National oil companies like the Nigerian National Petroleum Corporation (NNPC) may reap benefits created as a result of changing shareholder and investor landscape that demands significant reduction in net carbon footprint from big oil companies.
An increasing number of shareholders are using their rights as partial owners to influence the investment decisions of International Oil Companies (IOCs) in favour of renewable sources of energy.
In addition, institutional investors now have global warming policies that discourage further investments into fossil fuels, and lobbyists such as non-governmental organisations are boxing IOCs into a small corner, severely restricting the supply of funds.
“Investors have forced Dutch oil and gas major Shell to officially change its strategy, investing in more renewable energy and energy storage,” said Cyril Widdershoven, a long-time observer of the global energy market.
Widdershoven said this is already the reality and that a growing amount of smaller oil and gas companies have become insolvent, partly caused by “global warming constraints” and lower oil prices in general. The first casualties are falling in Europe, mainly the United Kingdom, where 16 companies went bankrupt in 2018, in comparison to zero in 2012.
BP made a series of investments in electric vehicle technology and infrastructure in 2018 that significantly moved its advanced mobility agenda. This included the purchase of Chargemaster, operator of the UK’s largest vehicle charging network, as well as venturing investment into battery company StoreDot.
Total Plc’s adjusted net operation for gas, renewables and power segment was $756 million in 2018, thanks, notably, to the good performance of liquefied natural gas (LNG) and gas/power trading activities. The acquisitions of Direct Energie and the LNG business of Engie account for the increase in investments to $3.5 billion in 2018.
This means state-owned oil companies like NNPC have a chance to take advantage because they are not constrained by shareholder activism or NGO pressure. They are also the real owners of the overwhelming majority of hydrocarbon reserves in the world.
But national oil companies are faced with a different set of challenges.
“The time for oil is up. It will fade away in the coming decades. Of course, it will not be done in a day. It will take time,” Keun Wook Paik, senior research fellow at Oxford Institute for Energy Studies, told BusinessDay in an emailed note.
The International Energy Agency, a Paris-based energy think tank, has said major oil and gas exporters have weathered many upheavals in recent decades but a renewed commitment to reform and economic diversification will be vital to cope with the changing dynamics of global energy.
“Major swings in hydrocarbon revenue can be deeply destabilising if finances and economies are not resilient,” an IEA report stated.
Already, Saudi Arabia is facing a budget imbalance that will require oil prices to hold at 30 percent above current price levels to redress, and other oil exporting countries, such as Nigeria, also face varying degrees of exposure to oil prices. The world’s top oil exporter would need oil priced at $80-$85 a barrel to fix its budget imbalance, an International Monetary Fund official said.
To achieve this, Riyadh needs to keep close watch on the level of oil production, how much of Saudi oil revenues are transferred to the budget, and how non-oil revenues perform in 2019.
“But if you take the (2019) budget as presented with everything remaining equal, a breakeven point would be around $80-$85 dollars,” Jihad Azour, director of the IMF’s Middle East and Central Asia department, told Reuters.
It has also become clear that not only oil and gas giants are being targeted, after one of the world’s largest mining and commodity trading companies, Glencore, decided to put a limit on its thermal coal investment.
Glencore had to act swiftly after it was confronted by a largely unknown shareholder network called Climate Action 100+, which claims to be backed by more than 300 investors, managing assets of around $32 trillion. The group was founded a little over a year ago but has already forced oil majors’ boardrooms to take radical decisions.
STEPHEN ONYEKWELU
