Oil and Gas

Big Oil Is Jumping Into Renewables

Over the next decade, the clean energy sector will soak up between $8 trillion and $16 trillion in new capital.

And the switch from fossil fuels to renewable energy could create somewhere between $1 trillion and $2 trillion in annual capital expenditures.

This is great for the environment. And it’s great for the economy too.

Renewable energy and technologies like green hydrogen have matured. And that makes them commercially viable and deployable at scale.

The federal government still doesn’t recognize the opportunity here. But many U.S. companies do.

They are gearing up to decarbonize the energy value chain. And that’s attracting a lot of capital.

Piling Into Renewables

Capital is rapidly rotating out of fossil fuel investments and into renewables. Next year, 25% of energy companies’ capital expenditures will be on renewable energy.

That will be the first time in history that renewables capture more investment capital than oil and natural gas.

I saw this coming years ago. And that’s why I’ve positioned my subscribers to make the most of this sea change.

Bankruptcies in the oil sector are on the rise. So Big Oil is scrambling to diversify its investment capital…
Cumulative North America E&P Bankruptcy FilingsBut where is Big Oil moving that capital? It’s betting big on renewables.

London’s Imperial College Business School and the International Energy Agency recently published a joint analysis. They found that renewable energy companies produced less volatile and greater returns than fossil fuel companies did. And they’ve been doing it for 10 years.

Plenty of money is already moving into clean energy. From 2004 to 2019, $3.3 trillion was invested in clean energy financing. And nearly half of that was invested during the last five years.

There’s only one downside for investors. Renewable projects burn most of the invested capital at the start. And it takes a lot of money to build out a big solar or wind farm.

That’s why money from institutional investors is key.

Big Oil has big money to invest. It’s just a matter of convincing shareholders that renewables are the next big thing…

Back in May, Royal Dutch Shell (NYSE: RDS-A) and BP (NYSE: BP) released first quarter earnings. Shell slashed its dividend from $0.47 to $0.16 per share.

It was a stark indicator of the effect the coronavirus had on earnings. But there was another very telling indicator…

Neither Shell nor BP cut any expenditures related to low-carbon investments.

Shell CEO Ben van Beurden said, “There is an energy transition underway that may even pick up speed in the recovery phase of the crisis, and we want to be well-positioned for it.”

BP CEO Bernard Looney hummed a similar tune: “We’ve left our $500 million of low-carbon investment unchanged, untouched this year. Where we cut elsewhere, we did not cut that back. So we will, over time, be working hard to do more in that space.”

Less Risk Is More

Why are oil companies investing in renewables?

The higher earnings and greater returns that renewable energy companies garner are starting to grab the attention of major fossil fuel shareholders.

The huge swings in oil prices also work in favor of renewables.

Renewables have almost no risk, which is one of the biggest factors swaying oil capital toward clean energy.

With renewables, there are no potential environmental nightmares lurking, unlike with fossil fuels.

Lastly, peak oil demand is in the past. So Big Oil is looking toward renewables for profits. You can thank the pandemic for that.

The coronavirus has created a crisis of uncertainty. So investors looking for less risk and consistently higher rates of return would do well to consider energy investments in the renewables sector.

I’ll be watching and reporting on all the developments here.

Good investing,

Dave