Deloitte Survey Finds Four Major Pathways for Most Oil and Gas Companies in Energy Transition
• Oil and gas companies see competing strategies for energy transition, with four key strategic decarbonization pathways emerging across the industry.
• Forty-seven percent (47%) of oil and gas executives surveyed are currently mapping out near-term decarbonization strategies.
• Five percent (5%) of respondents are already shifting to green portfolios.
• Only 30% of respondents currently envision remaining solely focused on oil and gas by the 2040s.
Why this matters
Corporate pledges for net-zero are pouring in, but the pathways to net-zero are many, with varying shades of green. Deloitte’s latest survey-based study, “Oil and gas business in a low carbon world,” highlights four main pathways: “Net-zero pioneers” and “green followers” are now setting their sights on green energy, while “low-carbon producers” and “hydrocarbon stalwarts” will likely continue to focus on fossil fuel production, but with many of the latter doing so on a decarbonized basis. Each pathway is expected to be important to meet climate goals and keep oil prices stable while the transition is ongoing. The study findings are based on a survey of 100 C-level executives at global oil and gas companies, including integrated, U.S. pure-play, multinational exploration and production, and state-owned oil and gas companies.
One goal, four pathways for the energy transition
The net-zero goal is real, and the global energy system is set to undergo transformational changes. But the future is wide open for oil and gas companies. Many O&G companies are needed to supply the remaining demand outlook while others will play a big role in enabling the successful energy transition. O&G companies will likely embark on one of the distinct pathways during the transition and beyond.
Net-zero pioneers with net-zero targets and a bold vision to divest their hydrocarbon business model built over decades — especially at an oil price of $75/bbl — could create and unlock significant value through capex redeployment, valuation uplift and divestment proceeds. The companies already on this pathway are undertaking green change now.
Green followers with an ultimate goal of going green could realize significant financial gains by monetizing their traditionally higher reserves-to-production (R/P) ratio in the near term and using this revenue to make a big foray into the green business at a reduced risk in the medium term. These companies seek to right-size oil reserves and pace into new energy solutions as more green technologies reach commercial maturity around the mid-2020s.
Low-carbon producers could create new value by streamlining their portfolio, decarbonizing their business, and optimizing their operations.
Hydrocarbon stalwarts with the capability to remain the last-standing suppliers have the potential to gain value through increased market share. By the 2040s-2050s, a small group of O&G surveyed producers, or 30% of respondents, expect to remain focused on regions and assets with the lowest costs and extract the remaining value of reserves.
The survey finds the transition will likely play out over time, driven by fundamentals, technology maturity and stakeholder pressures.
“The energy transition presents both a welcome opportunity and a huge challenge for oil and gas companies transforming for a low-carbon future while meeting the world’s growing energy demand. There’s no uniform prescription for the O&G industry’s decarbonization efforts. Instead, we find each company must carve its own path among a host of options for innovation and value creation across a continuum.”
– Amy Chronis, vice chairman and U.S. oil, gas and chemicals leader, Deloitte LLP
Long-term value of staying in O&G
The 30% of surveyed O&G executives staying in hydrocarbons as their long-term strategy, see concentrated value in an anticipated smaller, but more competitive, market. Respondents at companies with less than 16% of their hydrocarbon portfolio at risk may reap $1.3 trillion of value by 2050.
Between a rock and hard place: shareholders versus stakeholders
While pressure is on to act sooner than later, companies waiting to make a green plunge are carefully researching where best to redeploy capital while those deciding to stay in the hydrocarbons business are studying how best to grow market share in a shrinking market. Irrespective of which pathway they choose, companies must serve a widening array of stakeholders: their shareholders, customers, governments, and communities, all becoming more environmentally conscious. Additionally, progress on four capabilities —operations design, supply chain ecosystem, the digital mindset, and organizational set-up, including workforce planning for tomorrow — could differentiate the rate of value creation across and within the four pathways to a low-carbon world.
Next-gen Greenhouse to accelerate transformation
To address the pressing need to decarbonize and transform business models for the energy transition, Deloitte opened a first-of-its kind next-gen Deloitte Greenhouse®, powered by energy and industrials. The immersive, interactive space, located in the nation’s energy capital of Houston, leverages advanced technologies to accelerate innovation and help ideate, co-create and prototype solutions to the toughest challenges facing the industry today and in the future.
About the survey
Deloitte conducted a survey of 100 C-level senior executives and environment, health and safety leaders of global oil and gas companies to study organizations’ plans and strategies to navigate the energy transition. It spanned a diverse mix of global upstream portfolios, including integrated companies, domestic pure plays, international E&Ps, and national oil companies with revenues above $100 million. The comprehensive survey helped uncover the actions that some O&G businesses are taking to address changes in the industry and identify what motivates those businesses to adopt new practices and implement new technologies related to optimizing the hydrocarbons business and/or venturing into clean energy.