REGION - EUROPE

Clean Energy
Transition: Oil & Gas
Growth of renewables presents both
opportunity and threat
75% of EU’s greenhouse gas emissions come from energy
use and production. Decarbonising the energy sector is,therefore, a central aim of the EU’s Green Deal, its strategy
to achieve climate-neutrality by 2050. This includes
supporting the uptake and development of cleaner energy
sources (including renewables and hydrogen), while
phasing out dependence on fossil fuels.
Progress towards the decarbonisation of the energy sector is being made.
According to recent data from the Centre for Research on Energy and Clean Air,(CREA) the EU’s CO2 emissions from fossil fuels have dropped to the lowest levels
since the early 1960s. More than half of this is due to an increase in the productionof electricity from renewable sources (wind, solar and hydropower) as well asfrom nuclear. In addition, gas-related emissions have declined by 11% year-on-year
and oil emissions by 2% over the same period.
So how will the oil and gas industries navigate the coming years? Our industry
specialists in Spain echoed the view of other underwriters across Europe when
they said: “Transitioning to clean energy presents significant opportunities foroil & gas companies such as boosting innovation, diversifying energy portfolios,
accessing new markets, enhancing brand reputations, and contributing toeconomic growth and environmental sustainability”.
However, they acknowledged that clean energy transition is not a simple journey
and is likely to bring uncertainty, dilemma and the need for adaptation.

EU Plan’s and aims
In line with the EU’s decarbonisation aims, somelarge oil and gas companies are set to make a switchto ‘energy’ companies that supply a diverse range ofenergy services, particularly electricity. Several alreadygenerate energy from a combination of renewables andfossil fuel sources. Our underwriters in Belgium, France,
Spain and Poland acknowledged the opportunities thispresents within their markets, including the possibilityof expanding into other product and service areas anda potential way to manage transition risks.

Green Deal
An EU aim to become the world’s
first climate neutral continent(by 2050) through a series ofmeasures covering the climate,environment, energy, transport,industry, agriculture and finance.

Fit for 55
An EU target to reduce net
greenhouse gas emissions
by at least 55% by 2030.

RePowerEU
An EU plan to reduce dependency
on Russian fossil fuels andaccelerate the transition toclean energy through increased
energy efficiency and renewables
production.

What do Atradius underwriters see as the primary issues
for the sector in the region?
When asked about how clean energy transition could impact
the oil and gas industries, our underwriters were largely
upbeat. While still expressing their tendency to be cautious,
a significant proportion pointed to the opportunities
that clean energy transition presents to the industry. Ourunderwriters in Hungary and Poland expect to see moregas and oil companies actively reducing greenhouse gas
emissions over the next few years, with Hungary also noting
the potential for greater exploration of the circular economy.
Our underwriters in Germany said: “Potential opportunities
lie in investing in clean energy technologies, diversifying
energy portfolios, embracing digital innovations forefficiency, exploring sustainable practices and adapting toevolving market demands through strategic partnerships
and collaborations.”
For those that saw opportunities for the industry, mostpointed to the importance of diversification. Our industry
specialists in Poland said: “Oil and gas companies are using
opportunities to offer clean energy from photovoltaics, windfarms, hydrogen, and other sources as well as developing
charging and storage infrastructure.”

While the cost of transition was noted as a potential
challenge, geopolitical issues were highlighted as significant
by the majority of underwriters we spoke to. This included
representatives from the Netherlands, Belgium, Spain,Austria, Switzerland, the Czech Republic, Slovakia, Irelandand Turkey who all strongly agreed that geopolitical tensions
have had a significant impact on the energy market since thebeginning of the Russian-Ukraine war.
Ensuring electricity grids and battery storage are readyto cope with increased production from renewables is alsoa challenge noted by several of our specialists. In addition,
many cautioned that as fossil fuels remain the only reliable
and affordable energy option in many markets, this could
impact on business decisions concerning clean energy
transition.

Challenges: What are the most urgent challenges forthe sector over the next three years?
1. Geopolitics
Geopolitical tensions have had a significant impact on theenergy market since the outbreak of Russia-Ukraine war.
For many the focus shifted from investing in clean energy
to insuring supply amid energy insecurity.

Where next?
There are still many uncertainties facing the industry.
When asked to look ahead, our industry specialists in theNetherlands expressed caution and noted how legislation
is likely to play an important role. They said: “Without thepressure of legal enforcement and the creation of a levelplaying field, nothing will shift significantly in the next
3 to 5 years, as the earning capacity for oil and gas is still
too large.”

2. Regulations in the context of a global stage
While many businesses applaud the EU’s leading role indriving for net zero by 2050, others are concerned about
their operations on the global stage and how to thriveor even survive on an unequal playing field.
3. Closing gaps in infrastructure
Infrastructure issues present a potential challenge toclean energy transition for oil and gas markets. Current
infrastructure including gas pipelines and oil tanks forthe storage and transportation of oil and gas is not suitablefor electricity produced by renewables. Careful transition
planning will need to include the development and expansionof electricity storage (batteries) and transmission (nationaland international grids).

Opportunities: What are the greatest opportunities forthe sector over the next three years?
1. Diversification
Demand for clean energy is high. Businesses that can diversify
beyond oil and gas into renewables and clean energy are likely
to enjoy many opportunities for growth.
2. Enhanced brand reputations
Consumers are increasingly demanding clean energy solutions.
Businesses that invest in clean energy transition can enhancetheir brand reputations and leverage that for improved growth
opportunities.
3. Opportunities for funding and investment
Oil and gas businesses looking to expand their portfolios
to include clean energy transition may be able to unlock EU
and national government funding and other incentives,
as well as other sources of private investment.

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