Oil majors will switch more capex from upstream projects to renewables over the next 20 years as green power starts yielding greater returns, a new report said.
Energy consultancy Wood MacKenzie (WoodMac) said renewables projects can already compete on value with some long-life upstream investments.
In its new report, Could renewables be the Majors’ next big thing?, Woodmac said it expects capital to increasingly be diverted from upstream to build positions in wind and solar.
Renewables could account for more than a fifth of total capital allocation for the most active players post-2030, Woodmac said.
It believes the green energy market poses a threat to oil and gas operations, but could help diversify and future-proof companies’ portfolios.
The long-life nature of wind and solar projects and the not-too-distant promise of stable cash flow could also provide much-needed support for dividends.
Renewables will satisfy only 1% of the world’s energy needs in 2017, but will have captured a much bigger slice of the global energy market by the middle of the next decade.
Average annual growth rates of 6% for wind and 11% for solar are forecast over the next 20 years.
But wind and solar alone are not going to transform growth prospects for the peer group as a whole, warned Tom Ellacott, senior vice president of research and corporate analysis at Woodmac.
Mr Ellacott said: “The scale of the opportunity is simply not there on our forecasts for solar and wind, at least not in the next 20 years.
“We estimate spend of $350billion on wind and solar out to 2035 is needed for the majors to replicate the 12% market share they hold in oil and gas.
“But even this ‘bull’ scenario would lift renewables to just 6.5% of the majors’ production in 20 years’ time.”
