The great-granddaughter of the legendary John D. Rockefeller came out in print with harsh criticism of Exxon Mobil, one of the fragments of the former empire of the founder of Standard Oil. Neva Rockefeller Goodwin criticized Exxon for its shortsightedness, “its insistence on remaining an oil and gas company rather than transforming itself into an energy company prepared for the transition to a post-carbon economy.” The funds from the sale of her stake in shares were demonstratively used to “fight global warming.”

The changing energy landscape, reflected in the growing importance of low-carbon energy sources and pushed by climate policy, aggravates the question of the long-term strategy of commodity companies. Environmental organizations are adding fuel to the fire, demanding that they abandon financial investments in hydrocarbon businesses, as well as funds exiting coal and oil and gas investments. The movement, called Fossil Fuel Divestment, already involves hundreds of asset managers around the world.

The leaders of the raw materials industry have gained some experience in testing renewable energy sources (RES). These were more test investments, partly of an image nature, rather than serious attempts to diversify the business. BP produced solar modules under its own brand, but closed the business in 2011, unable to withstand competition from the Chinese. Shell invested more than $1 billion in renewable energy in the early 2000s, mainly in wind energy, but announced in 2009 that it would no longer invest in this industry for economic reasons. Chevron liquidated its profitable renewable energy division in early 2014, citing its lack of core business and the need to concentrate on core business areas. At the same time, Chevron now uses solar and wind energy to power several of its operations and is one of the largest players in geothermal energy. The Russian Lukoil in 2015 withdrew from the joint venture created in 2011 with the Italian energy company ERG (but still owns the wind farm that remained from it in Romania).

The current head of Shell has no doubt that “in the near future, solar energy will become the dominant backbone of our energy system,” but commodity market leaders today are rather conservative in choosing areas for diversification. The lack of competencies hampers the prospects for organic growth in competitive new energy markets, and the high profitability of the core business (adjusted, however, by falling oil prices) calls into question the feasibility of alternative and risky investments. The exception is biofuel, in the development and production of which today all key players in the commodity market are involved. This area clearly intersects with their core business, and the ongoing tightening of emissions standards in the transport sector provides a clear outlook for development.

The Norwegian Statoil and the French Total stand somewhat apart. The first is using offshore experience to engineer offshore wind farms and is now building a unique floating wind farm off the coast of Scotland. In February, Statoil launched a $200 million corporate venture fund to invest in renewable energy. Total has not only invested in a large solar business - SunPower Corporation (2015 revenue - $ 2.6 billion), but declares "world leadership in solar energy" as a strategic goal and uses a global network of branches to promote business in the renewable energy sector.

Why do oil companies need to diversify? Forecasts for the development of commodity markets from oil and gas companies are usually optimistic and are based on ambiguous predictions for the growth of global GDP, population and welfare of residents of developing countries. At the same time, the speed of development of alternative technologies is underestimated. In Foggy, I emphasize, Albion, the installed capacity of solar power plants in 2016 exceeded 10 GW, while back in 2010 it was close to zero. “If the share of electric vehicles in sales reaches 3%, the next stop is 97%,” say analysts at Bernstein Research. And some market development scenarios, for example from the same Statoil, allow for a significant reduction in oil consumption by 2040 compared to the current level.

Regardless of the dynamics of oil prices, large-scale long-term investments in the extraction of raw materials are at increased risk. According to Wood Mackenzie, the volume of frozen oil and gas projects today amounts to $380 billion. Rising oil prices will lead, on the one hand, to their partial resuscitation, but on the other, to the acceleration of the introduction of alternatives that reduce the demand for hydrocarbons. Maintaining low prices puts an end to the economics of large developments. An additional and so far underestimated risk factor is climate policy, which will increasingly limit the opportunities for expansion of the commodity business, forcing it to diversify.

If previous attempts by oil companies to invest in various areas of activity not related to core business were explained rather by the desire to invest free liquidity in order to expand spheres of economic influence, today the situation is different. The long-term prospects of the industry as a whole are questionable. The commodities business will have to learn to survive in a shrinking key market amid increasing competition.

At the same time, the world's electricity generation will increase, primarily from renewable sources. This is explained not only by the need to electrify developing countries, but also by the tasks of meeting the growing needs of electric transport and replacing environmentally harmful methods of heat generation (for example, with heat pumps). Therefore, investing in modern energy technologies is one of the promising areas for diversifying the oil and gas business.

The author is director of the Institute of Energy Efficient Technologies in Construction

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