A Reality Check on the Energy Transition. Are We Too Late?
SUGAR LAND, Texas–(BUSINESS WIRE)–Researched by Industrial Info Resources– Analysis from management consulting company Bain & Company (Boston, Massachusetts) finds executives at major energy firms believe they’re making progress on the path to net-zero, though revenue streams from that industry segment are a concern.
“We intend to leverage our capital discipline, advantaged assets and financial strength to deliver lower carbon energy to our customers and superior cash distributions to our shareholders,” Chevron Corporation (NYSE:CVX) (San Ramon, California) Chief Executive Officer Mike Wirth said in the company’s first-quarter presentation.
Intentions are noble, though reality is another matter. Various pathways to a net-zero economy are embedded in energy forecasts from the world’s major economies.
From member-state commitments on emissions reductions to carbon trading schemes, the European Union’s Fit for 55 package aims to cut emissions by at least 55% by 2030, relative to a 1990 benchmark, and achieve a net-zero economy by 2050.
Calling climate change an “existential threat,” meanwhile, the U.S. government set a goal of cutting emissions by at least 50% from a 2005 benchmark by 2030. The Inflation Reduction Act, which passed last year, is packed with tax incentives to help realize that goal.
Bain found that “most” executives believe they’re doing what’s necessary to address those goals, and about a third feel they’re outperforming their peers.
Chevron’s carbon capture and storage (CCS) facility at the larger Gorgon project in Australia has already sequestered more than 7 million tons of carbon dioxide. Subscribers to Industrial Info’s Global Market Intelligence (GMI) Oil & Gas Project Database can click here to see a detailed project report.
And even more is expected from the energy-dense Gulf Coast region.
More than 10 industry partners, including Chevron, are making plans to capture and store up to 10 million metric tons of CO2 per year by 2040 from industrial facilities, the company said.
Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), meanwhile, has a long-term commercial agreement with Linde to store up to 2.2 million metric tons of CO2 from a hydrogen production facility in Beaumont, Texas, home to Exxon’s recently-upgraded refinery. Subscribers can click here for the Linde project report.
Few companies put a dollar figure on the climate commitments, though Bain analysts found the private energy sector could deploy as much as 24% on “new growth” opportunities this year.
For Exxon, that would work out to be about $1.5 billion of its total capital and exploration expenditures for the first quarter.
Bain found, however, that it isn’t capital constraints that concern the energy majors, but a return on investments. Right now, many of the emerging technologies backed so far during the energy transition, such as green hydrogen and direct air capture (DAC), aren’t quite ready for prime time. And, in the case of hydrogen or biomethane, it can be rather expensive.
“Most customers aren’t willing to pay much more to support these new businesses at scale, so companies will need government policy support to incentivize the investment,” Bain’s report read.
Delegates at the recent summit of the G7 expressed support for driving “the transition to clean-energy economies” while addressing climate change through the advance of a low-carbon energy sector.
But less-than-majors, such as Pioneer Natural Resources (NYSE:PXD) (Irving, Texas), spent more time in their earnings reports discussing production levels and shareholder returns than CCS or hydrogen technology. The latter, backing Bain’s point on returns, may be prohibitive to greener investments as the focus remains on free-cash flow.
“This free cash flow, coupled with our strong balance sheet, supported $1.3 billion of shareholder returns through our second quarter base-plus-variable dividend of $3.34 per share and $500 million of opportunistic first quarter share repurchases,” said Pioneer’s outgoing Chief Executive Officer Scott Sheffield.
In an era of over-excitability and hyper-partisanship, it’s no wonder than that respondents to the most recent energy survey from the Federal Reserve Bank of Dallas said that the energy was seen as an “evil industry,” given huge profits, shareholder returns and the perception that oil and gas companies don’t care about climate change.
BP plc’s (NYSE:BP) (London, England) top brass said earlier this year that the global economy needs the energy resources available today, while still pursuing a cleaner future. Recent comments from the likes of Exxon, meanwhile, suggest many of the net-zero goals are out of reach.
An unnamed executive from the utilities sector in Europe told Bain that there is no “reality check” when assessing decarbonization targets, costs and function, adding a top-down approach may be destined to fail.
It was no less pragmatic for the U.S. market.
“While it can be a worthy goal to cut emissions, there will be a large societal cost if we move too quickly in the short term and leave people at risk of dying because they can’t afford to heat their homes,” an executive said.
Subscribers can click here for all project reports mentioned in this article and click here for the related plant profiles.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR’s Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
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