Growing business models for oil companies

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• BP was the first oil major to commit significant capital to renewable projects, such as wind and solar, from 1980 onwards.
• In 2017, BP acquired a 43% stake in Europe’s largest solar power project developer, Lightsource, formerly known as Lightsource BP.
• In 2018, BP invested in three green energy startups: StoreDot, FreeWire, and Chargemaster.
• Shell’s New Energies strategy, introduced in 2016, includes investments in several areas including electricity, wind and solar, electric vehicle charging, and initiatives to encourage the adoption of hydrogen fuel cell electric vehicles.
• In 2016, Shell set its investment target for green energy projects between $4bn and $6bn for the period from 2016 until the end of 2020.
• Shell spent $2bn in 2016 on setting up a low-carbon energy and electricity generation business.
• In 2017, Shell acquired UK-based electricity and gas provider, First Utility, and Europe’s largest electric vehicle charging company, NewMotion.
• In 2018, Shell bought a 44% stake in US solar power firm Silicon Ranch for $200m and made a $20m equity investment in India-based renewable power company Husk Power Systems.
• Total invested $1.4bn in 2011 to acquire a 60% stake in US solar firm SunPower.
• Over the past decade, Total has invested in various green energy projects including: the purchase of French battery manufacturer Saft for $1.1bn, the acquisition of Belgian green power utility Lampiris for $224m, and the acquisition of Direct Energie for $1.7bn.
• Total is aiming to become a leader in solar power and aims to increase its 1.6GW worth of solar power capacity to 5GW over the next five years.
• Eni formed partnerships with GE Renewable Energy and Norwegian energy company Equinor in a bid to grow its onshore and offshore wind capacity.
• Eni has a plan to deliver 1GW of installed renewable power capacity between 2018 and 2021, by investing €1.2bn ($1.3bn), with a goal to reach 5GW by 2025.
• Chevron launched a Future Energy Fund with an initial commitment of $100m set aside to invest in breakthrough technologies that will reduce carbon emissions and provide cleaner energy.
• Exxon has invested very little in renewable energy projects, and has no specific time frame

• Shell, Repsol, and Total are leading oil companies trying to reduce greenhouse gas intensity, according to a new report by Morningstar.
• The report was released on January 13 and examined integrated oil companies, which are involved in every aspect of petroleum production.
• Oil companies need to go green to remain competitive, according to the research firm and while regulation could help, existing carbon taxes cover very little global oil production or consumption.
• More than 50% of oil and gas companies take climate change into account when making business decisions or have strategies to reduce emissions, according to the Transition Pathway Initiative, a group that assesses how prepared corporations are to transition to a low-carbon economy.
• Oil and gas companies emit greenhouse gases through direct operations such as burning fuel at refineries and also from indirect activities like buying electricity from others to run their facilities.
• Combustion of products sold to consumers, such as the gas pumped into cars, represents about 90% of integrated oil companies’ emissions, according to Morningstar.
• Shell, Total, and Repsol stood out because they are the only integrated oil firms that have included scope 3 emissions in their reduction targets, Morningstar wrote.
• Scope 3, which represents about 90% of integrated oil companies’ emissions, is the combustion of products they sell to consumers and companies can’t do much to control those gases short of changing the products they sell.
• Shell, Total, Repsol, and Norway’s Equinor are industry leaders in the transition to renewable energy generation, the report said.
• Morningstar found that investing in renewable energy generation is the most effective way to reduce emissions, followed by producing more natural gas, which releases less carbon dioxide when burned than other fossil fuels.
• Chevron, BP, and Petrobras were also among the firms Morningstar looked at, but they fell short of the International Energy Agency’s 2-degree scenario, an initiative to cap the rise of the world’s temperature at 2ºC.
• The International Energy Agency released a report urging the sector to do more, saying that “failure to address growing calls to reduce greenhouse gas emissions could threaten their long-term social acceptability and profitability.”
• While some oil and gas companies have taken measures to reduce emissions, the industry “could play a much more significant role through its engineering capabilities, financial resources, and project-management expertise,” according to the agency.
• Oil and gas companies had channelled less than 1% of their annual capital spending toward low-carbon projects, according to the

• Major oil companies including BP, Shell, Marathon, and TotalEnergies have been investing in renewable natural gas (RNG) over the past six months.
• BP bought Archaea Energy for $4.1 billion.
• Shell acquired Nature Energy Biogas for $2 billion.
• TotalEnergies owns Poland’s largest biogas company, Polska Grupa Biogazowa.
• Marathon has a 49.9% stake in LF Bionenergy.
• RNG is a zero-waste fuel that is created from organic materials like dairy farms and landfills.
• RNG has no downsides and potentially helps in reducing greenhouse gas emissions.
• Environmental Protection Agency (EPA) in the USA has been showing increased support for RNG as it can greatly reduce methane emissions from waste sources and lower greenhouse gases.
• Experts forecast that RNG will grow at a 44% compound annual rate, reaching $72 billion by 2027.
• Companies that support the oil and gas industry are expected to benefit from Big Oil’s move into RNG.
• One such company mentioned in the comments is Clean Energy Fuels (CLNE).
• The author notes that there are “considerable opportunities” with Big Oil’s move into RNG.
• As of the time of the article, CLNE had $263 million in cash and a market cap of $863 million.
• A redditor notes that CLNE is trading at 2x revenue.
• Another redditor notes that CLNE trades on 25/26 EBITDA estimates.
• An article published by the New York Times highlights that RNG can be created from a variety of sources, including waste from dairy farms, food plants, and landfills.
• According to the same article, natural gas produced from organic waste is a form of RNG that is pretreated to remove impurities and can be delivered through pipelines.
• RNG can also be used to reduce the carbon footprint of transportation. Incentives are available in California to promote the use of RNG in heavy-duty trucks.
• Companies such as UPS and FedEx are testing the use of RNG to power their vehicle fleets.
• There are challenges in scaling up RNG production due to the high costs of building and operating biogas plants. Regulations and policies can also be limiting factors.
• RNG production is concentrated in a few countries, including the USA and China.
• Companies such as BP and Shell are interested in RNG projects because they offer an opportunity to obtain carbon credits.
• The RNG market is expected to keep growing as concern about climate

• The oil and gas industry is turning to the digital technology industry for solutions to daunting challenges and to reduce carbon footprints.
• The Biden administration endorsed the role of AI in bringing about a green-energy future and announced up to $34.5M to promote the development of computed-based technologies, including AI and machine learning.
• The terms “AI” and “machine learning” are often confused, but AI includes computer-based technology that imitates natural or human intelligence to process large volumes of data and accomplish a goal, while machine learning employs computer systems to learn by analyzing data and discern patterns.
• Oil and gas companies are employing machine learning technology across their entire value chains, from wellhead to burner tip.
• In the upstream segment of the business, producers use AI for well-placement analytics and production optimization.
• Pipeline companies use AI to analyze pipeline flows and determine the location and size of methane leaks.
• Owners of gas processing plants can use AI software to create “digital twins” of equipment, allowing them to conduct predictive and preventive maintenance.
• Royal Dutch Shell is one of the most enthusiastic proponents of AI, having adopted the use of the technology across virtually all of its line of business. The supermajor has installed software to perform descriptive analytics and predictive maintenance for half a million valves in its operations across the world, deploying about two million machine-learning models in the process.
• Dan Jeavons, Shell’s general manager of data science, said the use of machine learning and AI technologies allows the company to proactively monitor entire systems.
• In its global rollout of AI technology, Shell has deployed monitoring software on some of its biggest pieces of equipment, including 32 compressors, 16 pumps, three large-scale electronic subsea pumps, and three steam-and-gas turbines in locations around the world.
• The list of equipment that Shell is monitoring is growing by 300 pieces of equipment every week.
• Oil and gas companies are employing AI technology to reduce their carbon footprint.
• AI software is used to keep track of fugitive emissions of greenhouse gases that escape from pipelines and oilfield equipment, the better to control them.
• Oil producers also are using AI software to keep track of the volumes of fugitive emissions of greenhouse gases.
• Upstream oil companies are using AI to optimize the storage of CO₂ for enhanced oil recovery.
• According to a report from PwC and Microsoft, AI technologies could reduce global greenhouse gas emissions by up to 4%.
• Beyond Limits, a Los Angeles-based industrial AI software company, has created an

• Oil companies need to take measures to mitigate environmental damage during the transition to cleaner energies while considering every facet, including nonrenewable power production.
• Prioritizing prevention over production is crucial to reduce environmental harm. This involves instilling a strict inspection program and property loss prevention plan and scheduling updates to the plans as environmental regulations in the oil industry become stricter.
• Environmental harm is caused by maintenance negligence and natural disasters such as hurricanes and tornadoes. Storm protection is critical to safeguard fiberglass saltwater tanks on fields from catching aflame, causing wildfires.
• Regular reviews could stop long-term damage or excess methane release especially if developing preventive maintenance is a recent initiative and records detailing names and sources of old equipment are lost over time. This involves all hands including contractors and executives.
• Preventive maintenance doesn’t just include inspections on the pipes themselves but continued monitoring of the pressure they receive from the various oil types going through them.
• Optimizing old technologies is critical to advancing the oil industry into a more sustainable future. This includes gathering analytics to optimize performance and finding ways to use sensors to measure, regulate, and operate oil extraction could automate mechanisms in digital oilfields before they could damage the environment.
• Industrial Internet of Things (IIoT) implementation is an advancement that could be used to connect data collection to the cloud that will allow everyone in the oil industry to collaborate for global improvements.
• Oil companies need to reimagine water usage since the amount of water used during extraction is immense. Recycling freshwater is possible, but it doesn’t account for treatment processes that expend energy and resources. There are also potential advancements in materials such as polypipes that provide an alternative to regular PVC.
• Oil companies should embrace renewable energy to mitigate environmental damage. Wind, solar, and hydropower could power machines and mitigate some of the damage caused by the most influential oil spills in history.
• Some oil companies, including BP and Equinor, are leading the way in green oil through their number of eco-friendly patents, deals, and sustainable energy jobs. ExxonMobil is branching into the field of biofuels for commercial use.
• Oil extraction damages the environment by default, but it doesn’t mean companies can’t take charge to minimize their harmful impact. A lack of care could affect soil quality for decades, deteriorate natural habitats and countless generations of aquatic life, and harm human health.
• Professionalism, prevention, and awareness could stop catastrophic environmental events caused by the oil industry.

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• Climate change and technology are affecting almost every industry on a global scale.
• The oil and gas sector is being driven towards sustainability and digitalization.
• Many traditional oil and gas companies are diversifying and expanding into new areas with innovative business models that focus on sustainability and digitalization.
• Energy and utilities companies are leading other industries when it comes to adopting sustainable practices.
• According to a survey by SAP and Oxford Economics, energy and utilities executives have made more sustainability-related changes to their operations than those in other industries.
• The biggest drivers of sustainability efforts in the oil, gas, and energy industry include government regulations, incentives, and subsidies, diversification and changing cost structures, digitalization, and changing customer, investor, and employee expectations.
• Many companies are placing a greater focus on customer needs and diversifying to include new revenue streams, such as renewable energy, electrical charging stations, advanced chemicals, biofuels, hydrogen, LNG, autonomous transport-on-demand initiatives, and even expanding retail outlets.
• Shell plans to earn 50% of its revenue from non-fuels by 2025, and it is the world’s largest mobility retailer, with more retail outlets than McDonald’s, and sells $6 billion-dollars-worth of convenience retail products every year.
• Digitalization is changing the way companies work, creating more opportunities for partner collaboration and opening doors to new options for innovative business models.
• Energy and utilities companies are more advanced than other respondents in their use of technology, with almost half (49%) using cloud technology versus just 36% for other industries.
• Factors such as eco-conscious consumers, pressure from investors, and employee expectations are having a huge impact on the oil, gas, and energy industry from multiple angles.
• Many companies are facing growing pressure from within their own workforce as long-time employees retire, taking their traditional methods and intellectual property with them.
• People’s shifting expectations from fossil fuels to renewable energy result in several renewable or alternative energy initiatives that currently have government incentives, such as tax credits for solar panels, electric cars, or other alternative-energy options.
• Companies are encouraged to take several steps toward a more sustainable future, such as creating a long-term strategy for foundational change, using data to influence decisions on implementing sustainable practices, using transport and delivery methods that optimize loads and reduce mileage, emissions, and carbon footprint, sourcing materials ethically and in the most sustainable way possible, and operating assets and equipment in the most energy-efficient manner that is safe for the environment and the workforce.
• Diversification

• The ongoing need for reliable, affordable energy
  • The oil and gas industry is under relentless pressure due to its traditional image as a villain and the threat of climate change. However, until fossil fuels are displaced at scale, oil and gas demand will grow alongside.
  • Integration makes a more valuable collection of assets by connecting them (perhaps virtually) and removing or avoiding obstacles to optimize operation. This will be a pivotal differentiating factor for energy companies.
  • Information has proven to be the biggest obstacle to integration; the digital age has created a new dynamic where companies can take advantage of the great opportunity to overcome this hurdle.
• Response to ESG considerations will define strategies
  • Companies’ response to the rising environmental, social, and governance (ESG) imperative will take one of three forms and the choices that companies make will, to a large extent, define their overall strategies. Returns and valuations in the near term and beyond will hang on the decisions these companies make.
  • Certain companies view ESG excellence as a competitive advantage and will invest proactively to create value based on that business strategy.
  • Digitalization is taking on a whole new lens around ESG. Companies identify a business unit, gather and collate the carbon emissions data from that unit, monetize those emissions, and trade them via blockchain.
  • Companies are evaluating opportunities to invest in decarbonized energy such as hydrogen, wind, solar, carbon capture, utilization and storage, geothermal, energy storage, and others. Those with command of the technologies will be at an advantage.
• Focus on fiscal discipline and access to capital
  • The future success of oil and gas companies is dependent on access to capital.
  • Capital providers are increasingly aware of sustainability risk. They are calculating their exposure and analyzing their clients’ emissions both on an absolute and intensity basis to understand how that rolls into an aggregated view from a portfolio perspective.
  • Some investors are concerned that a rush to low-carbon technology will cause overvaluation. As a result, capital access for those organizations that need to make this transition will be delayed and bumpy.
  • Amid less third-party investment, capital discipline and operational excellence will remain a high priority for all oil and gas companies. Profitability in legacy businesses will need to fund energy transition investments and keep returns at the corporate level competitive while alternative energy projects find their footing. Digital transformation will lead the way, unlocking efficiencies, cutting costs and enabling new business models. With better data analysis, companies will make better M&A decisions

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Overview of digital challenges and opportunities for oil companies

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Case studies of successful business models employed by oil companies in renewable energy projects