It is often said that Oil Majors should transition to renewables and become Energy Majors. But what is the best balance based on modern portfolio theory? Our 7-page paper answers this question by constructing a mean-variance optimisation model. We find a c0-20% weighting to renewables can maximise risk-adjusted returns. 5-13% is ideal. But beyond a c35% allocation, both returns and risk-adjusted returns decline rapidly to utility-type levels.
Refining has the highest carbon footprint in global energy. To improve, we find better catalysts are needed. Uniquely, they could cut CO2 by 15-30%, while also uplifting margins. Catalyst science is under-going a digitally driven transformation. This 25-page note identifies the leaders.
OPEC will most likely need to cut production again to stabilise 2020 oil markets, as shown by our newly updated oil market models.
But over-supply still looms in 2023-25. Three resolutions could remove the overhang, within the oil market’s balance of probabilities.
Our updated oil market outlook is explored in this short, 4-page note.
Commercialising Guyana’s new oil resources could entail 30-35kg of CO2 per bbl, which is c50% below the oil industry average. Prioritising such low carbon barrels will matter increasingly to investors, as they can reduce total oil industry CO2 by 25%. Hence, they should attract a lower WACC. In Guyana’s case, the upshot could add $8-15bn of NAV.
What is the best way for investors to drive decarbonisation? We argue a new ‘venturing’ model is needed, to incubate better technologies. CO2 budgets can also be stretched furthest by re-allocating to gas, lower-carbon oil and lower-carbon industry. But divestment is a grave mistake.
Small, autonomous, electric vehicles are emerging. They are game-changers: rapidly delivering online purchases to customers, creating vast new economic possibilities, but also driving the energy transition. Their ascent could eliminate 500MTpa of CO2, 3.5Mboed of fossil fuels and c$3trn pa of consumer spending across the OECD. The mechanism is a re-shaping of urban consumption habits, retail and manufacturing.
Seven technology themes can save 45Mbpd of long-term oil demand. They make the difference between 2050 oil consumption surpassing 130Mbpd and our own forecasts: for a plateau in the 2020s, then a gradual descent to 87Mbpd in 2050. This is still an enormous market, equivalent to 1,000 bbls of oil consumed per second. Opportunities abound in the transition: to deliver our seven themes, improve mobility, switch oil to gas, reconfigure refineries and ensure that the world’s remaining oil needs are supplied as cleanly and efficiently as possible.
Technology leadership is crucial in energy. But it is difficult to discern. Hence, we reviewed 3,000 patents across the 25 largest companies. This note ranks the industry’s “Top 10 technology-leaders”: in upstream, offshore, deep-water, shale, LNG, gas-marketing, downstream, chemicals, digital and renewables. In each case, we profile the leading company, its edge and the proximity of the competition.
2019 has evoked resource fears in shale, after some E&Ps posted disappointing results, and implied productivity data fell 20% YoY, according to the EIA’s data.
We find the data-issues are benign. They reflect changes to completion design, as a bottlenecked industry increased its use of cube development and flowback control.
Underlying productivity continues improving at a phenomenal pace. These conclusions are derived from reviewing 350 technical papers filed by the shale industry over summer-2019.
Petrobras, Shell, TOTAL and two Chinese Majors are pushing the boundaries of deep-water technology to develop the Mero oilfield. But the distribution of possible NPV outcomes is very broad, at c$6bn. Challenges remain. The ingenuity required to overcome them should not be under-estimated. Further prizes may be unlocked in the process.