One strategy local oil companies can adopt to improve their chances of securing investment dollars is by incorporating renewables as part of their energy mix as investors pull funds away from fossil fuels.
Financing is leaving the oil and gas sector at an alarming rate due to environmental concerns. So, local oil firms are making a case for investments by showing there are renewable options in their energy mix even as they ramp up gas investment as transition fuels.
“You must now put energy mix strategy in your portfolio to brighten your chances of getting investments,” said Chikezie Nwosu, CEO, Waltersmith Petroman Oil Limited, in a presentation at the WIEN & REAN International Women in Energy Symposium.
According to Nwosu, his company is morphing into an integrated energy company relying on gas as a transition fuel to make a case for sustainable operations. Waltersmith has acquired a gas-to-power licence of 3,000mw power and is pursuing a 1,000mw renewable energy project with the United Nations Industrial Development Organisation (UNIDO).
For some local oil and gas companies, this is seen as a game-changing strategy to secure investments. Seplat Petroleum Development Company had said Nigeria should prepare for energy transition with gas as its prime focus and gradually invest more on renewables. It recently secured over $200 million to ramp up gas investment in Nigeria.
Financing from financial institutions is drying up. Bank loans to the energy sector constitute a big size of their non-performing loans, haemorrhaging appetite for further lending.
Multilateral organisations, developmental agencies, and private equity firms are unwilling to provide lending for oil and gas projects as shareholders are increasingly demanding to fund cleaner fuels.
To date, over 100 globally significant financial institutions have announced their divestment from coal, according to a study by the Institute for Energy Economics and Financial Analysis (EEFA), a US non-profit think tank.
“Now they’re leaving other fossil fuels including oil, LNG, fossil gas, oil sands, and arctic drilling,” said analysts at EEFA.
Recently, the New York State’s pension fund, one of the world’s largest and most influential investor with $226 billion in assets, said it will drop many of its fossil fuel stocks in the next five years and sell its shares in other companies that contribute to global warming by 2040.
Many funds have also committed to reducing their fossil fuel exposure to align with the Paris Agreement’s emissions reduction target of 1.5 – 2.0° Celsius.
Significant investors are divesting from oil sands exploration, production, transport and processing, and also arctic oil and gas projects over concerns of carbon emissions.
These investors are increasingly aligning their portfolios with the emission reduction goals of the Paris Agreement.
To extract oil, oil and gas companies burn the fossil fuel ‘natural’ gas to generate enough heat and steam to melt the oil out of the sand. Some five barrels of water are needed to produce a single barrel of oil, according to EEFA.
Even big oil companies are grasping the reality that this is a world where energy is in transition. For example, energy giant BP says it will cut its fossil fuel production by 40 percent by 2030, while its refining output will decline about 30 percent.
Royal Dutch Shell months ago said it was gutting 10 percent of its workforce as part of efforts towards low-carbon energy, and was funding an off-grid energy investment firm, All On, in Nigeria to ramp up energy access for underserved communities.
