Traditions vs. trends. Oil and “green” energy companies.

How have the share prices of oil, gas and "green" energy companies changed over the past 5 years? How are they affected by oil prices, the purchase of "green" assets by oil giants and the recurring "green" booms of the construction of renewable energy facilities?

In general, large energy companies whose shares are listed on stock exchanges can be roughly divided into three camps (which we will do). These are companies which basically ignore the “green” boom, oil and gas companies which actively engage renewable energy sources (RES) in their energy portfolio, and companies that initially entered the market as “green”.

Interestingly, oil companies in the United States (Exxon Mobil, Chevron) are more likely to retain their traditional views than their European counterparts. Of course, they are working on the transition to green technologies, but in practice this is manifested too slowly. European oil and gas players (Shell, Total, Eni) are more prone to real “greening”.

At the same time, according to Bloomberg New Energy Finance (BNEF), the largest oil companies in 2015–2016 doubled their investments in “clean” projects (taking into account the purchase of shares and investments in the implementation of these projects). “Doubled”, however, does not mean significantly increased – if to double a little, there will not be a lot still. In addition, primarily oil and gas companies are interested in the field of electric transport, which is now considered a cleaner alternative to hydrocarbon. Oil-giants thus want to enter this emerging market even if they do not believe in its future. Just in case. According to the forecasts of oil producers Exxon Mobil and Shell, transport in the next 30 years will be the main consumer of oil, and their main customer.

According to the estimates of the BNEF, in order for large oil companies to retain the part of the global market that they now own (12%), they need to actively invest in the solar and wind sectors by 2035.


 CAMP 1. “OIL IS OUR EVERYTHING” OIL COMPANIES FROM USA


          

The most loyal "witnesses of oil" are American companies, in particular Exxon Mobil and Chevron, which are among the top 5 largest in the world. At the end of March, it was reported that these two companies intend to increase oil production. Both companies are working on oil production at the Permian shale field in Texas (the largest in the United States). Exxon, according to the statement intend to increase production at their sites in Permian to 1 million barrels of oil per day, Chevron – to 900 thousand barrels per day by 2024.

It is also interesting that Exxon Mobil will purchase electricity generated from solar and wind farms to extract shale oil in Texas. The company signed a contract for the purchase of electricity from the Danish Ørsted (about this company a little later), whose solar and wind projects with a total capacity of 500 MW will provide energy to oil-producing operations. This was reported at the end of November 2018.

The main message of Exxon Mobil: we are increasing oil production “to a level that meets global demand”, but at the same time we are working to reduce the level of greenhouse gases. Since 2000, the company has invested about $9 billion in green projects (official data from the company as of the end of October 2018). These are mainly projects for the development of biofuels, and systems for capturing emissions into the atmosphere in the process of generating electricity.

In its forecast until 2040, the company says that renewable energy will increase its capacity by 400%, and will provide about 40% of electricity in the world. At the same time, the company believes that gas will become the fastest growing resource and will provide 25% of energy consumption. As for oil, the company is confident that this product will still be leading in the global energy mix, but the growth in consumption will primarily be ensured by the transport and chemical industries.

Chevron generally cannot boast of great achievements in the field of renewable energy. Until recently, the company had only 5 projects of solar farms with a total capacity of 73 MW, 16.5 MW of wind capacity and one geothermal power plant with a capacity of 49 MW. But at the end of 2018 – early 2019, the company invested in new clean technologies, although not in “green” assets.

In November 2018, Chevron’s venture capital subsidiary (Chevron Technology Ventures) invested in a network of charging stations for electric cars ChargePoint, and in January 2019 – in energy storage battery company. The company also invested in the development of carbon capturing technology developed by Carbon Engineering.


    CAMP 2. “OIL IS OUR EVERYTHING. BUT WE NEED MORE”. EUROPEAN OIL AND GAS GIANTS


         

European oil and gas colleagues Exxon Mobil and Chevron are more active in conquering "green" heights. For example, Shell and Total are serious about acquiring assets and investing in clean technologies. And their share specifically in the "green" electricity generation is larger.

Royal Dutch Shell in January 2018 acquired a 44% stake in Silicon Ranch, a developer of solar cells. The company is building a solar plant of 100 MW for the needs of Facebook data centers. Shell also announced the acquisition of Sonnen, an energy storage system company. The British-Dutch oil company owns 800 MW of installed "green" capacity, and also announced the construction of 1000 MW of new capacity – and this is only in the USA. In early March 2019, the company also announced participation in a tender for the construction of a wind farm in the Dutch part of the North Sea in partnership with the company Van Oord, which has already been building wind farms in the sea. In autumn 2018, Shell joined the Global Wind Energy Council “to accelerate the development of offshore wind energy, an important part of the growing portfolio of Shell New Energies”.

In February, it was also reported that the company invested in the development of floating wind turbine technology – a pilot plant will appear off the coast of Norway in 2020. In general, Royal Dutch Shell intends to become the leader in the world of electricity generation by the beginning of the 2030s. To this end, the company intends to invest up to $2 billion a year in the new energy division (“new” means wind and solar).

Back in 2016, Shell spent no more than $400 million on renewable energy, but in the future (after 2020), the company plans to increase investment volumes to $ 4billion/year. It seems like a lot of money. But if you compare it with Shell’s total investment portfolio, which is $25 billion, it’s about 15% – everything else allocates to oil.

The French oil company Total has been invested in green projects for a long time.

Back in 2011, the French bought a majority share in the largest US manufacturer of solar panels, SunPower, for $1.4 billion. In 2016, Total paid $1.1 billion to buy out the Saft Group, a manufacturer of lithium-ion batteries for electric cars.

In 2018, the company said that their goal is to build 10 GW of new solar capacities by 2028. In February 2019, the “green” subsidiary, Total Eren, acquired NovEnergia (Luxembourg), with a portfolio of more than 650 MW of renewable energy capacities in the southern countries of Europe. Also in February, it became known that the company merged with the Danish Orsted to build an offshore wind park with a capacity of 600 MW off the coast of France.

The "green" activity of the Italian oil and gas company Eni is also interesting.

In May 2016, the Italian company announced its intention to install more than 420 MW of renewable energy sources, mainly solar photovoltaic plants, in close proximity to other company’s facilities at home and abroad. Eni is engaged in oil and gas projects around the world, in Europe, South America, Africa, Asia.

In March 2020, the company announced a new strategy that provides for investments of €1.2 billion in the construction of 1 GW of renewable energy sources before 2021. By 2025, the installed capacity of renewable energy sources under management of the company it is planned to increase up to 5 GW.

In its statements, the company somewhat duplicates Exxon, as the company's goal is to reduce greenhouse gas emissions in all areas of its business.

On the company's website, Eni projects in solar energy with a total capacity of 463 MW are noted, which, as far as we know, have not yet been completed. In 2016, Eni signed a framework agreement with GE on the development of projects in the renewables sector. It included, among other things, the construction of onshore and offshore wind farms, but so far no wind energy project has been completed.

          

Changes in share prices of Exxon Mobil and Chevron vs changes in oil price over 5 years (March 2014 - March 2019). The black line is the change in oil prices, the yellow line is the change in the Exxon Mobile shares prices, the blue one – Chevron.   

No one will be surprised that oil prices affect the prices of shares of oil producing companies. The failure in oil prices from the end of 2014 to 2017 almost repeats the history of the prices of oil companies' shares.

 

          

Changes in oil prices (black line), Royal Dutch Shell share prices (yellow line), Total (blue line) and Eni (red line).

It is interesting that ExxonMobil shares are not keeping pace with competitors (this is influenced by many reasons not only by oil prices, but also by management, not very good production growth forecasts, etc.). Now the company's market cost is only $5 billion higher than Royal Dutch Shell, whereas a year ago (end of 2017 - beginning of 2018), the difference was $175 billion. The graph with Shell’s participation is higher. By the way, the company is almost the only one that has not lost in the cost of its shares in 5 years (well, at first it lost, and then returned and earned).

It can be said that the share prices of companies that are “greener” did not fall as rapidly as prices of the same ExxonMobil. So the share prices (which vary on forecasts that came true and did not come true) for such companies are less dependent on oil prices.


     CAMP 3. “WE DID NOT GET OUR HANDS DIRTY WITH OIL”. Players from the renewables market


Companies working at the renewable energy market, whose shares are traded on exchanges, are most often manufacturers of "green" equipment. They are quite large and not less technological than oil and gas companies. How have their shares changed over the past 5 years, and is there a connection with oil? Companies in the fields of solar and wind generation will be divided into different categories.

In the last 5 years, wind generation experienced its re-pipelining. But they are not connected with oil, but due to the fact that the sector has been confronted with changes in the support system – many countries have practically started to abandon the "green" tariffs and started switching to the auction system. This gradually increased the financial burden on projects, and affected the indicators of manufacturing companies by a noticeable drop. As a result, a noticeable failure in share prices occurred.

          

The yellow line is the Danish manufacturer of wind turbines Vestas, the blue one is Siemens Gamesa Renewable Energy (until May 2017 they were two different companies, German and Spanish, respectively). Black – the change in oil prices.

For an example from the world of solar energy there are the companies from the USA and China – First Solar and JinkoSolar, respectively. JinkoSolar is a Chinese company and the main production facilities are also there, but its shares are traded on Wall Street. Data on prices are from the New York Stock Exchange.

          

For an example from the world of solar energy there are the companies from the USA and China – First Solar and JinkoSolar, respectively. JinkoSolar is a Chinese company and the main production facilities are also there, but its shares are traded on Wall Street. Data on prices are from the New York Stock Exchange.

The growth and fall in share prices of both companies is quite synchronous. It is interesting that when oil prices fell (2015 - the beginning of 2016), the shares of companies on the contrary increased. However, analysts associate the phenomenon of rising prices of "solar shares" with the price of oil not too much. Waves of share prices decrease are explained by waves of prices on the panel decrease.

From the 4th quarter of 2015 to the end of 2017, the companies faced a very heavy load – there was an overabundance of solar modules at the market and they had to reduce their prices. The decline in Jinko Solar share prices in early 2018 is explained by the fact that China abruptly changed its policy of supporting renewable energy, which limited the number of solar plants in the country to be implemented. There are also trade wars between the United States and China. Analysts explain the decrease in prices at the end of 2018 with a new wave of cheaper panels – the volumes of projected profits have declined, and with them the prices of shares.

And although since the end of 2018 the market has been strengthening and the share prices as well, analysts expect that 2019 will be just as tense, as panel prices continue to decline. The situation can be corrected by a change in regulatory policy at a large market like China. But as long as demand growth does not lead to price increases, it is difficult to expect an increase in profits in the solar industry, which directly affects the shares prices.


BREAKING STEREOTYPES


          

The price of shares is indicated in Danish crowns (1 Danish krone = 0.13 euros).

As a bonus, here is a company that refused to work in the field of hydrocarbon production in favor of "green" energy – the Danish company DONG (Dansk Olie og Naturgas A/S).

The company was founded in 1972 to manage the gas and oil fields of Denmark in the North Sea. Already in the 2000s, DONG became interested in electricity, bought several electricity generating companies and energy supply companies, and since 2006 it has become DONG Energy. The company gradually sold its gas assets and deposits in the North Sea (Denmark, the Netherlands, Norway) and moved into the wind power market.

It is interesting that Dong Energy entered the exchange market in June 2016 (in the same year it sold 5 oil and gas fields in Norway), but already on October 30, 2017 the last day of company's shares trading took place. The company ceased to exist under the name associated with gas and oil. In 2017, Dong Energy said goodbye to all the assets associated with the oil and gas and coal sectors and fully entered the "green" sector – offshore wind generation. It became known as Orsted – by the name of a Danish scientist who studied electricity and electromagnetic fields.

As can be seen from share prices, the company is now strengthening its reputation and gaining momentum.

Certainly, the capitalization of advanced oil companies can be envied, and the “green” companies still has room to grow. However, global "clean" trends dictate their own rules, and now those companies that reasonably diversify their investment portfolios are winning.

 

Kosatka.Media

Tags: oil, renewable energy

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