Strategies for oil and gas companies to respond to the substitution challenge of the energy transition

There can be no doubt that the energy transition is well under way, driven by technological innovation and supported by policy action on climate and an increasing focus on energy security and affordability. In 2022, investment into clean energy outstripped investment into oil and gas for the first time, with continued growth into 2023.

Demand for oil and gas is increasingly being substituted by renewable sources

Against this backdrop, projections of future oil and gas demand are weakening, with the International Energy Agency now seeing peak global demand for each of coal, oil and gas being reached this decade, and the outlook for oil demand out to 2050 lower than in previous editions of its World Energy Outlook.[1].

Companies must take action to respond to the energy transition challenge

Faced with a future of falling demand, companies with oil and gas operations must take action to respond to the demand substitution challenge posed to their business model. Failure to do so risks failing to act in shareholders’ interests and preserving value.

This report builds on Managing Peak Oil, and arms investors with the info needed to assess oil and gas companies, by:

• Demonstrating the demand substitution impact of an accelerating energy transition on project viability.
• Outlining the strategies open to Upstream businesses, and a clear framework to assess these
• Reviewing the potential diversification options for these companies, including into CCS and renewable energy.
• Highlighting what companies are actually doing despite the rhetoric.
• Providing key questions for portfolio managers to ask of their investee companies to assess risk exposure and incentivise change.
• Identifying the key considerations for policymakers and financial regulators.

[1] International Energy Agency, World Energy Outlook 2023