Energy Transition Report 2018

Changing attitudes of investors In terms of investment, in addition to the social attitudes described above, uncertainties around Energy Transition also affect access to finance. Although there is not a strong perception that investments in the oil and gas sector risk being stranded assets, the energy transition has contributed to a shortening of timeframes and more caution when sensitivity-testing potential investments. Investment in renewable and alternative energies is also growing and provides a potentially attractive alternative to oil and gas. With increasing scale, such investments are, like oil and gas, highly capital-intensive. Although the quasi-regulated nature of projects may, at first glance, appear less attractive to some investors, this is not necessarily the case. Support mechanisms for low-carbon energy have tended to remove the market price risk for investors while leaving other risks associated with research and development, project management, capital structuring and marketing which are not far from the core competences of oil and gas companies and investors. In addition, it has been possible to structure finance for renewable projects so that different types of investors can each have the combination of risk and return that they are used to. A common pattern is for the initial developers to refinance assets once they reach the operational stage where the returns are then more suitable for other types of investor. Impact on oil and gas company strategies As a consequence of these changing circumstances among consumers, potential employees and investors, many oil and gas companies have themselves begun diversification efforts. Some larger international companies are increasingly becoming end-to-end providers building on their powerful brands and direct relationships with customers. Many have strategic objectives to accord with the objectives of the Paris agreement in response to the wishes of investors and consumers and are becoming an important source of finance for investment and R&D in alternative energy. Many are also participating in the Oil and Gas Climate Initiative (OGCI). OGCI A voluntary, CEO-led group of 13 energy companies covering 30% of global oil and gas production across 130 countries. The group is focused on: • Reducing methane intensity of production to below 0.25% by 2025 and supporting the aim of zero routine flaring • Developing a portfolio of investments focused on carbon dioxide reduction and reuse • Consistent structure and guidance for members in reporting against common objectives Contractor and infrastructure businesses in the oil and gas sector are already part of the current or potential supply chain for alternative energy providers. To varying degrees, this section of our membership is already part of the Energy Transition. This process has been accelerated during the recent downturn in the oil and gas sector, where contractor companies have had to diversify out of necessity. Other oil and gas producers will continue to operate successfully with the confines of oil and gas for decades to come. Continued investment in oil and gas is still of significant importance to meet the needs of improving economic conditions and living standards across the world and to increase access to energy sources and air quality. Source: Oil and Gas Climate Initiative

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