Forging Strategic Alliances: Bridging the Gap Between O&G and Renewable Energy

With a mere 1% of global clean energy investment originating from the oil and gas sector, renewable Power Purchase Agreements (PPAs) offer a transformative opportunity for O&G to significantly amplify its role in the energy transition. Latin America emerges as a nexus of untapped potential.

The International Energy Agency (IEA) reports that oil and gas (O&G) producers contribute a paltry 1% to global clean energy investment, with over 60% of this allocation stemming from just four entities among thousands of worldwide producers.

This statistic demonstrates that despite being central to climate discourse, the O&G industry continues to be a peripheral force in the global energy metamorphosis.

To expedite the integration of renewable energy into their operations, the industry must diversify its portfolio—a paradigm shift already emerging among sector leaders. Recent years have witnessed some oil conglomerates evolving into comprehensive “energy companies,” capitalizing on their project and operations management acumen.

McKinsey posits that these enterprises will need to explore strategic alliances to optimize efficiency and accelerate this energy transition, positioning themselves to meet the burgeoning demand for decarbonized products.

This landscape, while challenging, is replete with opportunities, as highlighted by Fábio Bortoluzo, Atlas Renewable Energy’s Country Manager for Brazil

“The paramount challenge for oil companies is to execute this energy transition cost-effectively while concurrently contributing to climate change mitigation,” Bortoluzo explains.

“There’s mounting societal pressure to curtail fossil fuel usage and pivot to alternative fuels with a reduced climate impact. Simultaneously, a significant portion of the global economy remains tethered to fossil fuels—be it for transportation, energy consumption, or industrial processes. Thus, the energy transition challenge is inextricably linked to economic considerations,” he emphasizes.

This issue gains heightened relevance in emerging economies, which, despite historically contributing less to greenhouse gas (GHG) emissions, now face the complex challenge of balancing sustained economic growth, ensuring public access to consumer goods, and mitigating the inflationary pressures potentially arising from decarbonization costs.

Latin America, particularly Brazil, is strategically positioned to offer economically viable solutions to the O&G sector that can reduce climate impact.

Atlas Renewable Energy’s executive highlights the region’s wind and solar capacity as prime examples.

“Brazil, with an energy matrix already approaching 90% renewables, has experienced substantial growth in solar and wind sectors. Chile, a solar powerhouse, also boasts significant wind potential in its southern regions. Colombia, Mexico, Central America, and Latin America at large possess robust renewable resources,” he explains.

“However, abundant resources alone are insufficient; superior projects are imperative, and that’s where our partnership style of doing business proves invaluable,” Bortoluzo asserts.

“We have a highly skilled development team with extensive regional expertise and technical proficiency to ensure reliable supply. It’s not merely about having efficient generation and a solid project; we must guarantee that this energy reaches consumption centers with the highest quality.”

Moreover, the Atlas Renewable Energy team excels in tailoring energy supply contracts to client needs—from consumption profiles to regional coverage, while also considering accounting and financial factors.

“We offer everything the client requires to have the best solution in each case, considering their consumption profile, balance sheet, and current situation,” Bortoluzo affirms.

Evolving Demands Reshape Energy Procurement Strategies

The International Energy Agency (IEA) emphasizes that while there is no universal blueprint for transformation, one critical element must be omnipresent in all oil companies’ transition strategies: the mitigation of emissions from their own operations (Scope 1 and 2). The agency estimates that oil and gas production, transportation, and processing account for nearly 15% of global energy-related greenhouse gas (GHG) emissions—equivalent to the entire U.S. energy sector’s carbon footprint.

To align with the global imperative of constraining planetary warming to 1.5°C by 2100, these emissions must be reduced by over 60% by 2030 relative to current levels. Furthermore, the emission intensity of global oil and gas operations must approach net zero by the early 2040s, according to IEA projections.

This ambitious undertaking needs a multifaceted investment strategy encompassing efficiency enhancements, renewable capacity expansion, platform electrification, and innovative product development.

Atlas Renewable Energy has been meticulously monitoring these industry developments, with the intention of synergizing with the sector’s initiatives.

“Energy companies have several avenues for optimization,” explains Fábio Bortoluzo. “They can substitute certain inputs, such as oil and gas, with electricity or streamline their current electricity consumption. Additionally, there’s both a challenge and an opportunity in electrifying their supply chains. Moreover, we can assist oil companies as they venture into the renewable fuels market to expedite the financial viability of this transition.”

Harnessing the Potential of Renewable PPAs

Long-term Power Purchase Agreements (PPAs) offer a compelling alternative for promoting the substitution of fossil fuels with renewables in a competitive manner. These agreements feature pre-negotiated prices, ensuring predictability for oil and gas companies.

In Brazil, oil companies have access to a diverse array of PPA options.

The classic PPA model involves the client purchasing energy based on a specified profile, while Atlas Renewable Energy assumes responsibility for generation, grid injection, and management of ancillary energy contracts to align with the client’s consumption profile.

There is also growing interest in self-production arrangements, where the client becomes a stakeholder in the photovoltaic park. As a co-investor, the client assumes partial project risks but ultimately circumvents certain electric system charges mandated by Brazilian regulations, conferring a competitive advantage to large consumers.

A third option is the proprietary energy arrangement: the client acquires the park upon completion of construction and purchases energy at cost. In this model, Atlas Renewable Energy oversees the entire project development lifecycle.

“This capital-intensive option could be particularly attractive to oil companies, given their prowess in capital management and expertise in asset acquisition transactions,” Bortoluzo explains. “However, they would significantly benefit from partnering with an entity well-versed in managing both the physical asset and the energy portfolio, thereby mitigating risks that lie outside the oil companies’ core competencies.”

A Panorama of Opportunities

The convergence of electrification, efficiency enhancement, energy storage solutions, hydrogen technology, and novel fuel development represents a multifaceted array of pathways. Collectively, these avenues present a comprehensive suite of opportunities for oil conglomerates in Brazil and Latin America to respond to global imperatives for emissions reduction.

The pivotal question that emerges is the velocity at which these entities will mobilize to penetrate the clean energy market.

From the perspective of Atlas Renewable Energy’s Country Manager in Brazil, the anchor of success lies in fostering collaborative partnerships with entities that demonstrate genuine engagement to take action and have an unwavering commitment to project quality.

“Specialization is paramount,” he asserts. “A renewable energy partner must constantly improve their technical skills in developing, constructing, and operating high-caliber projects, while simultaneously honing their expertise in portfolio management and bespoke product creation. This strategic focus enables the oil company partner to channel their engineering intelligence towards enhancing decarbonization processes and pioneering new fuel technologies. This kind of relationship represents the future direction of such partnerships,” he concludes.

This article was created in partnership with Castleberry Media. At Castleberry Media, we are dedicated to environmental sustainability. By purchasing Carbon Certificates for tree planting, we actively combat deforestation and offset our CO₂ emissions threefold.