BP and Shell look best placed for the energy transition among Europe’s oil giants, said global financial ratings group Fitch as it cited a mix of renewable power, gas and fuel retail outlets as the prime business lines for success in the coming decades.
Fitch Ratings said the two supermajors have an edge as the transition accelerates in comparison with European peers such as Total and Eni.
“We currently view the most favourable products or business lines to be renewable power generation, natural gas production, LNG production and trading, and retail franchises, due to their more robust fundamental demand drivers,” said Fitch – one of a handful of ratings agencies that assess credit risk for lenders globally – in a report on European oil and gas transition strategies.
Shell and BP both have big ambitions in the renewables sector – in BP’s case including a huge role in US offshore wind via a tie-up with Equinor and a 50 gigawatt capacity target by 2030.
Fitch Ratings said both supermajors also have “substantial exposure to natural gas”, which its analysts see as “credit-positive given the robust long-term prospects of natural gas as a ‘bridge’ fuel during the transition, even after petroleum demand peaks”.
Shell and BP also have the biggest retail networks – 45,000 and 18,900, respectively, in 2019 – which Fitch Ratings said “creates the option of gradually transforming fuel stations to incorporate electric vehicle-charging stations and/or hydrogen fuel stations as demand patterns evolve”.
All Europe’s oil and gas majors – in contrast to their US peers – are pursuing various decarbonisation strategies designed to steer them towards net-zero by 2050 in Scope 1 and 2 emissions from their own operations, while also expanding into renewable power.
Fitch Ratings said the direction of travel is long-term positive, while European majors “have distinct competitive advantages that may help them position themselves in the renewable market. Their large scale of operations and financial strength will facilitate large investment projects.
“There could also be some operational advantages for offshore wind projects due to their similarities to offshore oil and gas fields. Global footprint and the ability to run multiple large projects simultaneously should also help majors position for the energy transition.”
However, the Fitch analysts warned “ the execution risk related to the transformation strategies is significant”.
They also noted that the shift would be gradual. “We therefore expect that, at least until 2025, these companies will generate the majority of their cash flows from traditional hydrocarbon businesses, while the energy transition will have no or a very limited impact on their ratings.”
(This article first appeared in Upstream's sister renewable energy publication Recharge on 22 January, 2021.)