The energy transition phase presents an opportunity for oil companies, not only to enter the newly emerged sustainable energy sector but also to diversify their business areas and play a fundamental role in the growth of newly qualified industries that are set for significant expansion in the future, according to a study released by the consultancy firm "McKinsey." The main reason for this industrial transformation, nearly a century after the emergence of oil companies, is the global focus on climate change. Climate changes have started to affect human societies, such as rising or falling temperatures outside of the usual seasons or reaching record levels.
Oil companies, which have been providing fossil fuels for nearly a century, are now trying to negotiate with countries and markets that demand a reduction in carbon emissions. The "McKinsey" study indicates that oil and gas will continue to play an important role in the future energy mix by 2050. This is due to the fact that oil is a widely available and recognized fuel globally and is affordable.
Moreover, the capability of oil and gas companies to play a significant role in the energy transition stems from their experience and expertise over a century on a global scale, as well as their willingness to take risks and make bold, costly investment decisions, all supported by their substantial and robust annual budgets and available liquidity. This, in addition to their direct dealings with consumers and their knowledge of the energy industry and its consumers and investors, provides these companies with a competitive edge against others, including newer energy companies.
Oil companies possess extensive experience in managing their institutions successfully, understanding risk in their decisions, and dealing with countries that have contradictory policies. Furthermore, they have experience managing investments in large-scale projects and achieving profits for shareholders.
The upcoming phase of the energy transition presents multiple challenges as we approach 2030 and 2050. These challenges include how to prepare in advance and deal with fundamental and global energy changes. For instance, there is the growing role of the electric power industry, and it is worth noting the role oil companies play in fueling power plants. This is not a new endeavor for them; oil companies have invested for decades in supplying low-emission fuel to power stations.
For example, a major oil company began supplying low-emission fuel to a power plant back in the 1980s. Initially, this company manufactured solar panels to be installed at a power plant, later expanding its operations to become one of Europe’s leading manufacturers of solar panels. Recently, one of the largest national oil companies in the world announced its goal to achieve net-zero emissions in its country by 2050, in addition to investing in a series of sustainable energy facilities. Other oil companies have also committed approximately $500 billion in the coming years to energy efficiency and sustainable energy solutions.
The experiences in sustainable energy investments vary, with both successes and failures. However, it is clear that the demand for energy is consistently rising every year, accompanied by regulatory mandates and legislation to reduce carbon emissions and prioritize them. As a result, investment markets have adopted the next priority in granting loans: the necessity to reduce emissions in proposed project financing.
