How Should Big Oil Deal With Climate Concerns?

When we were asked about the cause for climate change, our response might be the “oil and gas” industry. But how true is the statement? Oil and gas like any other industry did have its fair share in climate change, but it’s not the sole contributor, and most certainly not the main contributor.

Oil and gas do provide a greener energy solution, the natural gas. But not many talked about such a solution. Hence, the public increasingly demands greater emissions transparency and regulations for the oil and gas sector.

In addition to the request for tighter regulation, evolving technologies and consumer attitudes make estimating demand for petroleum products more difficult. Especially for the marginally tight refinery business model. Thus, oil and gas companies may find it increasingly difficult to secure bank loans and justify new projects.

So, in order to address these challenges, oil and gas companies should consider these comprehensive five-part strategic framework:

1. A strategic response to the energy transition

Big oil and gas producer can reduce global emission through by increasing energy efficiency, avoids leaks, investing in carbon-capture technology and other measures to increase production efficiency and safety.

Companies must become better at tracking their emissions and documenting their progress at reducing them to respond to calls for more transparency from investors, regulators, and the public. Some companies may even consider setting emissions targets.

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2. Preparing for changes in their hydrocarbon portfolio

The demand and technological advancement of renewable energy lead to lowering cost. Hence, big oil should avoid overinvesting in expensive production assets, unless, upfront buying commitment is established and signed.

Keep in mind that the demand for hydrocarbons will develop unevenly across different regions of the world. The rapid adoption of electric vehicles will likely lead to a drop in demand for gasoline in Europe, and the adoption of renewables may cause demand for natural gas to flatten in the United States.

Meanwhile, new markets for natural gas may open up in China as the country is transitioning away from its heavy reliance on coal.

3. Expanding into new energy, other than oil

Oil and gas companies can broaden their portfolio. Besides investing in renewable sources of energy, companies may also use their current expertise to develop energy efficiency equipment and software, as well as carbon-capture and waste-to-energy technologies.

This might be a great branding exercise.

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4. Creating a more flexible operating model

The keyword here is AGILE and lean. This would enable companies to quickly adapt to the changes in the market and remain ahead.

Oil and gas companies confront a range of uncertainties, from changing market demands to new regulatory requirements. Their organizational structures must become agile enough to respond to new data-reporting requests, changing market scenarios and new business opportunities.

5. Safeguarding the social license to operate

Oil and gas companies’ negative public image could translate into more stringent regulations and investor demands. Companies should stress their positive contributions to the economy and global energy security and highlight their efforts at curbing harmful emissions.

Stakeholder management is key.

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Author: Muhamad Aarif

A notorious book addict by night and an oil and gas executive by day. As Mark Twain said, "The man who doesn't read good books has no advantage over the man who can't read them." So, read, read, and read some more.

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