Investment by Type
IOCs’ biggest challenge is to find synergies between their existing business models and expertise and innovative new energy frontiers.
Due to IOC’s experience in refining oil and gas products, many companies have pursued a number of endeavours in the biofuel industry. While in biofuels, IOCs still spend significant upfront capital developing unfamiliar and complex raw materials, they can leverage existing capabilities from refining through converting oil refineries or applying techniques used for processing petroleum. Conveniently, some biofuels can be mixed with petroleum products meaning they can be sold and used within existing operations. In 2015, Total announced it would halt the processing of crude oil at the La Mède Refinery and instead manufacture hydrotreated vegetable oil, or renewable diesel, making it the first biorefinery in France.
ExxonMobil, which has been relatively conservative with its investments in renewables, has a sizable research team dedicated to advanced algae biofuels and has extended this research for 2017. IOCs are struggling to keep low, the production costs for both first and second-generation biofuels, due to high feedstock prices. Shell, for example, had to cancel funding for research in biofuels made from algae and woodchips due to the poor economics of converting hydrocarbons. Total however, has been the most active of IOCs in developing second-generation biofuels. In the past two years, they have embarked on three investments ranging from a few million dollars, to hundreds of millions to produce and market biofuels composed of plant waste.
Statoil has leveraged its expertise in offshore structures to deploy four large-scale offshore wind farms in Europe. As one of the world’s largest offshore operators with a long history of working in the turbulent North Sea, the company has an unmatched understanding of floating structures, well-developed port facilities, shipbuilding for installation vessels, and cable designs. Statoil was thus well positioned to build the Hywind Turbine, the world’s first floating wind turbine in Scotland, UK. While the company has limited its exploration in other areas of renewables, it remains the primary stakeholder in this unprecedented project. Statoil originally owned 100% of the project until it sold 25% of its stake to Masdar, a renewable energy company in Abu Dhabi.
Other IOCs, such as Shell, have begun to express interest in wind farms. Shell recently won a bid to build a 680 MW wind farm in Netherlands and Eni’s subsidiary Saipem, signed a contract in April 2016 to execute the lift and mating operations for Statoil’s Hywind Turbine. Statoil’s pledge to dedicate 25% of its CAPEX to new energy solutions and its recent bids in the U.S. offshore market signals that the Norwegian company will continue expanding its operations in offshore wind.
Total, Shell, and Eni are pursuing efforts in large-scale solar energy production. Eni is planning to deploy solar power plants within and outside of Italy. In 2016, the company announced the Progetto Italia initiative to build 15 large-scale solar power plants next to oil and gas brownfields (existing facility). Outside of Italy, Eni is similarly looking to repurpose brownfields and Greenfields in Pakistan, Egypt, and Algeria. Eni estimates these projects will save up to 0.3 M/tons of CO2 per year for the next 20 years. Other companies have shown interest in Eni’s integrative solutions. In 2016 and 2017, General Electric and Statoil respectively signed a non-binding framework agreement with Eni to jointly assess renewable energy projects located near existing oil and gas operations. Shell is also planning to integrate construction of a solar power plant with existing property by building one on an unused parcel of land next to its Moerdjik chemicals site in the Netherlands.
Total’s interest in solar caught the oil and gas industry by surprise when it became part of one of the three largest solar energy providers after purchasing a 66% stake in SunPower a premier manufacturer of solar panels, in 2011. Although Shell was previously involved with manufacturing PV panels, Total SA is one of the only IOCs to have experience deploying utility-scale solar power plants. In 2013, Total also won a 20% stake in Shams 1, a concentrated solar power plant (CSP) in Abu Dhabi that was the largest CSP plant at the time. These two projects align with Total’s aim to leverage resources from acquired companies and become an electricity trading company. Other IOCs have followed suit with significant acquisitions in solar power developers, such as Shell's acquisition of a 44.83% interest in Silicon Ranch Corporation as well as retail energy provider MP2.
Investment in Start-up Ventures
IOCs have provided corporate venture capital (CVC) funding to start-ups whose services and products are not necessarily integrated into IOCs’ business strategy or operations, but nonetheless allow them to have a small stake in renewable energy. CVC funding is provided to start-ups exploring emerging technologies. Examples include Shell’s £5 million venture funding to Kite Power Solutions, which generates wind power from kites, and Statoil’s equity stake in United Wind, a company that leases wind turbines to homes. The degree to which IOCs are involved in the funded start up’s operations ranges from owning a minority equity stake and sitting on the board of directors as an observer to restructuring the start-ups’ business strategies.