Home Industry Energy How energy companies can prepare themselves for the low-carbon era Low-carbon solutions are products, services and technologies with a small carbon footprint that can serve as alternative energy sources by Bjoern Ewers and Jean-Christophe Bernardini July 8, 2023 Image credit: Getty Images As the race to net zero accelerates, low-carbon solutions (LCS) are rapidly becoming the key new growth opportunity for oil and gas (O&G) production-focused enterprises. According to the International Energy Agency, achieving net zero emissions by 2050 will require annual clean energy investment worldwide to increase to around $4tn by 2030, triple the current amount of investments. Companies with the appropriate expertise stand to gain significantly. Low-carbon solutions are products, services and technologies with a small carbon footprint that can serve as alternative energy sources or instruments for decarbonising operations and consumption. These offerings are divided into six categories: hydrogen and ammonia, carbon capture, utilisation, and storage (CCUS), bioenergy, green mobility and battery electric storage, decarbonisation technologies and renewable energy. The possibility has not been overlooked by O&G businesses, which are developing LCS to diversify their operations and assure future revenue flow. Integrated energy companies (IECs), supermajors, international oil companies (IOCs), and national oil companies (NOCs) are all entering the game. Low-carbon solutions are the key to future revenue generation As competition in the LCS sector intensifies, the most evolved players distinguish themselves economically and organisationally from their colleagues. Companies that prioritise enhancing the organisational capabilities of their LCS businesses will be well-positioned to capitalise on the potential. Those who do not, risk falling behind the pack. Except for a temporary slowdown during the height of the Covid-19 pandemic in 2020 and 2021, O&G investments in LCS have increased rapidly over the past five years, and all signs indicate that the pace of investment will continue to accelerate. For instance, news about one of the region’s NOCs building on the success of the region’s first CCUS facility, to increase its CO2 capture capacity by over 500 per cent, to approximately five million tonnes per year by 2030. Another example of a NOC in the Middle East is the drive towards large-scale investments and building key domestic, regional, and international partnerships, to enable a stable and inclusive energy transition that meets the world’s need for energy with lower emissions. Four Organisational Models Diving deeper, there are four distinct organisational models that companies have deployed in support of low-carbon pursuits: Incubated Operating as centres of excellence, the LCS teams are limited to engaging in strategy and business development. Staffed with 20 people at most, teams report to the COO or lower and have no P&L ownership. Companies that follow this model rely heavily on external stakeholders through partnerships or venturing because they have limited in-house capabilities. This is the least-mature organisational model. Capability aligned The LCS teams are housed with the most relevant existing business entity. For example, CCUS is housed with the geosciences group and biofuels with retail. This approach leverages existing engineering, technology, and project execution capabilities. The LCS teams report at the COO or CFO level and have limited or no P&L ownership. Companies that adopt capability-aligned LCS entities usually don’t yet consider these activities as the core. Market aligned The LCS teams are hosted in standalone entities to ensure that their strategic agenda aligns with their markets and customers. The LCS entities have P&L ownership and often report directly to the CEO. In this structure, the LCS teams have primary responsibility for handling all core activities for the segment, but they may leverage other segments for some functions. Independent In this setup, the LCS teams operate as separate entities. They may operate under a different CEO and board of directors, and they are fully staffed for operational and support functions. Companies use this model when their goal is to carve out LCS activities for divestment or to attract investors. Finding low-carbon success No matter how much progress their companies have made in the journey, CEOs and CSOs should consistently keep three priorities in mind over the next few years: 01IExplore new go-to-market strategies via new partnerships, ventures and potential inorganic acquisitions. Entering LCS markets impels companies to explore new types of partnerships across sectors. To be successful, players need to thoroughly define new partnerships and commercial models. 02IIncrease organisational flexibility to fit new low-carbon businesses. Scaling up requires companies to change their organisational structures, project development processes, and technology investment decision-making to better align with low-carbon businesses. 03IHire and upskill to scale up the business. Expanding current capabilities and skill sets to achieve commercial success in the low-carbon space entails developing existing resources and attracting new talent with deep technological, partnering, and regulatory expertise. The International Labor Organization predicts that greening the global economy will yield a net increase of 18 million jobs by 2030. Oil and gas companies must act quickly to ensure that their LCS teams have the necessary skill sets. LCS represents a brand-new frontier with tremendous development potential for O&G firms in the next years. Those who prioritise developing organisational maturity to accept such solutions will be in the best position to capitalise on this opportunity. Bjoern Ewers is the managing director and senior partner and Jean-Christophe Bernardini is the managing director and partner at Boston Consulting Group Read: ADNOC Group to build new low-carbon LNG plant in Ruwais Tags Boston Consulting Group energy Opinion 0 Comments You might also like TAQA prices $1.75bn dual-tranche bond offering, includes green bond OPEC+ panel sticks to output policy, doubles down on compliance OPEC+ doing ‘noble’ job of balancing oil market, says UAE ADNOC to buy German chemicals firm Covestro for $18bn