Green Switch

Energy transition in major oil companies

Fossil fuels, including oil and gas, have been responsible for much of the economic development over the past decades. However, the oil sector has frequently experienced instability in prices, has limited stock and is often the source of geopolitical tensions. Further, the economic slowdown brought about by the coronavirus pandemic has highlighted the need for diverse supply chains and self-sustainability of countries to cope with the shortage of essential resources. In this scenario, renewables can play an important part. Renewable energy sources are freely available in nature, have fixed tariffs for long periods and are more resilient to external shocks. In light of this, oil majors across the globe have been transitioning to a cleaner energy mix by expanding their renewable energy portfolio. With ambitious targets and a dynamic market, India has become one of the key regions of interest for such companies. Leading oil company executives share their perspective on the energy transition of oil majors, the scope of renewables, and their vision for the future. Excerpts…

What drives the energy transition for big oil companies? What is your company’s strategy to aid this energy transition?

Dr Jay Mariyappan, Head of New Energy, PETRONAS

 Dr Jay Mariyappan

There are several factors that drive the energy transition for big oil companies. The foremost is the need to combat cli-mate change. This has resulted in a significant shift in investments towards low carbon technologies. The Covid-19 pandemic has further increased this push from both governments and industry stakeholders. With this, there has been a significant shift in market behaviour from a pure focus on profitability towards safeguarding the environment through an increased impetus on environmental, social and corporate governance. Moreover, renewable energy is expected to be the largest source of electricity generation by 2025. In fact, we have seen this in India as well, that as the pandemic swept the world and reduced energy demand, renewables were the only energy source that registered a growth in demand. Furthermore, the falling cost of renewables, along with the uptake of storage technologies, will only improve their competitiveness. While oil and gas will remain relevant in the global energy mix for some time, the “great reset” in the industry also presents an opportunity for PETRONAS to further increase its focus on clean energy technologies. To this end, we established our gas and new energy business in mid-2019 to be our one-stop centre for cleaner energy solutions.

José Ignacio Sanz Saiz, Country Chair, India and Vice-President, Gas, Renewables & Power, Total

José Ignacio Sanz Saiz

For Total, as well as for the whole energy industry, the energy transition presents a dual challenge of satisfying the growing global demand with more energy while safeguarding the environment with lower emissions. The world is transforming its energy system, which is currently 80 per cent based on fossil fuels. This dense energy has a drawback though – its adverse impact on climate change.

Well before 2020, Total decided to take action and become a part of this transformation. Finally, in May 2020, the board of directors approved our Climate Ambition of net zero emissions by 2050, together with society. The company wants to support its customers in decarbonising their energy. We have translated these objectives into a 10-year strategy to transform Total into a broad energy group. This means focusing our development and growth on natural gas and renewables. We have already started becoming an electric company.

Our transformation strategy centres around four key pillars – gas, renewables and electricity, low-cost liquids and carbon sinks. Total plans to grow in the LNG space and develop renewable gas such as biogas and clean hydrogen. Further, it aims to promote natural gas for power and mobility. Total also plans to accelerate investments in low carbon electricity primarily from renewables. It intends to integrate along the electricity chain, which involves production, storage, trading and supply. The company will also focus investments on low-cost oil and renewable fuels such as biofuels and sustainable aviation fuel. Another initiative is to invest in carbon sinks such as nature-based solutions and carbon capture, utilisation and storage (CCUS).

Dr Desikan Sundararajan, Managing Director, India, Equinor

Dr Desikan Sundararajan

The energy industry led by big oil companies is at the forefront of the energy transition. The drivers of energy transition at the global stage are very complex and are intertwined with factors such as socioeconomic growth, investor expectations and geopolitics (to name a few). Having said that, the energy industry has a clear opportunity and responsibility to broaden its technology toolbox, improve its competence and reduce greenhouse gas (GHG) emissions for achieving the goals of the Paris Agreement to drive the energy transition.

Equinor is committed to leading this energy transition. The company believes it is a sound business strategy to ensure long-term competitiveness during a period of profound changes in energy systems as society moves towards net zero. Equinor was one of the first majors to carve a climate roadmap. The company strengthened its climate roadmap to become net zero by 2050 by targeting Scope 1, 2 and 3 GHG emissions and setting very clear targets in this respect. These targets include upstream emissions below 8 kg carbon dioxide per barrel of oil equivalent by 2025, carbon-neutral operations by 2030, and no routine flaring and near-zero methane emission intensity by 2030. In addition, the company plans to grow its renewable energy portfolio by 4-6 GW by 2026 and 12-16 GW by 2035.

Which clean energy technologies is your company focusing on? Has your company set a renewable energy target?

Dr Jay Mariyappan

PETRONAS has set a target to achieve net zero carbon emissions by 2050. All businesses under PETRONAS, including LNG, gas and power, new energy, and hydrogen will play a key role in helping us realise this target. In the new energy business, we have set a target of setting up at least 3 GW of renewable energy capacity by 2024. This target has been set at the group level and is aligned with the UN’s sustainable development goals, particularly Goal 7 (affordable and clean energy).

José Ignacio Sanz Saiz

Total is mainly focusing on solar and wind technologies. CCUS will also play a major role in achieving our carbon neutrality ambition. Total aims to reach net zero emissions, together with society, by 2050. It also has the objective of reaching 35 GW of production capacity from renewable sources by 2025. Total will continue to expand its business to become one of the world leaders in renewable energy.

Dr Desikan Sundararajan

Equinor believes that leading the energy transition and achieving net zero will require the company to invest in developing a suite of enabling technologies. Carbon capture storage (CCS) and offshore wind are examples of two leading technologies that Equinor is focusing on.

Achieving net zero emissions requires a well-functioning market of CCS and natural sinks, and the development of competitive technologies for hydrogen. Equinor has a strong renewables portfolio in production, and we are leveraging our core competencies in managing complex oil and gas projects for the development of offshore wind. In 2026, Equinor expects a production capacity of 4-6 GW from renewable projects. By 2035, it expects to increase its installed renewables capacity further to 12-16 GW, subject to the availability of attractive project opportunities.

What is your company’s current global renewable energy portfolio and exposure in India? Why has it picked India as an investment destination for renewables? What kind of issues are you expecting to face in the Indian market?

Dr Jay Mariyappan

With its burgeoning population, and as one of the fastest growing emerging economies, India is a vital energy market. The Government of India has made significant progress in recent years with regard to increasing citizens’ access to electricity. It has also implemented a range of energy market reforms and deployed huge amounts of renewable energy capacity, notably in solar energy. In fact, India’s investments in the solar sector were greater than its investments in fossil fuel sources in 2018. India has also set ambitious targets of deploying 175 GW of renewable energy by 2022 and 450 GW of renewable energy by 2030. All of these factors make India a viable and stable investment destination. To this end, PETRONAS acquired Amplus Energy Solutions in 2019 and now has over 800 MW of operating or under development renewable energy assets across India. Our focus has been both on organic and inorganic growth. In 2020, PETRONAS, through Amplus, acquired 100 MW of solar assets located at the Pavagada Solar Park, Karnataka, from ACME Solar. With this growth strategy, we are providing diversified solutions to commercial and industrial customers as well as utilities.

The key challenge is developing the ability to provide more solutions to customers by integrating storage technologies and electric vehicles (EVs) for last-mile delivery, especially in the B2B segment. Such solutions are needed in the residential rooftop solar space as well. To this end, we have launched HomeScape, which provides residential rooftop solar solutions in India. To date, we have installed these solutions in over 600 households across the country.

Going forward, our plan is to leverage our experience of open access and third-party solar plants with Amplus and grow in the Asia-Pacific region. In October 2019, we set up the M+ by PETRONAS business for commercial and industrial customers in Malaysia with around 100 MW under construction or development, and we plan to expand to other countries such as Vietnam. We also aim to enter the onshore and offshore wind segment in this region and explore hybrid technologies, such as energy storage, further. Moreover, we plan to incubate our EV business, called Yelo, which is providing EV solutions to B2B customers in India, and explore potentially introducing it in Malaysia as well.

PETRONAS is also looking at competitive green hydrogen solutions and now has a specific team in the gas and new energy business that focuses on hydrogen technologies. The demand for hydrogen has continued to gain pace, primarily due to its potential of becoming a versatile near-zero-emission fuel. It can be used for power and heating, as an energy carrier, as industry feedstock and for transportation fuel. Our focus on green hydrogen builds on our experience with extracting blue hydrogen from our facilities as well as our experience as a world-renowned reliable LNG supplier.

José Ignacio Sanz Saiz

Total is planning to keep up the 2020 momentum and capture early-stage opportunities. Total had a global portfolio of 10 GW in the year 2020. Total entered into a partnership with Adani in 2020 to start its role in renewables in India. In 2020 Total and Adani Green Energy Limited (AGEL) signed agreements for the establishment of a 50:50 joint venture that would own a 2.35 GWac portfolio of operational solar assets developed by AGEL. Finally, in January 2021, Total purchased a 20 per cent stake in AGEL itself. The overall investment of Total in Indian renewables in the past year has been $2.5 billion. The partnership with Adani in the renewables space in India will be a key contributor to Total’s objective of reaching 35 GWp of gross production capacity from renewable sources by 2025 and adding 10 GWp per year afterwards.

Total expects renewables to deliver a predictable long-term cash flow. Its current portfolio consists of 7 GW in operation (net 3.1 GW), 5 GW under construction (net 3 GW), 23 GW to be developed by 2025 (net 21 GW) and 4 GW post 2025 (net 2 GW). About 60 per cent of this portfolio (more than 20 GW) is already covered under power purchase agreements (PPAs), while some offshore wind PPAs are under negotiation.

India’s energy demand is going to grow significantly with the increase in population (in five years, India will be the most populated country in the world: UN-World Population Prospects 2019). India’s energy consumption is also expected to grow in line with its economic growth. Its primary energy consumption is expected to double over the next 20-25 years and its power demand is expected to triple during the same period.

In this scenario, the government is focused on meeting these energy demands, keeping carbon emissions low, and fulfilling its commitment to reduce GHGs emissions under the Paris Agreement. Setting a target of 15 per cent natural gas share (from the current 6.2 per cent) in the primary energy mix by 2030, promoting renewables with ambitious targets (450 GW by 2030), reducing dependency on biomass under the Pradhan Mantri Ujjwala Yojana are some of the many initiatives the Indian government has taken to drive economic growth without increasing emissions. India’s per capita energy consumption stands at 30 per cent of the world average, while its per capita natural gas consumption is 8.2 per cent of the global average. This indicates a growth opportunity in the natural gas space.

Two of the  pillars of growth for Total in the years to come (natural gas and renewables) are in line with the strategy of the Indian authorities to satisfy the country’s increasing demand. Hence, India is an obvious investment destination for Total in the renewable energy space

Dr Desikan Sundararajan

Equinor is relatively young in India. We just opened our first India office in October 2019. Offshore wind is one of the emerging segments in the Indian renewables space. We have submitted an EoI for a 1,000 MW offshore wind project off the coast of Gujarat. We are currently awaiting policy and fiscal developments that would foster the development of the offshore wind industry in India.

Equinor believes that India will play a very important role in energy transition. Energy systems and infrastructure adopted by the country over the next two decades will have a profound and lasting impact on climate. Further, India has set robust targets for growth in the renewable energy sector, which makes it an exciting place for any investor.

Specific to the offshore wind sector, it will be beneficial to see a systematic roadmap for this area. Offshore wind projects are complex and require extensive infrastructure development, clearance from several ministries, as well as clear and succinct policies on import duties, taxation and offtake incentives. A policy directive addressing these would be very beneficial for the industry to plan resources and investments in the sector.

How will the energy geopolitics change with this energy transition of big oil companies?  

Dr Jay Mariyappan

In the long run, energy geopolitics will be shaped by the accelerated energy transition. Most European integrated oil companies have already announced their ambitions to reduce their carbon emissions, and are significantly investing in low carbon technologies. Oil companies in the US and the Asia-Pacific region are also embracing this transition and investing in this space. Governments across the globe, too, are focusing on assisting this transition and achieving their decarbonisation goals. The pandemic has accelerated this transition, as volatility in the price of oil and natural gas products has been witnessed. At PETRONAS, we remain steadfast on charting growth pathways to secure new opportunities amidst the accelerated pace of energy transition.

Dr Desikan Sundararajan

Different countries are at different stages in their energy transition journey. The momentum of energy transition depends on the interplay of energy survival and energy security, and energy geopolitics is at the centre of it all.

What we are seeing is that energy transition is strongly driven by domestic and regional policies along with corporate ambitions. Moving forward, it is perceived that geopolitics is likely to be more complex than it has been in the past. One can even expect geopolitics to play the role of a positive influencer in forging new alliances to accelerate the energy transition. The response from national and international energy majors in these alliances will thus be critical for driving the energy transition. Access to projects and the pace of action on the government’s ambitions will define the rate of energy transition and the extent to which companies will able to meet their targets.

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