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Wood Mackenzie: Lower oil prices set aside plans on reducing carbon emissions

Oil&Gas Materials 25 March 2020 11:46
Wood Mackenzie: Lower oil prices set aside plans on reducing carbon emissions

BAKU, Azerbaijan, March 25

By Leman Zeynalova – Trend:

Lower oil prices set aside the plans on reducing carbon emissions, Trend reports citing Wood Mackenzie research and consulting company.

“A growing number of oil and gas companies, led by the European Majors, have set targets to reduce carbon emissions. In a US$60/bbl oil price environment, most companies were generating strong cash flow and could afford to think about carbon mitigation strategies. But now, the sector will struggle to generate enough cash to maintain operations and honour shareholder commitments. All discretionary spend will be under review – that includes additional budget allocated for carbon mitigation. And companies that haven’t yet engaged in carbon reduction strategies are likely to put the issue on the back burner,” the company said.

As for the impact of the current situation on the alternative energy sources, Wood Mackenzie said that historically, the oil price has shown no correlation with investment in renewables.

“The installation of both wind and solar continued to increase through the last oil price downturn. Oil and gas companies make up a tiny proportion of global investment in renewables. The sector accounts for less than 2 percent of global solar and wind capacity. Even if Big Oil stopped investing in renewables altogether, that would have a minor impact on growth,” said the company.

Wood Mackenzie said that at $60 per barrel, solar and wind assets – with average returns of 5-10 percent IRR – have found it difficult to compete with expected double-digit returns for oil and gas. “But at the current oil price, returns from oil and gas are now in line with what investors can expect from low risk solar and wind projects.”

“Time will tell how clean energy spend is affected as budgets are cut. But the energy transition is here to stay. If anything, pressures to commit to net-zero carbon will only intensify. Renewables present opportunities for companies with strong balance sheets. Diversification into clean energies could ensure their long-term survival.”

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Follow the author on Twitter: @Lyaman_Zeyn

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