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Are oil and gas companies on the run?

Private sector fossil fuel spending on exploration is drying up just as modest rises in clean energy investments are being observed. With stock market investors increasingly embracing renewables, the IEA has observed positive signals in its latest energy investment report, but warned we are still doing far too little to keep global heating at bay.

While solar industry executives are likely to be drawn to estimates such as an anticipated 10% rise in PV investment in key markets this year, the more headline-grabbing content of the International Energy Agency‘s latest global investment survey may concern the world’s oil and gas majors.

The latest edition of the annual report cites figures which demonstrate non-state-owned fossil fuel companies are pulling away from exploration in favor of exploiting their existing reserves. With companies such as BP, Total, Shell and Eni pledging to ramp up clean energy spending to placate activist investors, market developments accelerated by the Covid-19 pandemic appear to point to the fact the oil and gas majors could be on the retreat from fossil fuels.

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The International Energy Agency (IEA) study notes the reserves held in the Middle East will enable state-owned players there to pick up the slack – and market share – in the short term, as demonstrated by ambitious liquefied natural gas investment plans announced by Qatar. Even in Qatar, though, the effects of the energy transition are acknowledged by the fact plans to develop new deposits have been accompanied by a big commitment to invest in carbon capture, use and storage, in a year the IEA predicts could be pivotal for the as-yet unproven technology, which would offer fossil fuel majors more time to adapt.

Back on the solar beat, the IEA document said the technology was eclipsed by the progress of rival intermittent renewable power source wind last year, although, confusingly, the numbers don’t stack up where the report states global wind capacity almost doubled to 114 GW, led by 70 GW in China and more than 15 GW in the U.S. pv magazine has asked the IEA about the apparent discrepancy.

Solar companies can take solace from the IEA’s prediction PV spending will surpass wind investment this year, with a rise of more than 10% in China, the U.S. and Europe, following a year which saw new PV generation capacity deployment rise almost 25%, to nearly 135 GW.

Even in markets where large scale solar retreated, there was an uptick in small scale installations, with the IEA pointing to Vietnam, where the winding down of a large scale incentive program was counterbalanced by rooftop arrays – with 9 GW added.

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With the report estimating total energy spending will rebound almost 10% to $1.9 trillion this year – including $530 billion for new generation capacity of which 70% will be devoted to clean power – the IEA said record levels of sustainable debt and green bond issuance last year mean there is plenty of cash available for renewables, but not enough high-quality projects or dedicated channels to ensure it translates into panels – or turbines – on the ground.

The document reported battery storage investment rose almost 40% last year, to $5.5 billion, with grid scale facilities accounting for a 60% rise as the U.S. and China added 1 GW of capacity. The report did not give a megawatt-hour volume for the new capacities deployed, but did note battery costs fell an average 20% during 2020.

Green hydrogen

Low-carbon hydrogen spending also hit record levels last year with the report stating $70 million worth of electrolyzers came online although the majority of them will “run on grid electricity, at least initially.”

Storage and green hydrogen also accounted for a healthy chunk of the venture capital funding which flowed into start-up energy companies, notably in the U.S. and Europe. The fact more cautious institutional investors are starting to have exposure to such innovative companies in their portfolios, according to the IEA report, could be another indicator of lean times ahead for the fossil fuel industry.

The message from the IEA on energy sector R&D investment, though, was the same as for overall global spending levels: While there are encouraging signs in the nascent post-Covid recovery, not nearly enough is being done to keep the world on track for less than two degrees Celsius of global heating, let alone sub-1.5 C.

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Source: pv magazine