The recent oil price crash is “changing everything” for fossil-fuel companies and will likely accelerate the sector’s energy transition, according to one of Europe’s leading energy research experts.

“I think [the oil companies] see the need to diversify and that their business model — which has been extremely stable for the past 50 years or so — is now quite vulnerable. And this is changing everything,” says Nils Røkke, the chairman of the European Energy Research Alliance (EERA), an association of more than 250 research centres and universities totalling about 50,000 researchers across 30 European countries.

“I think diversification is something of a survival strategy — that you need to have more legs to stand on than just the oil & gas business… and those that act first will have a better chance [of succeeding],” tells Recharge.

One of the major reasons that oil companies have been slow to invest in renewable-energy projects is that they tend to bring internal rates of return of around 5-10%, compared to the 15-20% typically made from oil & gas investments.

But renewables may now be the wiser investment if oil prices remain low for an extended period.

And with Covid-19 stimulus funds — in Europe at least — likely to be channelled into green investments rather than oil & gas operations, the coronavirus offers an extra incentive for the fossil-fuel sector to move deeper into cleaner energy.

“This is a unique possibility and opportunity to diversify and to start the energy transition for real,” says Røkke.

He dismisses concerns that low crude prices might mean oil & gas companies have less money to invest in their energy transitions.

“I think many of these companies have resources that they can put towards this now, if they do it right,” Røkke says.

Transition

Crude market crash 'shows oil companies must diversify to survive'