The 2050 end game is not an energy system without fossil fuels. Rather, the objective for oil and gas companies is to play a central role in the decarbonization of the energy system. A new focus on process efficiency and demand management, together with an expansion into decarbonized and electricity-based energy solutions, can extend the license of oil and gas to create value for years to come.
The three archetypes for tomorrow’s oil and gas leaders
We believe there are three—and only three—archetypal roles oil and gas companies can play during the Decarbonization Transition and beyond. They can be a Decarbonization Specialist, an Energy Major or a Low-Carbon Solutions Leader.
The Decarbonization Specialist
Decarbonization Specialists will be those companies best able to operate in the oil and gas value chain—upstream, midstream and/or downstream—in a low-carbon world. They will deliver the most efficient, lowest-cost production and integrate carbon capture, utilization and storage technologies and methane emissions-management capabilities. They will create value through a low-emissions operating model and high-performing ecosystem that other players can’t readily emulate. Because of their distinctive capabilities, Decarbonization Specialists will build a competitive asset portfolio, extend their assets’ viable lives and capture disproportionate value from oil and gas beyond the upcoming volume peak.
The Decarbonization Specialist archetype should be considered by players that have deep operational capabilities, occupy an early leadership position in carbon management and measurement and currently operate carbon-advantaged assets. Upstream independents, downstream players (including refiners and petrochemicals), as well as service companies could select to be a Decarbonization Specialist.
The Energy Major
There are reasons to believe that now is the time for a well-executed extension of oil and gas companies’ scope of operations into a wider energy arena. Feeling both a push from their current assets and a pull to new opportunities, the Energy Major will build or add clean energy businesses to their existing oil and gas assets. Over time, they will increasingly rotate to low-carbon energy, while unlocking trapped value by integrating oil and gas into a portfolio of energy businesses. The Energy Major will carry out a balanced set of activities across each of Clean the Core, Accelerate the Transition and Extend the Frontier dimensions, with the first two driving the majority of investment and action over the upcoming decade.
Prerequisites include portfolios of upstream and midstream assets that are optimized for cost and emissions, along with refining or LNG and gas processing capabilities, and downstream customer businesses. Arguably this restricts the companies that can realistically pursue this path to the current integrated oil players and selected national oil companies.
The Low-Carbon Solutions Leader
The Low-Carbon Solutions Leader exits its current direct asset-owning and production role in oil and gas. It refocuses, instead, on leading in one or more clean areas of the energy system such as offshore wind, biofuels, hydrogen or decarbonized fuels. It may also potentially move to providing technical and decarbonization solutions back to the energy system, including to Decarbonization Specialists.
The Low-Carbon Solutions Leader will take the lead across one or more Extend the Frontier opportunities, while also carrying out some Accelerate the Transition actions. Some of these companies might even selectively provide Clean the Core solutions in energy management services, CCUS technologies, emissions trading and emissions management to decarbonize other players’ asset-centric portfolios.
This archetype represents the most profound strategic and operational departure from the past. It is not for the faint of heart. The companies choosing this path will monetize their core assets, then reinvest and leverage their capabilities and expertise to win in new areas across the clean energy sector. While several integrated oil and gas companies have set objectives to become leaders in low-carbon solutions (often starting by scaling a renewables-centric power portfolio, typically with a significant commitment to offshore wind), this archetype represents a bolder, holistic shift from hydrocarbon ownership to a clean-energy-only portfolio.