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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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How Big Oil Could Become Big Electricity

When Big Oil majors started buying EV charging networks and battery producers, they probably earned some praise for venturing into new business directions away from their increasingly unpopular core business. Now, they are taking this a step further: supermajors have super utility plans.

It was only a matter of time, really. Integrated oil companies know the importance of covering the whole supply chain in an industry, so it only made sense to grow into power generation once you’ve established a presence in one of the biggest growth segments in power demand: electric vehicles.

French Total led the way by buying local electricity retailer Direct Energie last year for more than US$1.7 billion. According to CEO Patrick Pouyanne, electricity will be the energy of the 21st century and Total is using every opportunity to expand there. In fact, since 2014 when Pouyanne assumed the top post at Total, the company has become a utility as well as an oil an gas company after a string of acquisitions across power generation (Eren), battery manufacturing (Saft), and power distribution (Direct Energie, Lampiris).

But Total is not the only one. Shell recently made headlines with plans to become not just a player in electricity generation, but also the biggest one by 2030. Bloomberg reported earlier this month that the Anglo-Dutch supermajor was pouring US$2 billion annually into its new energies division that aimed to expand its presence in cleaner power generation. This segment could yield returns of between 8 and 12 percent, the head of the new energies unit, Maarten Wetselaar, told Bloomberg. Related: U.S., Canadian Rig Count Plunges As Oil Retreats

Like Total, Shell is growing through acquisitions in the power generation and distribution sector as well as in EV charging. This power plan fits in with the company’s strategy of reducing the portion of oil in its overall production to 25 percent from 50 percent and raising the portion of gas to 75 percent. What’s more, however, Shell specifically plans to materialize its power ambitions by betting on renewables rather than on conventional power generation and distribution.

Some believe power generation and distribution is already turning into the new battleground for Big Oil. Andrew Critchlow, S&P Global Platts’ head of news for EMEA, warned in a recently published analysis that this Big Oil rush into power utilities might potentially “create a new breed of gigantic energy-controlling monopolies.”

Such monopolies, if they ever materialize, which is questionable, are quite a way off. However, Big Oil’s shift into electricity smacks of what Big Tobacco did after the offense against smoking began. It regrouped and went into e-cigarettes. One could certainly draw a loose parallel between the two. Yet in this shift, Big Oil is better positioned. Electricity demand is set for fast growth, not jut because many believe the hype around EVs will stop being a hype and become a reality, but simply because the world’s population is growing--and this population needs energy.

Big Oil turning into Big Power and replacing the traditional utilities from the top spots is a very realistic prospect. As Critchlow noted in his analysis, Big Oil has not just the ambitions but the means to achieve them: no renewable power company can compete with any of the supermajors on revenues or profits.

By Irina Slav for Oilprice.com

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  • Lee James on March 24 2019 said:
    I think Big Oil's transition to clean energy is inevitable. While great progress is being made by European Big Oil, U.S. Big Oil is mostly trying to milk shale and is wondering if deep-water is viable.

    I look forward to the day when Oil Price reports that U.S. big oil is cleaning up on, hopefully, clean energy profits.
  • Mamdouh Salameh on March 24 2019 said:
    Big oil wouldn’t have become that big if it hasn’t been taking risks and looking for opportunities to maximize its revenue in accordance with global energy needs and trends. Branching into electricity generation is no exception given the growth of the global need for electricity, the inevitable penetration of electric vehicles (EVs) into the global transport system, the huge need for EV charging networks around the world and battery production. In a nut shell, big oil is swimming with the tide.

    However, in order for big oil to signify its keenness on addressing climate change issues and also burnish its environmental credentials, it must make it clear that a big chunk of the new electricity it will be generating will come from solar power and other renewable sources.

    Still, big oil should be guided in its investment strategy by three premises. One premise is that there could never be a post-oil era because it is very doubtful that an alternative as versatile and practicable as oil, particularly in transport, could totally replace oil in the next 100 years and beyond. Oil will continue to be used extensively in the global petrochemical industry and other industries and outlets from pharmaceuticals to plastics, aviation and computers to agriculture which can’t continue to feed 8 billion people without oil and also in transport in most of the developing countries.

    The second premise is that there will never be a peak oil demand either. Global oil demand will never peak throughout the 21st century and far beyond because EVs will never be able to replace oil in global transport. They will only decelerate the growth of global demand for oil. While the Global EV adoption continues to rise, the cumulative total displacement of oil from the transportation sector will only reach 352,000 barrels a day (b/d) this year, less than 0.4% of global demand.

    The third premise is that big oil should always aim to maximize the return on its assets and investments. If there will be neither a post-oil era nor a peak oil demand, it follows that big oil will look for opportunities in the most profitable outlets in the world. The global oil industry is and will continue to be the most profitable industry for the foreseeable future.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • EH Lipton on March 24 2019 said:
    If this has any substance, an ounce of truth, it would be absolutely horrible.
    These Giants need put in the ground alongside there relic past monopolization of industry, everything they have done up to date, has been of there intrest in control of our freedom to build our own wealth and prosperity,, " everything cost more because of them"
    While they sat back collecting there ransom for NEEDED energy to do the trial, thee errors and finally the successful development of wind, solar, hydrogen. All the costs born by us, THEY WERE THE NAY SAYER'S. NOT THE CONTRIBUTOR'S. And now they THINK we are going to hand over control,, ARE YOU OUT OF YOUR TREE'S? NO DARN WAY,, no way in or out of Heaven.!
  • David Villarreal on March 24 2019 said:
    I really dont know about this one. I know when my car was low on gas. I switch to electric. After that I had nothing but problems. Car was no good. Some how it burned moter.

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