Oil firms need to diversify, change focus

Many oil companies have taken steps to diversify into renewable energy and energy storage, or to increase their focus on natural gas, and these could be wise decisions, Fitch Ratings says.

“If nothing else, this diversification will help guard against the risk that the markets turn against them,” the agency comments in a Tuesday post, exploring the potential effects of a rapid advance in battery technology and a subsequent jump in demand for electric vehicles (EVs).

Fitch explained that assessing the chances of a plunge in oil demand as a result of wider EV use is key to understanding the oil sector's prospects. Transport accounts for about 55% of oil demand, so the development of the EV market is important.

“A leap forward in battery technology could transform the viability of EVs as an alternative to the internal combustion engine. This would be resoundingly credit negative for the oil sector [..],” Fitch says. It adds that renewables firms can benefit from such a development, with energy storage being one of the answers to the intermittency challenge, and boost their market share.

The full post, the first of a series of Fitch reports looking at the potential consequences of a dramatic acceleration in certain disruptive technologies, is available at www.fitchratings.com/site/pr/1013282.

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