Deloitte's new report details how low-carbon priorities among O&G companies can propel the industry's shift towards sustainability.
Carbon capture
The report, "Striking the Balance: How and Where Will O&G Producers Deploy their Cash?," details how the financial health of the industry can accelerate the energy transition.
According to the report, record high free cash flows, as much as $1.4 trillion, could be reported by oil and gas producers in 2022, and $1.5 trillion in surplus cash is expected to be generated by global upstream in 2030. The North American upstream industry is expected to generate $600 billion in free cash flows between 2021-2022, which is a 13-times increase from the prior decade. Shale producers will likely witness record high free cash flows in 2022, which could ultimately overcome the decade-long loss of $300 billion.
The $1.5 trillion cash surplus could be deployed in several different ways: it could move the industry’s share of green capex from its current 5 percent to as much as 30 percent, it could potentially kickstart the low-carbon economy, or it could be used to technically make the industry completely debt-free, according to the report.
“Oil and gas companies are facing a readjustment in the broader energy market," said John England, Global Oil, Gas and Chemicals leader, Deloitte Touche Tohmatsu Limited. "Many companies have already committed to reducing carbon emissions and are making progress, amid geopolitical and economic uncertainty. Now, a financially healthy oil and gas industry is not only equipped with the technology, but also with the cash flows that could allow them to invest more quickly and create tangible change.”
“The oil and gas industry has faced real disruption over the past few years, some of which originated long before the Covid-19 pandemic began to make its impact," said Amy Chronis, vice chair, U.S. Oil, Gas and Chemicals leader, Deloitte LLP. "However, the unexpected result of this volatility is that the industry seems to be in a relatively strong position. Oil and gas companies have managed through change. Those who invest in new business models and remain resilient to the changing market dynamics will be more likely to sustain, lead and win throughout this energy transition.”
By focusing surplus revenue on low-carbon solutions, O&G companies can advance the industry's energy transition.
