Throughout this series on the L.E.K. Consulting 2021 Energy Transition Study, we’ve discussed key findings on energy transition investments in the oil and gas industry. Although strategies differ, the industry in general is responding to improving economics as well as growing public and investor support for decarbonization. This trend in turn has implications for environmental, social and governance (ESG) goals and sustainability.
But that doesn’t mean all 261 of our survey participants see every issue the same way. So, in this final installment of our series, let’s turn the podium over to the contrarians. Here’s what they have to say about priorities, technology and the pace of change in the energy transition.
Oil-and-gas-focused respondents versus ESG and energy transition supporters
Not all respondents agree that oil and gas companies are changing, or that priorities should shift from traditional businesses.
“Majors should focus on reinvigorating the entire energy structure instead of blowing money on solar and wind. Returns are so low. Over time, you’ll find that the companies that invest here [will] start to lose their margin profile.”
“The majority talk about energy transition, ESG efforts, etc. But they are doing [little] to get there. The [ESG targets] a lot of people are putting out are numbers they have already hit.”
“There’s no synergy with energy transition — you may as well start from scratch. Transforming from traditional to renewable energy, if you have no intrinsic value, is bizarre to me.”
“[The energy transition] is overpriced. Everyone knows it is the future. However, a lot of zeros will be generated from these companies. The valuations are on extreme forecasts, so it’s hard to underwrite [the] cost of capital.”
“I wouldn’t touch solar and wind — crazy valuations. These are basically infrastructure projects with 5% cost of capital. I don’t know how you make any money on those long term.”
Speed of energy transition and ESG models
Some energy executives have doubts about how quickly the industry can change, or how good these changes will be for businesses.
“There are notable majors playing a leading role, but I question the pace at which they should be doing it. Demand for fossil fuels will still be robust in developing economies, so companies will have to balance [the transition].”
“Majors have the assets and the capital to fund the transition. However, those companies are so large that change from them may be slow.”
“Companies will have to balance this vision with creating value for [investors].”
Viability of technology
Debates persist about the profitability or scalability of most energy transition technologies.
“[We’re] looking to capture carbon from gas production to produce hydrogen. However, none of this is affordable [today], so [it’s] difficult to push on a larger scale without government support.”
“Many of the energy transition markets today are artificial, meaning they are supported by policies in Washington. The winds can blow [in] a different direction in a few years if there is an administration change. That makes it difficult to trust the solutions will come down the technology curve if policy support is cut off.”
“With tax incentives, we may see people move to carbon capture. Today, people can’t make money doing it.”
This brings our series on top findings from the L.E.K. Consulting Energy Transition Study to a close. Many thanks to the energy executives who have been so generous with their insights. Although perspectives vary and speed bumps lie ahead, the study reveals gathering momentum behind the energy transition. In response, oil and gas companies are adapting to new realities, boosting low-carbon investments and making bold decisions about their futures.
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