European oil & gas supermajors are slowly ramping up commitment to the energy transition but the wider petroleum industry has “remained steady in its identity and role” in the global energy mix, with the sector investing less than 1% of its capital in non-fossil-based projects – making climate action targets “very challenging to reach”, according to Capgemini’s latest World Energy Markets Observatory (WEMO) report.

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The report found that while capital expenditures (capex) in renewables by oil & gas developers such as Shell, BP, Total, Equinor and Eni have been “picking up gradually over time” through outlays in solar, offshore wind and energy storage, only $25bn was likely to go into specific clean energy projects through 2025, while $166bn was forecast to be spent on green-field oil & gas projects during the same period.

“Some European majors are leading the way with 5-7% of capex invested outside core oil and gas supply. Ambitions have been accelerating though, in part due to the rising appetite from shareholders, rising pressure from society, narrower oil & gas opportunity set, and better understanding of the value drivers and operating model in renewables,” said the report’s authors, who highlighted “the rise of the broad energy company emerging in Europe”.

“These companies are making material moves not only in upstream electricity generation but also in electricity storage – Total buying [lithium-ion (Li-ion)] battery maker Saft, Shell acquiring EV charging company Greenlots and Equinor taking over hydrogen technology developer H21.”

In the report, produced with De Pardieu Brocas Maffei, Vaasa ETT and Enerdata, Capgemini noted Shell could become the largest western utility by 2035 and Total the fourth, if their respective energy transition targets were met.

By contrast, “US IOCs [international oil companies], unconventional players and NOCs [national oil companies] have remained steady in their role in the energy mix,” said the report authors, pointing to ExxonMobil’s ‘new energy’ focus being trained on biofuels and carbon capture and storage rather than pure-play renewables.

The rapid maturation of clean-energy industries was also among the key take-aways from the report, with Capgemini spotlighting that renewables accounted for “more than half of the worldwide electricity generation investments”, though it added that this spend was concentrated “more in developed countries and less in developing countries that continue to build coal and gas plants to meet a booming electricity demand”.

“With the growing renewables market and the progress of technology achievements, wind and solar power costs declined again by more than 10% in 2019, with consistently lower costs being recorded month after month … while [Li-ion] batteries for EVs and stationary storage [saw] costs decrease by 19%, and 115 mega-factory’ projects have been recorded,” said the report authors.

“This year’s edition of WEMO reflects two opposing narratives: in 2019 a continuation of previous trends related to energy transition, renewables and storage technology progress, climate change issues, and energy markets evolution; and the profound industry-wide impact of Covid-19 in 2020 that will reset the baseline and establish a so-called ‘new normal’.”

The Capgemini WEMO report emphasised the “significant drop” in energy consumption due to the pandemic that had led to the largest reduction of greenhouse gas emissions since World War II, but stressed “long-term climate change goals are still very challenging”.

“With the worldwide economic growth slowdown in 2019, gross domestic product growth for G20 countries was 0.8 points below the previous year. Energy demand growth slowed down with consumption increasing by just 0.7%, as compared to 2.2% in 2018,” said Capgemini energy and utilities senior advisor Colette Lewiner.

“While global emissions continued to increase by 0.6% in 2019 – their highest level ever – those in the energy sector specifically fell 0.4% due to a combination of factors including a shift from coal to gas, renewables growth, and energy efficiency improvements.”

But she cautioned: “Emissions will likely rise again as the world recovers from the pandemic”, adding “it would take a similar restriction, every year for the next ten years, to get on the right environmental trajectory, which is of course unviable.

“Profound changes are needed to reach climate change objectives,” said Lewiner.

Capgemi called the allocation of one third of €750bn ($875bn) European Covid-19 recovery fund to sustainability and energy transition projects “very good progress”, but it said the execution of those plans would be “crucial”.

“The report therefore recommends tracking these sustainability funds and reinforcement of the ‘green’ conditionality for allocation,” said the report authors.

Capgemini mapped out a six-point recommendation designed to “meet climate change goals while ensuring energy security of supply”, which included: setting a meaningful carbon price and/or imposing carbon taxes; incentivising carbon-free generation plant construction and electrification “allowing a systemic decarbonisation of the economy”; developing green hydrogen; updating grids for a higher share of renewable sources; and ensuring the “‘green’ share of stimulus plans becomes a reality”.