Out of the largest oil & gas companies, five have already published their 2020 results.
Figures are staggering. Combined, their losses are reaching over USD 77bn (vs 48bn profit in 2019), net sales dropped 38% and market capitalization plummeted by 32%.
They are facing a mix of challenges, some related to an unprecedented health crisis, others coming from the growing transition to new forms of energy.
Early March 2020, a disagreement between Russia and Saudi Arabia & Opec over cutting oil production to match an already decreasing demand lead to a first drop in oil price. The COVID-19 pandemic and the resulting impact on the economies worldwide further depleted oil demand and prices through the rest of the year. Industries reduced or stopped production, people stopped driving and flying.
It will take time for things to come back to normal. But will they really?
The Oil & Gas sector is also facing a major underlying trend, the energy transition, which has already started disrupting their core business.
Last year’s huge asset writedowns, job cuts and drastically reduced investment plans are signs that the sector is facing growing challenges.
Oil demand may come back close to past levels. But for how long?
Electric cars, hydrogen, biofuels or plant-based plastics are gaining traction even if they are still far from mainstream. However their growth will accelerate as will the pressure from investors, countries, cities and customers to turn to cleaner energies.
Oil & Gas companies need to prepare for the future, reinventing themselves along the way. What happened in 2020 is an opportunity for them to adapt and evolve.
While Exxon Mobil and Chevron have still to make significant moves on new energies, their European counterparts are already transforming themselves.
Shell, Total and BP committed to ambitious objectives, pledging to drastically reduce emissions from their operations and from the use of the products they sell, reaching net-zero by 2050 (with carve-outs for part of the activities). Total even announced changing its name to TotalEnergies to show its reduced focus on oil.
Total, Shell and BP are planning respectively 35, 25 and 20 GW of renewable installed capacity by 2025. It is still far from Utilities like Enel or Iberdrola but they are catching up quickly.
In the last years, they have invested in electric vehicle charging companies and Shell and Total have both acquired electricity suppliers. Pilots projects and partnerships have been announced to produce green hydrogen.
Nevertheless, shifting away from oil and gas products will take time and a lot of money. They need revenues and profits from today’s oil and gas operations to finance the shift to sustainable activities in renewable energies, electrification and electric mobility.
Even if investments in offshore wind or solar add up to billions of dollars (or euros), it still represents only a small share of the money invested in their traditional business.
Oil companies need to accelerate the speed of their energy transition strategies.
It is not easy in the midst of demand uncertainties, financial losses, stranded assets, reduced investments and job cuts.
But the pressure from society and markets will grow more and more and with it the need to change drastically from a system which positioned them as some of the most powerful and rich companies.
Sources: Companies websites, Financial Times, BBC, Les Echos, Marketscreeners.com, L’Express. Photo: Shell International ltd