HOUSTON—The concern about how methane emissions adversely affects Earth’s atmosphere has all but ensured an energy transition is on the way, and there is little doubt the oil and gas industry will be impacted in some way.

But when that day will arrive and what impact it will have fossil fuels industry are still  very much speculative. All the while, oil and gas companies are left trying to figure out their place in the transition and, in some cases, also how to make space for renewables within their company structure.

Steve Barth, senior business developer for British  energy and commodity trading company, The Vitol Group, and Zack Starbird, assistant general counsel at BP, both weighed in on these issues and more during their discussion, “Big Oil to Big Energy: Impact of Energy Transition on Oil and Gas” during Baker McKenzie’s 6th Annual Global Oil & Gas Institute on April 25. While the approaches of privately held and a publicly traded companies can be vastly different, both know they have to brace and prepare for what is coming.

 “We’re trying to figure out how we as a 54-year-old company that has been profitable from day one moving crude oil and crude oil products around, what do we look like going forward? It’s something that we think about,” said Barth, who is based in Houston. “I don’t think we have aggressively adopted it, we’re not going to be a player that is going to go out and make mass amounts of capital investments into renewable resources because right now we just are not comfortable with that. We are making some investments but they are more strategically driven to acquaint us with certain market place activity.”

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But clearly BP, a public company based in the U.K. where the renewables push is far more aggressive than in the U.S., has taken the approach of trying to get out in front of the movement to reduce methane while also trying to figure out how to work alternative energy into its mix. Starbird said BP has been supporting a carbon price for 20 years and is a supporter of motor vehicle mileage standards in the U.S.

“The difficulty for us though is how do you know what to do?” he said. “We know we want to pass the green earth to our children and grandchildren, we know we want to meet investor demands, but how do you make that switch?”

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Renewable energy methods such as solar and wind will almost certainly impact the amount of oil and gas consumed and therefore could lower pricing, some experts believe. Renewable energy is less expensive, which may mean traditional oil and gas companies will have to get use to smaller profit returns than they are accustomed when adding renewables into the mix.

Starbird was recently reminded about that as a real concern.

“During our annual results call this year, the very first question to our group executive was, `It’s great you want to be in this green space. It’s great that you want to advance energy transition, but what is that going to do to returns?’” he said.

The bottom line is very much in play whether it’s a privately held or publicly held company. Starbird said BP will continue to be aggressive, yet smart, when it comes to investing in renewable sources.

Starbird says his company has about $148 billion in market capital and has capital expenditures each year of roughly $14 billion or $15 billion.

“We can turn over the entire balance sheet in 10 years,” he said. “The trouble isn’t turning a balance sheet over, it’s knowing what to turn it over into. What is going to be the winning technology? How do you find it? How do you invest in it?

“Philosophically, BP is prepared and ready to make the transition when it comes.”

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Vitol, meanwhile, is more conservative when it comes to investing heavily outside of what the company has spent its history building its fortune on.

“Frankly, we are still driven by trade,” Barth said. “When there is a trading opportunity we will engage, and when there is not a trading opportunity we tend to shy away a little bit, particularly in the United States.”

Still, it’s quite obvious that things are changing globally, that some nations are moving faster than others towards renewable energy sources and trying scale back on fossil fuels. Some are being led by political pressure, while others recognize what continuing strictly down the fossil fuels path will do to the environment.

Starbird expects to see a greater response by European energy companies than from U.S. companies at this point. He said BP has two shareholder meetings coming up, and there are two climate initiatives issues on the table. BP is supporting one and opposing the other.

“But we are clearly moving in that direction,” Starbird said. “You listen to Bob Dudley, our chief executive, talk about our priorities and one our key priorities is advancing energy transition. It’s a very real and big thing.

“If you look at internal combustion, there are like nine countries that proposed bans on somewhere or the contemplation of proposing bans on internal combustion engines. California is also on that ban. The left coast, or west coast, depending on your political perspective, is clearly leading the charge. You can’t talk about the U.S. along with places like Vermont, Washington, Oregon and California; you don’t have much of a difference in terms of the political climate in Europe than the U.S.”

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Barth said Vitol isn’t swayed as much by political pressure.

“From a private enterprise perspective we’re not overly concerned about public policy relative to shareholders or their views because our shareholders are our employees,” he said. “Our focus is making sure that we remain profitable in whatever form of transition forms around us, and there is a tremendous amount of transition.”

Where will the transition lead both Vitol and BP in the next five to 10 years?  Both Barth and Starbird see change coming, but neither had a concrete answer as to what that change will look like.

“Fundamental change in five years,” Barth said. “Not because I think the true market place will not demand a massive volume of oil and gas and a new oil and gas supply, but because the world psychology will be…the market place is already a psychological animal as we have seen for decades. It’s not that the demand and supply match up that day but it’s what people think is going to happen in the future.

“In five years from now if they think this thing is on a downward spiral you will start to devalue all assets, and the inherent short position will kick in terms of the way people look at assets, I think. The good thing for a trading company is that involves a lot of volatility because I promise you that curve will not be consistent.

“I do think we will see a different mentality in how people look at the future of oil and gas within a five-year term.”

Starbird jokingly said he had no idea, but then admitted he worries how a growing world will meet demand because there is not enough capital, and also because there aren’t enough returns in the renewable space.

“It will be an interesting time over the next five to 10 yearsß,” Starbird said. “I think you will see more of a shift out of oil than natural gas. BP is doing that but I don’t think it will be just BP. I think you will see some make some announcements. There will be a shift to other things, but I just don’t think we know enough.”

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