How oil and gas’s transition to renewables affects the pipeline industry

With the changing policy and investment landscape, the oil and gas industry must adapt to the transitions from traditional energy sources to fully integrated renewables. Ultimately, it must evolve in ways that will contribute to decarbonization efforts. This article focuses on the impact of these changes on the pipeline industry. Several implications are discussed below. 

Transitions away from oil and gas to fully integrated renewables

In a changing world, pipeline companies must adapt to these transitions. Oil and gas companies are facing new environmental and economic pressures. Government investments in infrastructure and projects are diluted by the shift away from fossil fuels, diluting NOC operational focus and detracting from core assets. In addition, transitions from oil and gas to renewable energy are increasing risks, particularly as governments increasingly turn to NOCs for priority projects.

In addition, transitions from oil and gas to renewables may also help protect pipeline companies against fluctuations in demand. While coal-powered electrification is not a viable option in Asia, gas can act as a low-carbon baseload and intermittency solution in addition to renewables. Integrated gas-renewables projects are intended to operate gas generation as a backup for renewables. In the U.S., such projects have become highly effective due to the availability of inexpensive natural gas and abundant land.

While oil and gas remain a key part of the energy mix, they are likely to play a substantial role in developing regions. Moreover, the transition from oil and gas to renewables will present significant business opportunities for oil and gas companies. Nevertheless, they must be aware of the challenges associated with low carbon energy development. The oil and gas industry must explain its future role in a low-carbon economy and position itself as an ally in this transition.

Investment in renewables

The oil and gas pipeline industry will see a massive increase in investments in renewables over the next decade, with some companies investing in more than one source of energy. BP, for example, bought a pipeline of nine gigawatts of solar projects in the United States. Total invested billions in a major solar producer in India. Oil and gas companies will see a rise in their overall capital expenditures if they increase their investments in renewables. While investment in renewables is still a small fraction of their overall portfolios, it will likely increase to 4% this year. Leading European companies are also making ambitious commitments to invest in alternative energy, with some as high as 10%.

The investment shift in renewables is not going as fast as many analysts have predicted. While some oil and gas companies have pledged to reduce their emissions, they are still not on track to switch their investments to renewables as quickly as they should. In fact, green investments by European companies have dwarfed those of the oil and gas pipeline industry. Furthermore, the transition to renewable energy will take decades, not years. But even if we use renewables in our daily lives, the amount of money we’ve invested in renewable energy in the past century pales in comparison to the amount of money funneled into fossil fuel companies. In fact, according to one recent study, fossil fuel companies received 75 times more subsidies in 2013 than renewables. Perhaps that’s why it made sense to heavily subsidise fossil fuels 100 years ago when we were building our energy infrastructure.

Impact on the pipeline industry

There are multiple drivers behind the move towards renewables, including the increased pressure from shareholders, regulators, and the public. In addition, oil and gas companies are recognizing substantial new business opportunities such as coal-to-gas fuel switching, advanced biofuels, and offshore wind. To remain competitive, oil and gas companies must explain how they will play a role in a low-carbon economy, apply their existing expertise, and position themselves as partners, rather than adversaries.

The transition towards renewables isn’t complete, however, and the oil and gas industry must continue to address public perceptions of their industry. For example, public discourse today emphasizes the need to combat climate change, and renewable energy sources have become popular as clean, non-polluting alternatives to fossil fuels. This can put a strain on the industry’s social licence to operate.

The industry’s geographic location also limits opportunities for renewables. The industry can hedge its exposure to shifting demand by adopting a geographically-oriented strategy that positions it in areas of significant energy demand growth. By pursuing this strategy, oil and gas companies can participate in the low-carbon transition by contributing to the energy addition part of global energy demand. However, this strategy may limit the industry’s ability to compete on a global scale.

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