Oil and gas majors are starting to seriously consider — or, at least, consider — the threat the energy transition presents to their core business.
While no major has made investments in clean energy that come close to rivaling the money it spends on oil and gas, companies like Equinor, Total and Royal Dutch Shell have now collectively sunk billions into the industry. According to Bloomberg New Energy Finance (BNEF), oil majors doubled their acquisitions, project investments and venture capital stakes in clean energy between 2015 and 2016.
In 2017 and 2018, Shell acquired e-mobility company NewMotion, Total bought energy efficiency company GreenFlex, and British Petroleum invested in EV charging company Freewire — and that’s just a sampling.
But a great deal of that investment has been clustered in Europe. As Meredith Annex, team lead for BNEF’s heat decarbonization research, noted, “the U.S. players have lagged behind their European counterparts in terms of leadership within clean energy and electricity strategies.”
That’s why it was noteworthy when Chevron’s emerging technology venture capital arm invested in EV charging company ChargePoint in November and battery storage company Natron Energy in January. Chevron Technology Ventures launched its Future Energy Fund with $100 million in June 2018 (Technology Ventures was founded in 1999). The fund has also invested in the firm Carbon Engineering, which works on carbon capture.
“These are strategic bets, if you will, and they’re really more about getting access and looking under the hood,” said Technology Ventures President Barbara Burger. “They will inform future action from Chevron, either the use of the technology or where we might want to go big.”
According to Burger, the investments also allow Chevron “active involvement at the edge of innovation.” The fund tries to invest in companies where Chevron can still learn a lot or have some influence, which means joining before a Series A or in earlier funding rounds.
“Their whole agenda is change,” said Burger. “That really helps us stay current to where things are going.”
Investments are also meant to fit in two broad areas: breakthrough technologies or innovative business models that can lower the emissions of oil and gas, or breakthrough technologies in low-carbon and efficient value chains.
Tom Ellacott, senior vice president of corporate research at Wood Mackenzie, said the investments, while small, make sense. Chevron uses enhanced oil recovery, which is an application for carbon capture, and Burger noted that Chevron has already worked ChargePoint's technology into some pilots at its California service stations. Ellacott said Chevron appears to be deploying money in areas that may align with its business.
“Like many of the Euro majors, I think what they’re trying to do is look where the synergies lie between energy transition opportunities, wind, solar and carbon capture, and what they have in the upstream space,” said Ellacott.
Chevron said the fund is just one way it’s considering climate change and an energy industry increasingly influenced by renewable resources like wind and solar.
The company has a few solar and wind projects in the U.S. In 2017, Chevron also began publishing annual reports on how climate change impacts its portfolio. Its latest report, published in March 2018, notes that its investors and stakeholders are growing increasingly interested in climate change. But it also argues that the company’s testing shows that Chevron’s portfolio is “resilient in many scenarios.”
Analysts watching how majors engage with clean energy say that even compared to its peers, Chevron’s action has been minimal.
“They really haven’t done much at all,” said Ellacott, stating that the money Chevron has spent in the clean energy space probably adds up to a small fraction of the cost of an exploration well.
According to reporting from Reuters, oil and gas companies did meet in Davos at the January World Economic Forum to discuss how to address climate concerns and investor pressure, and Chevron was present. But compared to other majors, Ellacott said the company’s efforts to confront the energy transition have been lackluster.
“Out of all seven majors, they’re the laggard,” he said. “They’re competing with Exxon on that front.”
Balancing cleantech investments with returns
Compared to European majors, BNEF’s Annex said U.S. majors have been “more focused on cost-cutting within their core business.”
In 2014, Chevron unloaded its renewable energy subsidiary, Chevron Energy Solutions (CES), and other aspects of the business that worked on renewables. At the time, several outlets reported the news as an indication that majors were moving away from proclamations to work toward a cleaner future.
Burger disagrees with that characterization of the move, stating that the selloff of CES wasn’t a “rejection of renewables.”
“We made a decision at that time that it wasn’t meeting our definition of success,” she said. “You have to figure out how you make money on these things.”
Burger’s comments align with statements in Chevron’s latest climate report that prioritize returns on investment.
“Our experience indicates that superior financial performance is more achievable through active and dynamic portfolio management — including allocating capital where highest predicted returns are forecasted — than through presetting targets for certain types of assets (for example, a targeted percentage of renewables within our portfolio),” it states.
Right now, oil makes more money than renewables. The statements hint at reporting from E&E back in 2014, when an executive told the publication that, while Chevron “was happy to nurture solar power with seed money, it lost interest when the investment began to require real money.”
Still, Chevron and Exxon aren't currently facing the same pressures from investors and consumers to consider climate change as are their European counterparts. Instead, Annex said, “U.S. investors who are invested in [an] oil company have invested because of the type of returns they expect.”
WoodMac outlined that same conundrum in a series of reports on the crossover potential for majors investing in renewables. Valentina Kretzschmar, director of corporate research at Wood Mackenzie, said, though majors understand the energy transition is underway, “committing more capital from renewables projects would also mean leaving value on the table for their shareholders.”
But clean energy investments, like those from Chevron, seem to indicate majors understand “they’re going to see themselves very exposed if they don’t do anything,” said Ellacott.
“I think even Chevron and Exxon are starting to feel the pressure a little bit,” he added.
"A tidal wave or a puddle splash?"
The $100 million deployed through Chevron’s New Energy Fund isn’t all the company is spending on renewables and clean energy initiatives. But, according to Ellacott, it’s safe to say the investments are “very, very small.” According to WoodMac, it would require investments of $20 billion per year for oil majors to make as big of an impact in clean energy as they have in their key industries.
So, when it comes to the trend of majors investing in clean energy, “Is this a tidal wave or a puddle splash?” asked BNEF’s Annex. To answer that question, she compared the approximately $1 billion to $2 billion Shell — a leader in clean energy among its peers — spends a year on clean energy to its total capital expenditures, which top $25 billion.
“We would expect other players to move this way,” said Annex. “That said, the degree to which they’re able to do that is really an open question.”