Increased recognition of the role of oil and gas in energy transition

19 July 2023

Grant Morrison, head of oil and gas, comments on market indicators showing an element of ‘return to oil and gas’ and increased recognition that oil and gas is a key part of the energy transition. This is being demonstrated in several aspects of the market, including demand, value and technology.

A 2020 study by McKinsey stated that, ‘Directly and indirectly, the oil and gas industry accounts for 42 percent of global emissions… The industry’s operations account for 9% of all human-made greenhouse-gas (GHG) emissions. In addition, it produces the fuels that create another 33% of global emissions.’

This is an example of the type of realisation that led to a rapid and significant upturn in ‘energy transition’ activity, as well as an outflow of resources and funding from traditional ‘oil and gas’ activities to greener, more sustainable projects.

In the last 12 months there has been an element of ‘return to oil and gas’ and increased recognition that the sector is a key part of the energy transition. As Bloomberg Opinion columnist Javier Blas recently stated, ‘In the European oil industry, green is out of fashion and black is making a comeback.’ The recent announcement by the Prime Minister, of 100 new North Sea oil and gas licences, is a further reflection of oil and gas being increasingly seen as part of the solution to the Energy Transition puzzle, rather than simply ‘the problem.’

We are seeing this demonstrated in several aspects of the market including demand, value and technology.


Earlier this year, BP announced it was reconsidering the pace in which it transitions to clean energy. BP is toning down its 2020 commitment to cut emissions by as much as 40% by 2030, scaling back those plans and including an increase in oil and gas production.

As recently as June, Shell has promised that it ‘will invest in the models that work – those with the highest returns that play to our strengths.’ Many have interpreted this statement as a similar slow-down in energy transition plans and a renewed focus on oil and gas.

This can be seen as a response to market demand coming from the global energy crisis triggered by the war in Ukraine. Energy majors worldwide are responding to governments who are concerned about energy security, asking them to boost oil and gas production. At the same time, consumers are demanding available and affordable energy. It appears there is an underlying and longer-term strategic element at play in response to global markets and the value placed on the oil and gas sector.


For much of this year, European oil and gas majors’ share valuations have lagged 40% below US rivals such as ExxonMobil and Chevron.

BP has told investors that the expected profit margin for renewable projects was roughly 6% to 8%, compared with up to 20% from oil and gas investments. This is attributed to the 8% surge in BP’s share price after announcing it was slowing the pace of its energy transition plans.

In private equity markets, we’ve seen a similar renewal of fortunes for oil and gas businesses. Private equity funds, with an abundance of ‘post-Covid’ capital to be deployed, appear to have taken a renewed interest in the oil and gas sector. The prize being relatively low entry valuation multiples which can be leveraged substantially on exit as and when an investee can transition into a greener business.


Oil and gas producers are focused on decarbonizing their oil and gas operations rather than simply curbing the production of hydrocarbons. Across the upstream, midstream and downstream value chain, there are many existing technologies being implemented to reduce the sector’s carbon emissions. These include electrification of offshore assets, carbon capture, use and storage, reductions in flaring and improved vapor recovery and leak detection systems and energy efficiencies in transportation of hydrocarbons.

There appears to be a growing perception that solutions to climate change and the energy transition challenge are going to require much better low-carbon technology than we've got right now.

Transition means transition

As a result, it seems inevitable that oil and gas will, for many reasons, remain vital fuels for the global economy for decades to come. This is increasingly reflected in the global oil and gas market although the picture painted in the political arena and media headlines is one of a more binary choice between oil and gas and renewable energy.

However, transition means transition. It’s important to bear in mind that, in the main, oil and gas businesses and their people, are actively transitioning to become the greener, renewable energy businesses of tomorrow. It’s clear that markets are recognising this and therefore becomes all the more important that the critical role that oil and gas has to play in the energy transition is recognised and that the oil and gas sector is an inherent part of future transition plans.

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Grant Morrison
Grant Morrison
Partner, head of oil and gas
Grant Morrison
Grant Morrison
Partner, head of oil and gas