Large oil and gas (O&G) companies are tightening emission reduction targets and accelerating transition strategies, with European majors leading but their peers catching up, Fitch Ratings says. O&G companies that recognise the transition early and adapt their business models accordingly should face fewer long-term challenges, including investor pressure.
Shell, Eni and Repsol are among those that have pledged to reach net-zero emissions on a Scope 3 basis by 2050. Targets announced by other European and US majors vary, but all European companies plan at least a large reduction in emissions, while US peers focus on reducing emissions from upstream operations.
Roadmaps to achieve carbon neutrality differ. Total, Eni, BP and Repsol expect renewable energy generation to be an important part of their energy mix. Shell is moving towards marketing, natural gas and chemicals, with less ambitious growth targets for renewable energy generation. All European companies plan to expand natural gas and LNG production as a "bridge" energy source, transform existing refineries into biofuel sites and boost green hydrogen production. US majors are focusing on Scope 1 and Scope 2 targets with no Scope 3 emission targets announced yet.
Our ratings already incorporate transition-related changes that can be reasonably expected to occur within our typical three- to five-year forecast horizon, and more immediate changes in operations and investment decisions. We anticipate changes in most business profiles to be gradual given timing uncertainties for decarbonisation and our expectations that traditional hydrocarbon businesses will still account for most cash flow generation until 2025 at least.