Oil and gas majors haven't been the most consistent investors in renewable energy, but as the all-electric future barrels forward, several prominent energy companies have indicated they won’t be left behind.
The latest play for diversification comes from Royal Dutch Shell, which announced Thursday it would open a China branch of its venture fund, Shell Technology Ventures. The venture arm will search for profitable startups in areas such as smart mobility, battery storage and solar power generation for microgrids, which represents a notable switch from the fund's traditionally oil-centric investments.
The move from Shell fits into a growing trend of traditional energy companies investigating the potential for new technologies, and attempting to maintain a competitive edge in an energy industry that’s rapidly changing.
“This is an evolutionary move. It’s very much what Shell and other European majors said they would be doing,” said Valentina Kretzschmar, director of corporate research at Wood Mackenzie. “All of the European majors have really committed to diversification, to renewables and other clean technologies, and they...identify as energy providers rather than oil and gas players.”
Shell created Shell Technology Ventures in 1998 to focus on the commercialization of innovation.” The venture fund arm invests in what Shell views as disruptive energy technologies, such as the $53 million it dropped on solar steam generator company GlassPoint Solar, which works with energy companies on thermal oil recovery at oilfields.
The investment in China, a market Shell said is seeing “explosive” growth, indicates that other majors may also look to the billions of dollars China has invested in clean energy technologies and jobs, and see an opportunity to expand.
But as Kretzschmar notes, not all fossil fuel companies will come out as winners in the clean energy revolution. Some majors have been more keen on change than others. While investments in renewable projects and electric-vehicle technologies have become common for many large European energy companies, such as Statoil and Total, U.S. majors have more often held back.
The accessibility of natural gas and the shale boom in the United States have made gas the fuel of choice for many U.S.-based energy companies because it’s cheap and plentiful, and cleaner than coal. At the same time, regulatory, consumer and investor pressures have pushed European majors toward zero-carbon alternatives. Conversely, pressures in the U.S. -- such as the Trump administration -- have led companies based here to be more conservative.
For European majors, a clean technology future is all but assured, with regulations such as the U.K.’s fossil fuel ban and the 40 percent emissions reduction targets set out in the European Union’s Paris commitments.
But even considering Statoil’s offshore wind investments in Norway and the U.K., Total’s commitment to solar, and moves like Shell’s venture fund in China, the total investment from oil and gas thus far is more symbolic than a sea change.
According to a recent report from Wood Mackenzie, Greentech Media’s parent company, oil and gas companies will need to invest $350 billion in wind and solar by 2035 to mimic the 12 percent slice of the oil and gas market they now enjoy. So far, the actual scale of investment doesn’t even touch that. According to Kretzschmar, Shell invests around $200 million a year in renewables, and it plans to scale up to $1 billion by 2020. But current investments from oil and gas companies total only about 3 percent of their upstream budget.
“The problem for them has been the uncertainty around the pace of growth in renewables and electric vehicles,” said Kretzschmar. “Because most of them don’t see oil demand peaking before 2030, in this kind of scenario, it’s very difficult to invest in renewables projects, which chronically have much more inferior returns than oil and gas projects.”
But some companies view gambling on many different technologies as better than holding back to see what wins out and having to play catch-up later, according to Kretzschmar.
“They’ve been investing in a number of different technologies. Part of the reason is they don’t know which technology is going to be the winning one,” she said. “They’re looking to gain some exposure so they’re not left out.”
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