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Abstract Integrated oil and gas (O&G) companies operate vertically integrated businesses that span the O&G value chain. In this way, they can leverage expertise across multiple domains rather than just focusing on exploration and production (E&P). Examples of such companies include British Petroleum (BP), Cenovus Energy, Chevron, Eni, Imperial Oil, ExxonMobil, Repsol, Royal Dutch Shell, Suncor Energy and TotalEnergies. Integrated O&G companies played a central role in advancing energy availability and economic growth during the twentieth century. However, these companies now face the challenge of addressing the need for a new energy transition in the twenty-first century. This transition will involve a shift from fossil fuels to alternative fuels, such as renewable wind and solar energy, battery storage and nuclear energy.
The extent to which these efforts will impact integrated oil companies (IOCs) and their assets depends on the global community's commitment to reducing demand for hydrocarbons. In the extreme, these companies may go out of business. Efforts by IOCs to adapt their business models will also affect their viability. Thus, IOCs face an important choice that will define their role in the energy transition. On the one hand, they can observe the energy transition without participating. Potential repercussions of this choice include lost business and investments and increased financial penalties in the form of carbon pricing. On the other hand, they can play an active role in the energy transition by committing to decarbonize the industry. For example, they can invest in carbon capture, utilization and storage (CCUS) and explore geothermal energy. They may incorporate solar and wind power and move toward a low-carbon hydrogen economy.
In summary, this study investigates the role of IOCs in the next major energy transition. The key points are as follows:
IOCs were leaders of the 20th century energy transition to oil. However, they are now the incumbent players in the industry and face a prisoner's dilemma in responding to the transition to green energy.
IOCs have been replaced by national oil companies (NOCs), independent operators and oil field service companies (OFSCs) as major suppliers and drivers of innovation.
The integrated business models of IOCs can adapt to new business practices. However, IOCs tend to lack flexibility in implementing new business practices compared to independent companies.
Innovation for the energy transition requires new entrants and specialized operators, such as OFSCs, to take the lead.
To respond to uncertainties around climate regulation and shifting investor sentiment, IOCs can seek partners in climate coalitions, such as the Oil and Gas Climate Initiative (OGCI), targeting cooperation.
Strategic advantages in reservoir management can be used to advocate for CCUS as a decarbonization service for IOCs’ downstream consumers.
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