Amid intensifying pressure to fight climate change in the ESG-dominated business environment, a recent report by Deloitte shows that only 23% of oil and gas executives globally are planning or starting their transition away from fossil fuels.

The study noted, however, that of the 77% that will remain focused on oil and gas business, nearly half are mapping out strategies for low-carbon operations in the near term by 2030s. Of these, 30% of oil and gas executives said they would stay focused on oil and gas as a core business at least through 2040.

“The CEOs that we spoke to in the study are not ignoring energy transition, but it’s important to understand that a net-zero world does not mean zero hydrocarbons,” Amy Chronis, vice chairman and U.S. oil, gas and chemicals leader with Deloitte, told Hart Energy.

The report noted that the companies staying in hydrocarbons as their long-term strategy see concentrated value in an anticipated smaller, but more competitive market.

“Staying in oil and as would require decarbonization, which is both a possibility and opportunity while continuing to meet the world’s growing energy demand,” Chronis continued. “47% of our surveyed executives stated the pathway to becoming a low-carbon producer aligns most with their long-term vision.”

In its study titled “Oil and gas business in a low carbon world,” Deloitte surveyed 100 C-suite executives across global oil and gas companies, including integrated, U.S. pure-play, multinational E&Ps and NOCs to determine their energy transition strategies. The report said the energy transition, overall, will play out over time, driven by fundamentals, technology maturity and stakeholder pressures.

With corporate pledges for net-zero on the rise, Chronis noted that Deloitte’s report has identified several pathways to energy transition with “varying shades of green,” which means oil and gas companies are adopting different approaches to low-carbon production.

While some are setting their sights on green energy, most oil and gas producers will continue to focus on fossil fuel production, but with many of the latter doing so on a decarbonized basis, the report said. Stricter regulations coupled with capital market ESG strategic investment strategies are driving action, which Deloitte divided into four major categories:

  • Net-zero pioneers are moving away from fossil fuels 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, which could create and unlock significant value through capex redeployment, valuation uplift and divestment proceeds. 
  • Green followers are planning to “go green” and could realize significant financial gains by monetizing their traditionally higher reserves-to-production ratio in the near term and using this revenue to venture 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 see long-term value of staying in the oil and gas business with the capability to remain the last-standing suppliers and gaining value through increased market share. By 2050, some oil and gas producers expect to remain focused on regions and assets with the lowest costs and extract the remaining value of reserves.

While there is increasing pressure to act sooner on climate change goals, “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,” the report said.

“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.”

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