Reaching the net-zero goal by 2050 will require the oil and gas industry to see ESG measures as business opportunities, not as challenges, according to one private-equity executive that spoke at the opening of the 2023 Unconventional Resources Technology Conference (URTeC)on 13 June in Denver, Colorado.
In addition to continued collaboration between the energy industry, academia, and governmental agencies, reaching net zero will require more. It will require more capital and acceptance of ESG measures to attain those dollars, according to Neil McMahon, managing partner at private-equity firm Kimmeridge Energy.
“The world will continue to need unconventional energy for a long period along with renewables over the next 20 to 30 years,” MacMahon told attendees.
"But it must be done in a low-carbon world influenced by regulation or market forces. We believe that what consumers want at the end of the day is a low-cost supply with a low-carbon footprint."
McMahon said existing oil and gas assets that offset their carbon footprint through direct air capture, sequestration, and nature-based solutions could compete with renewable power paired with power storage.
“But the price of carbon and the price of storage will be critical in this balance that will evolve over the next decade,” he said, adding that the flow of capital into alternative energy is currently strong, and the weak flow of capital into existing conventional energy assets creates concern.
“This reduced flow could lead to high returns due to the need for more investment into new supplies. That has been influenced by ESG and investors not putting money into it.”
To give an idea of the need for more investment into upstream oil and gas, McMahon noted that in 2019 about $40 billion in private-equity capital was invested into upstream oil and gas, which decreased to $4 billion in 2022.
“We all know what happens in this industry whenever there's a lack of investment that leads to curtailed supply and therefore prices going up,” he said.
In contrast, companies in the alternative energy space are repeating the mistakes of the unconventional shale boom with capital focused on volume growth over profitability, as stated on McMahon’s presentation slide.
McMahon said he wants to “make unconventional resources investable in a low-carbon world;” the key to accomplishing that is through prioritizing ESG objectives.
“In this current world, we must be able to look at ESG and see it as a business opportunity, not as the issue which many portray it to be. Everything we do involves ESG, making our assets more sellable,” he said.
As an activist investor, Kimmeridge believes that change will come from within the industry.
“One of the big things we find is, through peer pressure and activism, that by planting trees and generating emission offsets, the industry can be taken forward until the point where hydrocarbons are no longer needed,” he said. “There is a way to do this, and we believe we can be at the forefront of pushing companies into this space and this world. Unconventional resources are required to meet global energy demand. We need to make them investable, and they need to be relevant in the current world.”
