still on the rise, or
has that trend reversed.
Speaker 2 (08:58):
When we look at it at a firm level in
between time periods. One interesting thing that we found, and
I'm going to speak to the entire companies that we
analyzed here, is that despite the overall high level figure
increasing year on year in terms of absolute values, we
found that less than half of the companies actually increased
in twenty twenty four the allocation of their clean spend
(09:19):
relative to previous years. And for these thirteen companies per
se that actually increased year on year, they're actually mostly
led by those who's already been plowing a lot of
clean capital. And in terms of the integrated European majors,
these are equinor Any and total energies. On the other hand,
we saw that a SHELL, for example, based on our numbers,
put back on the allocation of clean spend in twenty
(09:42):
twenty four when you compare that to their previous years.
Speaker 1 (09:45):
So within that group, we're starting to see a bit
of a fracturing of like maybe a second tier emerging,
like not everyone is keeping pace with the rest of
the pack precisely. Yeah, got it. Okay, So talk about refiners.
Tell us a little bit more about about their activity
and space. Yeah, so refiners.
Speaker 2 (10:02):
When we think about refiners and what their intentions are
to decarbonize, I think it's mostly driven by the fact
that they face a very uncertain future in terms of
oil demand. I mean, if you look into the different
scenarios around the world made by different agencies, we have
very contrasting pictures of what the world will look like
when it comes to oil consumption. So this has prompted
quite a lot of refiners to actually rethink and reject
(10:24):
a lot of their strategic ventures when it comes to decarbonization.
And we've seen that refiners have often opted to pivot
into something that they share technological synergies with, for example,
renewable fuels, Now, when we talk about the leaderboards here,
essentially who's leading when it comes to the share of
capital investment for clean technologies. Refiners are in the leaderboard,
(10:46):
and I want to pick out two companies that kind
of stood out. So these are ESK Innovation and also
neste who's invested at least over the past decade over
fifty percent of their overall CAPEX into the green technologies. Now,
for Estay, most of these have gone into renewable fuels production.
They're one of the earliest movers into that field, whereas
for ESK Innovation it pertains more to battery manufacturing. But
(11:09):
at the same time we also see that other refiners,
especially the pure players in the US, those that focus
most lyon just refinery and you know, producing fuels out
of crude, such as Phillip sixty six, Marathon and Valero,
have also invested a sizeable amount of their total care
PACs into green technologies.
Speaker 1 (11:27):
That's so interesting, I mean with nest A and sk Innovation,
and actually it's more than half of their spend. And
like you say, it's into areas that are complementary. Because
I think of refiners as being companies that specialize in
doing things with molecules, and so moving into renewable fuels,
moving into batteries seems really consistent. I guess I've got
(11:48):
a follow up question, but just before we do, for
those listeners who are less familiar with this space, sk
Innovation and nest A, where are they based in the world,
Because I'm right, I'm saying refiners tend to be a
lot more local than say maybe some of the integrated
or companies.
Speaker 2 (12:03):
Yeah, so in terms of where they're based, escal Innovation
is based in South Korea, and.
Speaker 1 (12:07):
So the battery linkage makes a lot of sense.
Speaker 2 (12:10):
Then precisely, and Nesta is based in Finland. But given
that they're one of the earliest movers into the field,
especially from a refining perspective, going into or diversifying into
renewable fuels, NESTE has actually expanded as footprint quite globally.
I would say they've have now a refinery in Rotterdam
and also a refinery in Singapore that produces sustainable aviation fuel,
(12:33):
so they have that global footprint.
Speaker 1 (12:35):
A question I have, and I suppose it's impossible to
answer this for sure because it involves a parallel universe
that we don't have access to. But it'd be interesting
to get your opinion anyway, because it'salking about those companies.
You know, more than fifty percent of what they've been
investing in is in green technologies. I suppose in the
parallel universe where they weren't doing that, were they investing
(12:55):
more than they were in this universe into their core
oil and gas business or were they just investing less overall.
I suppose what my question is really driving at is
for those companies, does this represent a move into an
expansion into something new, or a move away from oil
and gas? I think somewhere in between the two.
Speaker 2 (13:15):
I think, especially for refiners whose business model is not
integrated across the entire value chain, and especially when you
invest over fifty percent of your KPEX, that signals quite
a pivotal, slash abrupt change in where they want to
go strategically. And we can definitely see this when it
comes to nest Day, for example, wanting to be a
specialized renewal fuels producer when initially they started off as
(13:37):
a traditional refinery.
Speaker 1 (13:39):
So we talked about some of the companies that have
been leading in terms of investment, particularly as a fraction
of their overall investment who has been lagging both over
the last decade and in twenty twenty four.
Speaker 2 (13:51):
Specifically, when it comes to the laggards per se, there
are some companies that they invest quite a decent amount,
somewhere between three to five percent of their CAPEX into
green technologies. These are the other integrated majors like Eggs
and Mobile, Chevron and Petronas for example. But I think
the notable laggots here again if you look at the
last ten years, mostly pertain to the remaining integrated oil majors.
(14:14):
So the national oil companies who at times serve to
the interests of their nations, and also exploration and production companies.
Now exploration and production companies, they've invested very little or
no investment into clean technologies as a share of their
overall KPEX. And a part of this actually pertains to
the fact that for exploration and production firms, their main
(14:34):
goal is to pump oil out of the ground and
sell it at a profit, essentially to boost their short
term profitability.
Speaker 1 (14:41):
It seems to me that from what you're saying, I mean,
let's start with national companies, would it even be realistic
to expect them to be investing a lot into green technologies,
because you know, a state owned company typically is there
to serve a singular purpose for the benefit of society,
and if the government wanted investment into green technologies, they
would probably have some other organization or arm of the
(15:04):
themselves do that. So is it realistic to ever expect
national oil companies to be boosting their expenditure in green technologies.
I suppose what I'm saying is am I being fair
like we should have low expectations for these companies just
from looking at the way they're owned.
Speaker 2 (15:19):
Yeah, I think that's a that's a fair point. I'm
going to frame it in a different way here, and
I think a lot of the pressures when it comes
to decarbonizing, for example, has fallen more or the need
to decarbonize has fallen more into the integrated oil majors.
So for national oil companies again serving the purpose of
what their nation wants. And if we see over the
past few years, especially with a lot of geopolitical events
(15:41):
unfolding and also the post pandemic rebound which you know
Caesar increase in demand, we've seen energy security becoming quite
a buzzwords. With some of these national oil companies increasing
their production given that a lot of them are base
in fossil fuel exporting countries. I don't want to speculate
on their individual strategies, but I think you do make
a fair point.
Speaker 1 (16:00):
And I suppose, I mean, I think you laid it
out really well. For the E and P companies, they
also have a singular purpose, I suppose generally speaking, are
they they're much smaller than the integrated oil majors. Is
you know, they're sort of set up to do one
thing and one thing only so and that they aren't like,
you know, they're not spread across the value chain, and
so we shouldn't necessarily expect that flexibility from them. Is
(16:23):
that Is that fair? Particularly in a in a world.
At one point in time before the pandemic, you know,
particularly in the US, they it was just all expand volumes,
invest more and into expanding their production. Now they are
really being forced in a very competitive market to eke
out a margin. So yeah, is it ever? Are we
ever realistically going to see those companies investing in the
(16:45):
energy transition? Yeah?
Speaker 2 (16:46):
I think when it comes to those companies investing in
the energy transition, there are always possibilities for them to
increase the investment over the next few years. And if
we look into just exploration and production companies and how
much they've been investing into let's green technologies, both as
an absolute value and as a share of their overall capex,
we've seen that since twenty twenty two, these figures have
(17:07):
grown very slowly. But you're right, I think these exploration
and production companies their main goal is to focus more
on the production site and to extract the barrels at
minimal costs, so exercising capital efficiency.
Speaker 1 (17:20):
And they tend to be quite localized as well. I
also thinking they don't necessarily have the footprint like geographically
to benefit from green investments. Is that fair?
Speaker 2 (17:30):
Yeah, their footprint is definitely much smaller than if you
compare to the integrated oil majors or even some of
the national oil companies. Again, if we look into the US,
for example, we do have a lot of exploration and
production companies, but they're mostly very localized within a certain
basins or so, or within the US itself.
Speaker 1 (17:46):
So I know we've been speaking in terms of investment
in the energy transition or into green technologies in abstract
dollar terms, but let's talk a little bit about you know,
what the money is actually going into.
Speaker 2 (17:59):
Yeah, So if we look into just twenty twenty four,
we saw that WIN Energy, including both onshore and offshore
let oil and gases clean investment at around twelve billion
dollars or somewhere around that number. So focusing on the
past year, most of the investment, or the largest part
of the investment clean investment went into Win technologies at
(18:19):
over a third of the overall figure.
Speaker 1 (18:21):
But I want to note here.
Speaker 2 (18:22):
That that's largely underscored by financial close of Equinor's Empire
Win one project in New York very late last year,
which was valued at around five billion dollars. And this
project received a halt a stop work order a stopwork
order by the Bureau of Ocean Management in late April,
only for it to be reinstated back and for works
(18:43):
to continue a month later. But Win Energy has been
the top technology when it comes to oil and gases
clean investment in twenty twenty four, and this is closely
followed by Solar coming in second place with an investment
figure of around nine billion dollars, which is around twenty
five twenty six percent of the overall investment figure. And
this has been led by PetroChina and who closed three
(19:05):
of the largest spending deals within that sector are almost
all three billions altogether.
Speaker 1 (19:09):
I mean, I'm just doing some quick mats here. That's
almost half of it is in wind and solar exactly
then the other because also, I mean we talk a
lot here and you mentioned in neuroport investment into two
molecules versus electrons, So is the other approximately half going
into molecules to an extent.
Speaker 2 (19:28):
Apart from wind and solar. In twenty twenty four, the
other sectors that saw let's say sizable investment were renewable fuels,
energy storage, and hydrogen. So yeah, a lot of clean
molecules there as well. And specifically we saw that investment
into energy storage and hydrogen increased year on year. Now,
for energy storage this is mostly a factor of sk
innovation driving the investment figures, whereas for hydrogen this was
(19:52):
mainly attributed to Woodside's acquisition of although carbon ammonia producer
OCI in September last year at around two point five
for billion dollars. Now, just to quickly note that Woodside Energy,
which is based in Australia, they have decided to diversify
and expand their portfolio coming from just focusing on the
upstream sector, got it.
Speaker 1 (20:12):
So it is quite diverse. It's also, interestingly, it's quite
lumpy some of this investment. For those of you not
familiar with the term lumpy, we just mean that there's
one or two really big investments that, you know, if
they hadn't happened, or if they happened next year, it
kind of distorts the way your chart looks. Your chart
looks a bit lumpy. I'm kind of curious to know
because we had this whole you know, conversation about you know,
refiners versus the integrated oil companies being two of the
(20:34):
biggest categories. Do you see a difference in the types
of things that refiners are investing in versus the integrated
oil companies.
Speaker 2 (20:42):
Yes, so when it comes to the integrated oil companies,
and I'm going to focus a little bit on the
super majors. Now, we did group these companies into again
these broad categories. So super majors you can think of
it as like the big oil that you often hear
so BP Total Shell equinor alongside Chevron Exon in the US.
(21:03):
So for the super majors, a lot of the investment
have gone into wind and solar. And it's also the
fact that these big oil companies, the super majors, they
were one of the earliest movers into the decobonization ventures. Now,
for refiners, a lot of this pertains to renewable fuels
and energy storage. Now, for renewable fuels, we can see
that Neste for example, have led on this field as
(21:23):
previously mentioned. And for energy storage this has mainly been
led by investment by Esky Innovation. And we have seen
a smaller amount of investment by refiners going into CCS
which stands for carbon capture and storage hydrogen as well,
and this is mainly pertaining due to their operational synergies
that exist. So for ccs it abates the emissions of
(21:43):
their production, whereas for hydrogen, refiners often utilize hydrogen for
their hydro cracking and hydro treating processes, for example removing
impurities from their diesel produced.
Speaker 1 (21:53):
So I can see, particularly from the point of view
of those fields where we've seen refiners going in that
a lot of the motivation might be, you know, these
are new areas, there are synergies that are well positioned
to benefit. We're talking about the super majors investing a
lot into wind and solar. There's no apparent obvious synergy.
Is this just so I suppose your question is what
(22:14):
is the motivation? Is it just purely they've got the
money you need to invest in something, and this is
something that is a diversification, a hedge, you know, depending
on the future of how energy is produced and consumed
on the planet. What is the motivation for those super
majors investing in wind and solar.
Speaker 2 (22:31):
Yeah, that's a great question. Given that these super majors
were one of the earliest movers into the energy transition,
Solar and wind are some of the most mature technologies
and they've also seen some of the steepest cost reductions.
So again based on our LCOE studies or levelized cost
of energy studies, if we link this to so something
that's forward looking, then the pivot into wind and solar
(22:52):
or in fact any other renewable energy technologies at the
end of the day, from a decarbonization perspective, electrification and
you know, the utilization of renewable energy, they play a
crucial role. And if we look into our New Energy Outlook,
which is one of our annual publication that looks into
the evolution of the global energy systems in the mid
to long term. And let's just take their base case scenario,
(23:14):
for example, the economic transition scenario, which assumes no new
policies are an exted. Then we see that solar and
win in question collectively account for almost twenty percent of
the global primary energy demand by twenty fifty and that's
up from just over one or two percent last year.
So I think that partly answers the pivot to why
they go into solar and wind. And yeah, at the
(23:34):
same time, these assets also help companies reduce the carbon
intensity of the energy that they produce, which is quite
a key to carbonization metric for these firms.
Speaker 1 (23:43):
Got it okay, So it can be integrated into their
overall either operations are accounting for producing the cleanest.
Speaker 2 (23:51):
Barrel precisely, and a lot of oil companies now and
they focus on energy transition related metrics often go by
the energy intensity per barrel they produce.
Speaker 1 (24:00):
And you mentioned the Empire Wind offshore wind project in
the US and how it's had a bit of a
bumpy ride with this new administration and represents a major investment,
and historically offshore wind has been one of these areas
where we've seen the super majors we've into, particularly leveraging
some of the synergies they see there questions not really
about offshore wind. It's really about this new administration in
(24:20):
the US, which is considerably less supportive of energy transition
technologies than the previous administration. How do you think this
impacts the overall picture that we're seeing, And in particular,
when we're sitting here in a year's time talking about
your report for twenty twenty five, what do you think
might be some of the things we've seen that have
(24:41):
really changed because of the sort of the political winds
that are blowing right now.
Speaker 2 (24:46):
It's quite hard to say, because again this is more
of a historical accounting exercise just to give an overarching
view of what the sector has been doing. And there's
a lot of uncertainties looking ahead, especially given, like you say,
the new administration. We've already seen that for the Empire
Wind farm in New York that you know, over the
first five months.
Speaker 1 (25:03):
Of the year has gone through a roller coaster.
Speaker 2 (25:05):
And also if we take an example last year, just
in terms of the global picture or the real economy,
for let's say ccs in the US, the annual investment
actually declined, you know, thirty four percent year on Europe
because companies were waiting for the Internal Revenue Services to
release guidelines you know, for incentives under the forty five
Q text credit. So definitely policy is a factor here
(25:26):
that you know, bruised into the uncertainty looking ahead. But
it's also how many of the factors, such as geopolitics,
because that is that will affect a lot of the
strategies by the national oil companies, or even just oil
demand in general, whether it keeps an increasing whether we
start to see a more pronounced decline in regions, because
essentially a lot of the strategies by these oil and
(25:47):
gas companies do take into account the differing views or
what they anticipate oil demand to be. So there's a
lot of factors here, geopolitics, policy, oil demand. And one
thing I also want to add is I think most
poorly is the profitability right oil and gas companies at
the end of the day, they want to be profitable,
and we've seen so far at the start of the
year a couple of a couple of statements made by
(26:09):
some of the super majors, specifically bp shell equinor hinting
at a little bit of a retraction or a strategy
reset in terms of their green initiatives and in fact
wanting to produce more oil and gas or at least
invest more into oil and gas. Now, if we look
into the returns perspective, and just to give a side
note here, this will become a key factor into the
(26:30):
trajectory of flow carbon investment because right now, despite having
steep cost reductions, let's say, for WHEN and Solar, when
we look at their returns or their internal rate of
returns the IRR, we see that Let's say, if we
take the super majors, for example, they expect the IRS
for Solar and WIN to hover somewhere around you know,
seven to eight percent or even below that, whereas the
(26:51):
returns that they expect from their major traditional core business
upstream marketing and downstream sits over thirteen percent. So the
returns from the traditional hydrocarbon business expected by these companies
still trump that of the clean sectors or clean power
let's say, So this will be this will definitely be
a factor going ahead which might influence whether future investment
(27:12):
into lower carbon sectors, specifically renewable power increase or decline,
and that.
Speaker 1 (27:17):
I suppose all ties back to this question of what
is the future of oil demand. I suppose because they
won't be getting such high returns from their core investments
if that is declining. Yeah, precisely, got it. I mean
it's interesting. I mean it sort of speaks to both
they are major players in this story. But also you know,
there's a question of how much agency is there really,
(27:38):
you know, are they just also responding to the economic
signals that the global economy at large is.
Speaker 2 (27:44):
Producing precisely, And I think there's been a renowned focus
just within the energy sector at large, to focus less
on the long term and focus a little bit more
on the shorter term outlook. So definitely whatever short term
market fluctuations will definitely be a factor in how these
companies strategize and also allocate let's say, clean investment.
Speaker 1 (28:04):
Well, I really look forward to next year's report, and
hopefully we'll have you on the podcast again next year.
It'll be really interesting to see how everything we've spoken
about today has evolved so cloudy. I just want to
say thank you so much for being on.
Speaker 2 (28:16):
Today Noice, Thank you Tom, thanks for having me, and
thank you everyone for listening.
Speaker 1 (28:29):
Today's episode of Switched On was produced by Cam Gray
with production assistance from Kamala Shelling.
Speaker 2 (28:35):
Bloomberg NIF is a service provided by Bloomberg Finance LP
and its affiliates. This recording does not constitute, nor should
it be construed, as investment advice, investment recommendations, or a
recommendation as to an investment or other strategy. Bloomberg ANIF
should not be considered as information sufficient upon which to
base an investment decision. Neither Bloomberg Finance LP nor any
of its affiliates makes any representation or warranty as to
(28:58):
the accuracy or completeness of the contained in this recording,
and any liability as a result of this recording is
expressly disclaimed.
This is Tom Rowlands Reese and you're listening to Switched
on the podcast brought to you by BNF. Energy transition
investment from the oil and gas sector rows six point
six percent last year to reach thirty three point four
billion dollars, while spending on low carbon technologies as a
share of CAPEX also saw arise, reaching seven point six percent.
While these increases may suggest that decarbonization remains an aim
(00:20):
of fossil fuel majors, when we dig into the figures,
the pictures become more nuanced, with seven investors accounting for
eighty five percent of twenty to twenty four's low carbon
spend and only thirteen of the forty one firms we
assessed raising low carbon investment as a share of capex.
So what lies behind the varying strategic approaches of oil
and gas companies, Which companies are increasing their focus on
energy transition investment and what impact has the Trump Administration's
(00:43):
review of clean energy tax credits had. Today I'm joined
by member of our Oil team, associate Claudio Lubis, and
we discuss findings from his note Oil and Gas Energy
Transition twenty twenty four Clean CAPEX jumps, which BINYEP clients
can find at BNF go on the Bloomberg terminal or
on com. All right, let's get talking about oil and
gas energy transition investment with Cloudio Claudio. Welcome to the podcast.
(01:17):
Is this your first time unswitched on? It is? Thank you.
So today we're speaking specifically about a report you recently
published that I think combines a lot of the things
that are part of your BNF analyst DNA, the Oil
and Gas Energy Transition Investment Trends for twenty twenty four.
Can you tell us a little bit more about the
report and yeah, what it's all about.
Speaker 2 (01:38):
Well, thank you, Tom, and it's great to be here.
This report essentially collates and analyzes the investment going into
the energy transition for forty one of the large publicly
listed oil and gas companies around the world up until
twenty twenty four, and the energy transition related sector here
pertains to the typical low carbon areas that BNF covers,
(01:58):
ranging from sol when technologies you know, other renewable technologies,
advanced transport which revolves mostly around electric vehicle charging, all
the way to the relatively more novel areas like carbon
capture and storage, hydrogen sustainable plastics and even renewable fuels.
Speaker 1 (02:16):
So so everything that we would call green basically, yeah,
from a climate perspective exactly.
Speaker 2 (02:22):
And just to quickly add on here that this is
pretty similar, if you want to view it this way,
to the Global Energy Transition Investment Trend Report, which is
an annual flagship from BNF looking into how much the
real economy invests in these so called green sectors. Except
for this report, it specifically focuses on the large oil
and gas players.
Speaker 1 (02:41):
And I'm right in assuming that this is and we
can dive into this a bit deeper in a moment,
but this is still something. I mean, they're oil and
gas companies, so presumably this is something of a sideline
for them compared to they're still investing in their core
business as well. Right, So in this report, we're not
trying to suddenly say that oil and gas companies are
now green. It's more just there is this part of
(03:03):
them that is pushing into these new areas.
Speaker 2 (03:07):
Absolutely, And if I could go into a very high
level numbers just to basically elaborate or what you meant here,
what we found was that off these forty one companies,
there are total capital expenditures, which includes you know, everything
they invested upon, ranged around four hundred and forty billion
dollars last year, which is, you know, a four percent
year on year increase, but at.
Speaker 1 (03:26):
The same across all forty one companies.
Speaker 2 (03:28):
That is right, yes, but if we look into the
external investment by these group of companies into the so
called low carbon sectors, we saw that annual figures actually
rebounded by around seven percent to hit over thirty three
billion dollars. So this saw the share of the energy
transition investment by these companies grew marginally to around seven
(03:49):
point six percent, up from around seven point four percent
the previous year or in twenty twenty three. So the
energy transition investment made by these companies, yes, it grew,
but at the same time it's still or quite a
minor portion of the group's overall investment figure.
Speaker 1 (04:04):
It's really interesting what you've just mentioned for a few reasons,
so I just want to make sure that we get
the full picture. So overall investment by these companies rose
in twenty twenty four in everything, but it rose slightly
more in proportional terms into the green stuff. Is that
what you're saying exactly?
Speaker 2 (04:22):
So in terms of the overall CAREBAX in twenty twenty four,
it grew at around three point five percent, But when
we look into specifically the energy transition related investment, that
actually grew almost seven percent.
Speaker 1 (04:34):
You know, you mentioned our Global Energy Investment Trends report.
The other thing I was thinking about is our ratios,
and we have this number for every dollar invested in
fossil fuels it has to before going into green energy.
So here it's something like zero point one, So I
mean unsurprising they're quite far off of that ratio. What
(04:56):
I find actually just interesting is and maybe slightly hopeful
from environmental perspective, is that it's not zero. And because
these companies have a lot of money and they can
move the needle if they chose to dive into an area,
is that a fair thing to say? Yeah?
Speaker 2 (05:09):
Absolutely, I think the four to one ratio which you've mentioned,
which is based on our research across different Parris aligned
net zero and one point five degree aligned climate scenarios,
that represents the whole economy, or the entire global real economy,
whereas this research focuses specifically on the oil and gas company,
so they're definitely not there yet.
Speaker 1 (05:27):
In terms of the four to one. But you know,
and in fairness, I don't think we should ever expect
them to make it there because they're specifically no, I mean,
and that's I think the point I was trying to
make is that at least they're on the map from
a green perspective. You hope they'll invest more in these areas,
but it's not insignificant, I suppose. I mean, thirty three
billion dollars is a lot of money, whichever way you
look at it. Precisely. Yeah, one of the things you
(05:49):
talked about in the report. I mean, you look at
these forty one different companies, and they're not all generic.
You know, there's quite a lot of difference that you
see between Well, firstly, what kind of companies they we say,
oil and gas companies. Those come in many flavors and
you know, many different ownership structures, positions within the value chain.
But then also in terms of you know, some are
(06:10):
investing maybe more, you know, especially if we're thinking in
terms of these ratios, So who's who's leading the way here?
What types of companies are leading the way?
Speaker 2 (06:18):
Yeah, that's a that's a great set of questions to answer.
The first part of that questions within Within the forty
one companies that we covered, we try to encapsulate an
entire range of the oil and gas companies. So this
revolves around let's say integrated oil majors. So integrated companies
are those that covers the entire value chain of the
oil and gas industry, ranging from upstream or production all
(06:38):
the way to marketing and downstream so you know, the
processing of the fuels and also selling it towards the
end users. We also have those that are very focused
on the downstream site, so most likely revolving around refineries.
We then have those that focus on exploration and production,
essentially those that focuses on the upstream sectors or getting
the oil out the ground, drilling it and then producing it.
(07:00):
And we have other companies who also fall within the
integrated majors, but more towards the national oil companies rather
than the integrated big oil that we often hear like Shell,
BP Total. And to your second point regarding who's been
leading within this avenue per se, I think it's worth
noting that each of these forty one companies, they have
(07:20):
different financial capabilities, they're different to one another, and one
way we can look at this or one way that
we've been looking at this is to understand and quantify
how much clean investment they're making as a share of
their overall capital expenditures. And as a key takeaway or
as a key high level conclusion is that refiners and
the integrated oil majors in Europe essentially sit amongst the
(07:44):
leaderboards here now when we look into the integrated oil
majors in Europe, so this includes the big oil companies
you often hear specifically BP, Total Shell, any equinor, but
we also include GULP and repsol within this categorization.
Speaker 1 (07:59):
These companies have been.
Speaker 2 (08:00):
Invested somewhere around ten to over twenty percent of their
overall investment figures into clean technologies, and a part of
this stems from mainly the fact where they're based there
is arguably a structural decline and demand for the fuels
that they sell. But at the same time, Europe's also
home to quite a lot of stringent climate policies, so
de carbonization for these companies has become an integral focus
(08:22):
over the past few years.
Speaker 1 (08:24):
Can I just just want to dig into one thing
about the some of the European oil majors because you know,
in the figures you were just quoting were for twenty
fifteen to twenty twenty four, and so there has over
that decade been a trend of those companies investing more
and more in green technologies. But also there's been news
made with some of those companies pulling away. So a
(08:45):
question I have is, how did those companies change, say,
in twenty twenty four compared to previous years. Is there
proportional investment in green technology still on the rise, or
has that trend reversed.
Speaker 2 (08:58):
When we look at it at a firm level in
between time periods. One interesting thing that we found, and
I'm going to speak to the entire companies that we
analyzed here, is that despite the overall high level figure
increasing year on year in terms of absolute values, we
found that less than half of the companies actually increased
in twenty twenty four the allocation of their clean spend
(09:19):
relative to previous years. And for these thirteen companies per
se that actually increased year on year, they're actually mostly
led by those who's already been plowing a lot of
clean capital. And in terms of the integrated European majors,
these are equinor Any and total energies. On the other hand,
we saw that a SHELL, for example, based on our numbers,
put back on the allocation of clean spend in twenty
(09:42):
twenty four when you compare that to their previous years.
Speaker 1 (09:45):
So within that group, we're starting to see a bit
of a fracturing of like maybe a second tier emerging,
like not everyone is keeping pace with the rest of
the pack precisely. Yeah, got it. Okay, So talk about refiners.
Tell us a little bit more about about their activity
and space. Yeah, so refiners.
Speaker 2 (10:02):
When we think about refiners and what their intentions are
to decarbonize, I think it's mostly driven by the fact
that they face a very uncertain future in terms of
oil demand. I mean, if you look into the different
scenarios around the world made by different agencies, we have
very contrasting pictures of what the world will look like
when it comes to oil consumption. So this has prompted
quite a lot of refiners to actually rethink and reject
(10:24):
a lot of their strategic ventures when it comes to decarbonization.
And we've seen that refiners have often opted to pivot
into something that they share technological synergies with, for example,
renewable fuels, Now, when we talk about the leaderboards here,
essentially who's leading when it comes to the share of
capital investment for clean technologies. Refiners are in the leaderboard,
(10:46):
and I want to pick out two companies that kind
of stood out. So these are ESK Innovation and also
neste who's invested at least over the past decade over
fifty percent of their overall CAPEX into the green technologies. Now,
for Estay, most of these have gone into renewable fuels production.
They're one of the earliest movers into that field, whereas
for ESK Innovation it pertains more to battery manufacturing. But
(11:09):
at the same time we also see that other refiners,
especially the pure players in the US, those that focus
most lyon just refinery and you know, producing fuels out
of crude, such as Phillip sixty six, Marathon and Valero,
have also invested a sizeable amount of their total care
PACs into green technologies.
Speaker 1 (11:27):
That's so interesting, I mean with nest A and sk Innovation,
and actually it's more than half of their spend. And
like you say, it's into areas that are complementary. Because
I think of refiners as being companies that specialize in
doing things with molecules, and so moving into renewable fuels,
moving into batteries seems really consistent. I guess I've got
(11:48):
a follow up question, but just before we do, for
those listeners who are less familiar with this space, sk
Innovation and nest A, where are they based in the world,
Because I'm right, I'm saying refiners tend to be a
lot more local than say maybe some of the integrated
or companies.
Speaker 2 (12:03):
Yeah, so in terms of where they're based, escal Innovation
is based in South Korea, and.
Speaker 1 (12:07):
So the battery linkage makes a lot of sense.
Speaker 2 (12:10):
Then precisely, and Nesta is based in Finland. But given
that they're one of the earliest movers into the field,
especially from a refining perspective, going into or diversifying into
renewable fuels, NESTE has actually expanded as footprint quite globally.
I would say they've have now a refinery in Rotterdam
and also a refinery in Singapore that produces sustainable aviation fuel,
(12:33):
so they have that global footprint.
Speaker 1 (12:35):
A question I have, and I suppose it's impossible to
answer this for sure because it involves a parallel universe
that we don't have access to. But it'd be interesting
to get your opinion anyway, because it'salking about those companies.
You know, more than fifty percent of what they've been
investing in is in green technologies. I suppose in the
parallel universe where they weren't doing that, were they investing
(12:55):
more than they were in this universe into their core
oil and gas business or were they just investing less overall.
I suppose what my question is really driving at is
for those companies, does this represent a move into an
expansion into something new, or a move away from oil
and gas? I think somewhere in between the two.
Speaker 2 (13:15):
I think, especially for refiners whose business model is not
integrated across the entire value chain, and especially when you
invest over fifty percent of your KPEX, that signals quite
a pivotal, slash abrupt change in where they want to
go strategically. And we can definitely see this when it
comes to nest Day, for example, wanting to be a
specialized renewal fuels producer when initially they started off as
(13:37):
a traditional refinery.
Speaker 1 (13:39):
So we talked about some of the companies that have
been leading in terms of investment, particularly as a fraction
of their overall investment who has been lagging both over
the last decade and in twenty twenty four.
Speaker 2 (13:51):
Specifically, when it comes to the laggards per se, there
are some companies that they invest quite a decent amount,
somewhere between three to five percent of their CAPEX into
green technologies. These are the other integrated majors like Eggs
and Mobile, Chevron and Petronas for example. But I think
the notable laggots here again if you look at the
last ten years, mostly pertain to the remaining integrated oil majors.
(14:14):
So the national oil companies who at times serve to
the interests of their nations, and also exploration and production companies.
Now exploration and production companies, they've invested very little or
no investment into clean technologies as a share of their
overall KPEX. And a part of this actually pertains to
the fact that for exploration and production firms, their main
(14:34):
goal is to pump oil out of the ground and
sell it at a profit, essentially to boost their short
term profitability.
Speaker 1 (14:41):
It seems to me that from what you're saying, I mean,
let's start with national companies, would it even be realistic
to expect them to be investing a lot into green technologies,
because you know, a state owned company typically is there
to serve a singular purpose for the benefit of society,
and if the government wanted investment into green technologies, they
would probably have some other organization or arm of the
(15:04):
themselves do that. So is it realistic to ever expect
national oil companies to be boosting their expenditure in green technologies.
I suppose what I'm saying is am I being fair
like we should have low expectations for these companies just
from looking at the way they're owned.
Speaker 2 (15:19):
Yeah, I think that's a that's a fair point. I'm
going to frame it in a different way here, and
I think a lot of the pressures when it comes
to decarbonizing, for example, has fallen more or the need
to decarbonize has fallen more into the integrated oil majors.
So for national oil companies again serving the purpose of
what their nation wants. And if we see over the
past few years, especially with a lot of geopolitical events
(15:41):
unfolding and also the post pandemic rebound which you know
Caesar increase in demand, we've seen energy security becoming quite
a buzzwords. With some of these national oil companies increasing
their production given that a lot of them are base
in fossil fuel exporting countries. I don't want to speculate
on their individual strategies, but I think you do make
a fair point.
Speaker 1 (16:00):
And I suppose, I mean, I think you laid it
out really well. For the E and P companies, they
also have a singular purpose, I suppose generally speaking, are
they they're much smaller than the integrated oil majors. Is
you know, they're sort of set up to do one
thing and one thing only so and that they aren't like,
you know, they're not spread across the value chain, and
so we shouldn't necessarily expect that flexibility from them. Is
(16:23):
that Is that fair? Particularly in a in a world.
At one point in time before the pandemic, you know,
particularly in the US, they it was just all expand volumes,
invest more and into expanding their production. Now they are
really being forced in a very competitive market to eke
out a margin. So yeah, is it ever? Are we
ever realistically going to see those companies investing in the
(16:45):
energy transition? Yeah?
Speaker 2 (16:46):
I think when it comes to those companies investing in
the energy transition, there are always possibilities for them to
increase the investment over the next few years. And if
we look into just exploration and production companies and how
much they've been investing into let's green technologies, both as
an absolute value and as a share of their overall capex,
we've seen that since twenty twenty two, these figures have
(17:07):
grown very slowly. But you're right, I think these exploration
and production companies their main goal is to focus more
on the production site and to extract the barrels at
minimal costs, so exercising capital efficiency.
Speaker 1 (17:20):
And they tend to be quite localized as well. I
also thinking they don't necessarily have the footprint like geographically
to benefit from green investments. Is that fair?
Speaker 2 (17:30):
Yeah, their footprint is definitely much smaller than if you
compare to the integrated oil majors or even some of
the national oil companies. Again, if we look into the US,
for example, we do have a lot of exploration and
production companies, but they're mostly very localized within a certain
basins or so, or within the US itself.
Speaker 1 (17:46):
So I know we've been speaking in terms of investment
in the energy transition or into green technologies in abstract
dollar terms, but let's talk a little bit about you know,
what the money is actually going into.
Speaker 2 (17:59):
Yeah, So if we look into just twenty twenty four,
we saw that WIN Energy, including both onshore and offshore
let oil and gases clean investment at around twelve billion
dollars or somewhere around that number. So focusing on the
past year, most of the investment, or the largest part
of the investment clean investment went into Win technologies at
(18:19):
over a third of the overall figure.
Speaker 1 (18:21):
But I want to note here.
Speaker 2 (18:22):
That that's largely underscored by financial close of Equinor's Empire
Win one project in New York very late last year,
which was valued at around five billion dollars. And this
project received a halt a stop work order a stopwork
order by the Bureau of Ocean Management in late April,
only for it to be reinstated back and for works
(18:43):
to continue a month later. But Win Energy has been
the top technology when it comes to oil and gases
clean investment in twenty twenty four, and this is closely
followed by Solar coming in second place with an investment
figure of around nine billion dollars, which is around twenty
five twenty six percent of the overall investment figure. And
this has been led by PetroChina and who closed three
(19:05):
of the largest spending deals within that sector are almost
all three billions altogether.
Speaker 1 (19:09):
I mean, I'm just doing some quick mats here. That's
almost half of it is in wind and solar exactly
then the other because also, I mean we talk a
lot here and you mentioned in neuroport investment into two
molecules versus electrons, So is the other approximately half going
into molecules to an extent.
Speaker 2 (19:28):
Apart from wind and solar. In twenty twenty four, the
other sectors that saw let's say sizable investment were renewable fuels,
energy storage, and hydrogen. So yeah, a lot of clean
molecules there as well. And specifically we saw that investment
into energy storage and hydrogen increased year on year. Now,
for energy storage this is mostly a factor of sk
innovation driving the investment figures, whereas for hydrogen this was
(19:52):
mainly attributed to Woodside's acquisition of although carbon ammonia producer
OCI in September last year at around two point five
for billion dollars. Now, just to quickly note that Woodside Energy,
which is based in Australia, they have decided to diversify
and expand their portfolio coming from just focusing on the
upstream sector, got it.
Speaker 1 (20:12):
So it is quite diverse. It's also, interestingly, it's quite
lumpy some of this investment. For those of you not
familiar with the term lumpy, we just mean that there's
one or two really big investments that, you know, if
they hadn't happened, or if they happened next year, it
kind of distorts the way your chart looks. Your chart
looks a bit lumpy. I'm kind of curious to know
because we had this whole you know, conversation about you know,
refiners versus the integrated oil companies being two of the
(20:34):
biggest categories. Do you see a difference in the types
of things that refiners are investing in versus the integrated
oil companies.
Speaker 2 (20:42):
Yes, so when it comes to the integrated oil companies,
and I'm going to focus a little bit on the
super majors. Now, we did group these companies into again
these broad categories. So super majors you can think of
it as like the big oil that you often hear
so BP Total Shell equinor alongside Chevron Exon in the US.
(21:03):
So for the super majors, a lot of the investment
have gone into wind and solar. And it's also the
fact that these big oil companies, the super majors, they
were one of the earliest movers into the decobonization ventures. Now,
for refiners, a lot of this pertains to renewable fuels
and energy storage. Now, for renewable fuels, we can see
that Neste for example, have led on this field as
(21:23):
previously mentioned. And for energy storage this has mainly been
led by investment by Esky Innovation. And we have seen
a smaller amount of investment by refiners going into CCS
which stands for carbon capture and storage hydrogen as well,
and this is mainly pertaining due to their operational synergies
that exist. So for ccs it abates the emissions of
(21:43):
their production, whereas for hydrogen, refiners often utilize hydrogen for
their hydro cracking and hydro treating processes, for example removing
impurities from their diesel produced.
Speaker 1 (21:53):
So I can see, particularly from the point of view
of those fields where we've seen refiners going in that
a lot of the motivation might be, you know, these
are new areas, there are synergies that are well positioned
to benefit. We're talking about the super majors investing a
lot into wind and solar. There's no apparent obvious synergy.
Is this just so I suppose your question is what
(22:14):
is the motivation? Is it just purely they've got the
money you need to invest in something, and this is
something that is a diversification, a hedge, you know, depending
on the future of how energy is produced and consumed
on the planet. What is the motivation for those super
majors investing in wind and solar.
Speaker 2 (22:31):
Yeah, that's a great question. Given that these super majors
were one of the earliest movers into the energy transition,
Solar and wind are some of the most mature technologies
and they've also seen some of the steepest cost reductions.
So again based on our LCOE studies or levelized cost
of energy studies, if we link this to so something
that's forward looking, then the pivot into wind and solar
(22:52):
or in fact any other renewable energy technologies at the
end of the day, from a decarbonization perspective, electrification and
you know, the utilization of renewable energy, they play a
crucial role. And if we look into our New Energy Outlook,
which is one of our annual publication that looks into
the evolution of the global energy systems in the mid
to long term. And let's just take their base case scenario,
(23:14):
for example, the economic transition scenario, which assumes no new
policies are an exted. Then we see that solar and
win in question collectively account for almost twenty percent of
the global primary energy demand by twenty fifty and that's
up from just over one or two percent last year.
So I think that partly answers the pivot to why
they go into solar and wind. And yeah, at the
(23:34):
same time, these assets also help companies reduce the carbon
intensity of the energy that they produce, which is quite
a key to carbonization metric for these firms.
Speaker 1 (23:43):
Got it okay, So it can be integrated into their
overall either operations are accounting for producing the cleanest.
Speaker 2 (23:51):
Barrel precisely, and a lot of oil companies now and
they focus on energy transition related metrics often go by
the energy intensity per barrel they produce.
Speaker 1 (24:00):
And you mentioned the Empire Wind offshore wind project in
the US and how it's had a bit of a
bumpy ride with this new administration and represents a major investment,
and historically offshore wind has been one of these areas
where we've seen the super majors we've into, particularly leveraging
some of the synergies they see there questions not really
about offshore wind. It's really about this new administration in
(24:20):
the US, which is considerably less supportive of energy transition
technologies than the previous administration. How do you think this
impacts the overall picture that we're seeing, And in particular,
when we're sitting here in a year's time talking about
your report for twenty twenty five, what do you think
might be some of the things we've seen that have
(24:41):
really changed because of the sort of the political winds
that are blowing right now.
Speaker 2 (24:46):
It's quite hard to say, because again this is more
of a historical accounting exercise just to give an overarching
view of what the sector has been doing. And there's
a lot of uncertainties looking ahead, especially given, like you say,
the new administration. We've already seen that for the Empire
Wind farm in New York that you know, over the
first five months.
Speaker 1 (25:03):
Of the year has gone through a roller coaster.
Speaker 2 (25:05):
And also if we take an example last year, just
in terms of the global picture or the real economy,
for let's say ccs in the US, the annual investment
actually declined, you know, thirty four percent year on Europe
because companies were waiting for the Internal Revenue Services to
release guidelines you know, for incentives under the forty five
Q text credit. So definitely policy is a factor here
(25:26):
that you know, bruised into the uncertainty looking ahead. But
it's also how many of the factors, such as geopolitics,
because that is that will affect a lot of the
strategies by the national oil companies, or even just oil
demand in general, whether it keeps an increasing whether we
start to see a more pronounced decline in regions, because
essentially a lot of the strategies by these oil and
(25:47):
gas companies do take into account the differing views or
what they anticipate oil demand to be. So there's a
lot of factors here, geopolitics, policy, oil demand. And one
thing I also want to add is I think most
poorly is the profitability right oil and gas companies at
the end of the day, they want to be profitable,
and we've seen so far at the start of the
year a couple of a couple of statements made by
(26:09):
some of the super majors, specifically bp shell equinor hinting
at a little bit of a retraction or a strategy
reset in terms of their green initiatives and in fact
wanting to produce more oil and gas or at least
invest more into oil and gas. Now, if we look
into the returns perspective, and just to give a side
note here, this will become a key factor into the
(26:30):
trajectory of flow carbon investment because right now, despite having
steep cost reductions, let's say, for WHEN and Solar, when
we look at their returns or their internal rate of
returns the IRR, we see that Let's say, if we
take the super majors, for example, they expect the IRS
for Solar and WIN to hover somewhere around you know,
seven to eight percent or even below that, whereas the
(26:51):
returns that they expect from their major traditional core business
upstream marketing and downstream sits over thirteen percent. So the
returns from the traditional hydrocarbon business expected by these companies
still trump that of the clean sectors or clean power
let's say, So this will be this will definitely be
a factor going ahead which might influence whether future investment
(27:12):
into lower carbon sectors, specifically renewable power increase or decline,
and that.
Speaker 1 (27:17):
I suppose all ties back to this question of what
is the future of oil demand. I suppose because they
won't be getting such high returns from their core investments
if that is declining. Yeah, precisely, got it. I mean
it's interesting. I mean it sort of speaks to both
they are major players in this story. But also you know,
there's a question of how much agency is there really,
(27:38):
you know, are they just also responding to the economic
signals that the global economy at large is.
Speaker 2 (27:44):
Producing precisely, And I think there's been a renowned focus
just within the energy sector at large, to focus less
on the long term and focus a little bit more
on the shorter term outlook. So definitely whatever short term
market fluctuations will definitely be a factor in how these
companies strategize and also allocate let's say, clean investment.
Speaker 1 (28:04):
Well, I really look forward to next year's report, and
hopefully we'll have you on the podcast again next year.
It'll be really interesting to see how everything we've spoken
about today has evolved so cloudy. I just want to
say thank you so much for being on.
Speaker 2 (28:16):
Today Noice, Thank you Tom, thanks for having me, and
thank you everyone for listening.
Speaker 1 (28:29):
Today's episode of Switched On was produced by Cam Gray
with production assistance from Kamala Shelling.
Speaker 2 (28:35):
Bloomberg NIF is a service provided by Bloomberg Finance LP
and its affiliates. This recording does not constitute, nor should
it be construed, as investment advice, investment recommendations, or a
recommendation as to an investment or other strategy. Bloomberg ANIF
should not be considered as information sufficient upon which to
base an investment decision. Neither Bloomberg Finance LP nor any
of its affiliates makes any representation or warranty as to
(28:58):
the accuracy or completeness of the contained in this recording,
and any liability as a result of this recording is
expressly disclaimed.
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