The many directions of the energy transition in the oil and gas sector

What developments are speeding up and slowing down the ongoing energy transition? What will be the role of oil and gas in a net zero world in 2050? And are there opportunities for oil and gas companies to transformation their businesses?

The assessment of the speed and magnitude of the ongoing energy transition can differ significantly from one person to the next depending on the perspective of the speaker. The motive of the person presenting their assessments matters, which is why it is important for investors to listen to a wide range of experts.

Keva’s internal climate group has for several years been responsible for coordinating internal education on the energy transition. The group engaged international experts from the energy and investment sectors to share their insights and discuss various topics on oil and gas sector. In the past, Keva has explored a variety of different technological solutions to the energy transition.

Kingsmill Bond gave his presentation remotely.

The speakers to this event were selected from Keva’s wide network of investment managers and were chosen to bring a wide range of thoughts and complementary views. The presentations and discussions provided up-to-date material and interesting food for thought for our continuing work.  

A systemic challenge

Understanding the energy transition requires examining various perspectives, such as regional differences and analysing actual developments based on data.

Jeremy Taylor

Rajul Aggarwal

Even when employing theoretical models, it is essential to interpret the current situation accurately: numerous development processes are simultaneously unfolding, many of which are contradictory and yield unexpected outcomes. The energy transition, above all, presents a systemic challenge

From an investor’s perspective, it is essential to understand global changes while also recognizing how impacts on different asset classes may differ perhaps due to the time horizon of the investment. The oil and gas sectors are represented in global investment markets across various asset classes through different companies and securities.

Oil and gas are often grouped together in energy discussions, but this should not necessarily be the case. Oil and gas are distinct products, and their production can occur in different regions. For instance, in the United States, gas drilling is often regional. One challenge is that in many areas, they are found in the same locations. Oil is easy to transport, whereas gas is not. Additionally, gas is seen as a transition fuel, while the outlook for oil is generally seen as declining.

Three key forces at play

At this stage of the energy transition, two narratives dominate the outlook for future: one is that the dominance of fossil fuels is expected to continue, as abandoning them is considered slow, expensive, and challenging.

Tyler Reeder

The competing narrative is that new technologies—especially solar and wind power—are seen as offering opportunities for a cheaper, better, and more decentralized energy system. Fossil fuels are also an inefficient way to produce energy, as about two-thirds of the energy is wasted in the process.

Regardless, three key forces are driving the change forward: the growth of renewable energy sources, the electrification of societies due to cheap electricity, and the improvement in energy efficiency.

Regions at different stages of development

China plays a crucial role in the global energy transition. While it is the world’s largest energy consumer, it does not produce oil or gas itself. However, it leads the world in developing renewable energy technologies. The country has made significant investments in solar panels, battery technology, and electric vehicles.

Edward Soekamto

One discussion at the event highlighted China as a prime example of how the adoption of technological innovations aligns with theoretical predictions. According to theories, one country often develops something successfully enough that others eventually follow. However, China’s leadership also comes with challenges: as Western countries strive to reduce their dependence on China, it is not the most attractive country from a comprehensive security perspective to purchase this technology from.

Emerging markets are also transitioning towards the use of renewable energy sources, albeit with a delay of several years compared to developed markets and China. The Global South holds significant potential in this transition: estimates suggest that up to three-quarters of developing countries have favourable conditions to adopt renewable energy in the near future. It remains to be seen whether they can leapfrog the development.

In the United States, power demand is expected to increase in the coming years for two main reasons: the rise in artificial intelligence usage will lead to the construction of massive data centres over the next couple of decades. Additionally, the electrification of the vehicle fleet continues.

The panel discussion was hosted by Senior Advisor Anette Eriksson (on the left) and Environmental Manager Tuomas Helin (on the right) from Keva`s Investment Process.

Electrification and the simultaneous expected increase in overall energy consumption justifiably challenge the ability of renewable energy sources to meet this demand quickly enough. Therefore, natural gas is considered a transition fuel in the United States. Overall, the transition in the U.S. will take time: while there is substantial investment in the development of renewables, the diversification of energy sources ensures stability during the transition phase.

Part of the overall security

The topic of geopolitics is unavoidable in discussions about gas and oil investments. Most countries in the world are energy importers, so they have a strong interest in reducing this dependency. Renewable energy sources thus also mean security for these countries, as energy production becomes more self-sufficient.

While many questions about future energy production remain unanswered, experts at the event highlighted the boundless potential of human ingenuity. Solutions are being sought and found continuously. The pace of regulatory progress can also be adjusted, provided there is sufficient pressure.

In this situation, investors play a crucial role in sustainably promoting the transition towards carbon-neutral energy production. Core responsibilities now include a strong focus on global development and science-based perspectives.