Energies 15 06163

energies
Article
Strategic Planning of Oil and Gas Companies:
The Decarbonization Transition
Alexey Cherepovitsyn * and Evgeniya Rutenko
Department of Economics, Organization and Management, Saint-Petersburg Mining University, 21St Line V.O. 2,
199106 St. Petersburg, Russia
* Correspondence: alekseicherepov@inbox.ru; Tel.: +7-921-919-5455
Abstract: In the face of increasing climate concerns and the intensive development of the renewable
energy sector, oil and gas companies need to develop strategies to not only comply with the new
rules of the game, but to also benefit from them. This study includes prospects for development of
the global energy system along with analysis of decarbonization strategies for the largest players in
the oil and gas market, and defines conceptual directions to improve strategic planning systems of
oil and gas companies in order to ensure sustainability in the context of a global energy transition.
The theoretical background of this study is based on the fundamental concepts and methods of
strategic planning, as well as modern approaches to strategic planning in the oil and gas industry.
This study makes three contributions. First, we maintain that a broad, systematic understanding of
the consequences of energy system transformation and defining its role in the new market should be
the crucial task of players in the oil and gas industry, and we clarify the opportunities and threats
of transitioning to decarbonization. Second, the study results contribute to the development of the
design theory of strategic planning systems by improving well-known methods and approaches with
reference to global energy transformation. Third, we offer proposals for the development of a climate
adaptation strategy using the example of a Russian oil and gas company based on the company’s
business capabilities.
Citation: Cherepovitsyn, A.; Keywords: strategic planning; energy transition; oil and gas companies; fossil fuels; renewables;
Rutenko, E. Strategic Planning of Oil low-carbon economy
and Gas Companies: The
Decarbonization Transition. Energies
2022, 15, 6163. https://doi.org/
10.3390/en15176163
1. Introduction
Academic Editor: Attilio Converti The upward trend in global energy demand and, consequently, emissions of green-
Received: 28 July 2022
house gases, in particular carbon dioxide, is projected to continue in the long term [1–3].
Accepted: 23 August 2022
Provision of growing demand for energy access and clean air to limit global temperature
Published: 25 August 2022
rise is a challenge. To promote problem-solving, the United Nations (UN) adopted several
strategic documents (Transforming Our World: The 2030 Agenda for Sustainable Devel-
Publisher’s Note: MDPI stays neutral
opment; Paris Agreement [4,5]), which currently are the guidelines for development of
with regard to jurisdictional claims in
national energy policies and industrial enterprise strategies. These documents set objec-
published maps and institutional affil-
tives for the transition to a low-carbon developmental model and expansion of the use of
iations.
environmentally friendly types of energy to reduce the threat of climate change. According
to Wood Mackenzie’s experts, achievement of climate goals depends on three main factors:
coordinated and consistent actions of governments; acceleration of green energy innovation;
Copyright: © 2022 by the authors.
and a sharp increase in investment in low-carbon energy [6].
Licensee MDPI, Basel, Switzerland. The growing importance of the climate change agenda is a key prerequisite for the
This article is an open access article new energy transition 4.0. It means a pathway toward transformation of the global energy
distributed under the terms and sector from fossil-based to zero-carbon by the second half of this century [7] and implies
conditions of the Creative Commons the development of a new type of economic growth based on the principles of sustainable
Attribution (CC BY) license (https:// development [8].
creativecommons.org/licenses/by/ Fossil fuels are losing their position in the market; their place is being taken by
4.0/). renewables such as wind, solar energy, wave energy, biofuels, green hydrogen, etc. Over
Energies 2022, 15, 6163. https://doi.org/10.3390/en15176163 https://www.mdpi.com/journal/energies

Energies 2022, 15, 6163 2 of 26
the past few years, the renewable energy sector has become a science-driven innovation
industry. According to Deloitte analysts, renewables, primarily solar and wind energy, are
the best solution in terms of reliability, affordability, and environmental responsibility [9].
Moreover, according to a study conducted by the International Renewable Energy Agency
(IRENA), the transition to renewables can provide a significant socioeconomic effect, with
increased jobs, welfare, and global gross domestic product [7].
Oil and gas companies are becoming “prisoners“ in the new paradigm of energy
system development. The downward trend in demand for traditional energy resources
and increasing competition offered by renewables are forcing the largest market players
to accelerate their transition to a business model with less focus on economic efficiency
and more attention on environmental sustainability. The growing pressure from the state
and society is encouraging oil and gas companies to contribute to decarbonization. There
is a change on the part of investors—they refuse to finance projects with a high carbon
footprint, giving preference to “clean“ projects [10]. Shareholders require companies
to publish regular carbon footprint reports. Corporate ESG (Environmental, Social and
Governance) reporting is becoming standard for the oil and gas business.
The main trend for the development of oil and gas companies should be an emergency
adaptation to the new “green“ reality. Challenging changes should be implemented in such
companies to become part of a carbon-free future. The new energy transition both poses
significant risks for oil and gas market participants and creates a lot of opportunities. The
main challenge is to understand how external factors may affect the business and how to
succeed in the new energy landscape.
The importance of overcoming uncertainty and ensuring the competitiveness of oil and
gas companies in the context of energy transition makes it relevant to study issues associated
with strategic planning. Today, strategic planning for oil and gas companies is not just an
annual budget or a ten-year plan—it is developing a broad and deep understanding of the
industry itself, its features, and key strategic issues facing the global energy market. In
this article, we try to answer an important research question: How is the role of strategic
planning changing in the course of oil and gas companies’ adaptation to energy transition
trends, and will an effective strategy help oil and gas companies integrate into the new,
low-carbon energy system?
The objectives of this study are as follows:
• Analyze the development of the global energy system and the prospects for oil and gas
sector operations in the age of energy transition 4.0 by comparing scenarios collected
from various sources.
• Study climate strategies of the world’s largest oil and gas companies and identify
emerging challenges and opportunities in decarbonization.
• Define how evolution of the energy balance has influenced the processes of strategic
planning for oil and gas companies, and identify the areas for improving the methods
and approaches used.
• Submit proposals for strategic climate adaptation planning for an oil and gas company.
2. Literature Review and Research Methodology

To achieve these goals, we distinguish three groups of theoretical studies: (1) the role
of renewable energy in the energy transition: opportunities and limitations; (2) the impact
of climate change and the decarbonization economy on the development of the oil and gas
sector; and (3) the theory and practice of strategic planning for oil and gas companies.
We examined scientific studies on the potential of renewable energy to build sus-
tainable energy systems (studies in Group 1) using Science Direct and Scopus (with full
access). The development of renewables as a key link in the energy transition and one
of the solutions to climate problems has been widely discussed in the literature [11–14].
Special attention has been paid to the opportunities and problems of transitioning to clean
energy in the pandemic and post-pandemic periods [15–17]. The role of infrastructure
development and introduction of technological innovation in putting forward the renew-
Energies 2022, 15, 6163 3 of 26
ables industry has been analyzed [18]. At the same time, while some authors have pointed
to the necessity and possibility of creating a decarbonized energy system [13,19], others
have critically discussed the technical and economic feasibility of moving to a low-carbon
economic model based on renewables [20]. Harjanne A. and Korhonen J.M. noted the
weakness of the renewable energy concept and argue that “renewable energy does not even
exist“ [21]. The environmental sustainability of renewables [22–24] as well as the impact on
social well-being of expanding the renewables sector [25] is being actively criticized.
Analysis of Group 1 brought us to the conclusion that development of renewables, like
development of any technology, is associated with a number of engineering, environmental,
and socioeconomic problems. We need further studies and assessments, particularly in
the field of environmental impact. Nevertheless, wide popularization and promotion of
low-carbon development, the support of government policies and society, and high interest
in the scientific community will contribute to intensive development of renewable energy.
In this regard, it seemed relevant to study the opportunities for development of the global
oil and gas sector in the context of increasing renewables capacity (studies in Group 2). We
studied the statistical and forecast data of the industry’s analytical organizations [2,3,7,10,26,27],
reports of consulting companies [6,9], and scenarios of oil and gas companies [1,28,29]. Analysis
of the impact of the COVID-19 pandemic on the change in the energy balance structure was of
particular interest for this study.
Trends in sustainable low-carbon development have a significant impact on oil and
gas operators, which are considered the main contributors of greenhouse gas emissions
increases. We focused on emerging opportunities and challenges for oil and gas companies
as they move towards zero emissions. We concluded that searching for opportunities aimed
at growth and creating value while generating environmental benefits requires improved
strategic planning systems.
Then, we studied the accumulated experience of the theory and practice of strategic
planning using the method of system analysis (studies in Group 3). Strategic planning
as a concept was formed in the middle of the last century and has undergone significant
changes since then. As Magdanov P.V. mentioned, “no management method has such
internal potential for improvement as strategic planning“ [30]. Mechanisms for creation and
holding of competitive advantages are being developed [31]. The emphasis on studying
the dynamism of the external environment and the capability of adapting to emerging
challenges is growing [32–34]. The relationship between business strategies and economic
performance is being determined [35,36]. The importance of the creative component in
strategic planning and the development of strategic thinking is increasing [37]. Models
and tools for strategic planning are being developed to formalize this process [38–41]. At
the same time, the concept of strategic planning has often been criticized. For example,
Mintzberg H. argues in his study [42] that planning is contrary to management and is not
an effective tool.
Boyd B. K. and Reuning-Elliott E. define the key indicators of strategic planning as
“mission statements, trend analysis, competitor analysis, long-term and annual goals, action
plans, and ongoing evaluation“ [43]. Today, the strategic planning mechanism has many
tools and practices that are successfully applied. At the same time, the backbone of strategy
development is to choose methods that are fundamentally different from the actions of other
market participants in order to achieve success through unique competitive advantages.
Ever since its inception, strategic planning has been actively integrated into the oil
and gas sector as an important economic subsystem. The need for effective coordination
and monitoring in line with business directions and geographical expansion has forced
oil and gas companies to develop detailed action programs based on forecasting of long-
term trends in the energy market. In 1975, the oil and gas company Shell contributed to
the development of strategic planning. It proposed a model of multiparametric strategic
analysis (Directional Policy Matrix) aimed at determining the optimal solution among
various options for market development [44].
Energies 2022, 15, 6163 4 of 26
The movement of the oil and gas industry from stability to turbulence has changed
the nature and role of strategic planning. Today, researchers note the need to develop
more scenarios and to form adaptive mechanisms [45], out-of-cycle planning [46], and
to improve business models for oil and gas companies [47]. Moreover, the high role of
environmental aspects in the formation of the strategy [48,49], as well as the possibility of
including renewable energy [50,51], is being widely discussed.
Theoretical studies have identified gaps in academic research in the development
of strategic plans for oil and gas companies to ensure sustainability in the era of energy
transition. The issue of developing climate strategies for oil and gas companies is still
unresolved. This forms a complex scientific problem to determine the features and prospects
for the development of strategic planning systems for oil and gas companies.
We used comparative analysis and decomposition of factors to determine the specifics
of strategies of global oil and gas companies in the age of energy transition. Pursuant to
our results as well as the theoretical studies in Group 3, we identified the key features of
the “future strategy“ of oil and gas companies, articulated new approaches to strategic
planning, and proposed a model of strategic planning for an oil and gas company. We
attempted to capture all aspects of the strategic planning process and to rethink them with
energy transformation in mind.
We concluded that an important part of the strategic planning of an oil and gas com-
pany is the development of a climate adaptation strategy, and we offer our vision for a
Russian oil and gas company, LUKOIL. The goals and related objectives of decarbonization
are presented in the strategy map. The classic version of the strategy map proposed by
Kaplan, R. S. and Norton D. P. [40] is supplemented by an additional fifth block called
“Prospects“, which presents long-term options for business decarbonization. The strategic
map was drawn up with reference to the analysis of the climate strategies of global oil
and gas companies, LUKOIL’s long-term development program, and LUKOIL’s techno-
logical capability. To measure and evaluate the effectiveness of moving towards goals, a
system of balanced scorecards was drawn up. Using economic and mathematical model-
ing, we predicted the dynamics of electricity production from renewable energy sources
as the most promising low-carbon trend for LUKOIL as part of the development of an
integrated portfolio.
The structure of this article is as follows: We start by defining the role of oil and gas
resources. Next, we study the strategic behavior of global oil and gas companies in the
context of energy transition. We then present our vision for improvement of strategic
planning systems. Next, we propose some trends for decarbonization of an oil and gas
company. We sum the results up in the Conclusions.
3. Results
3.1. Energy Mix Transformation: The Dilemma of a Sustainable Energy System
The main trend in the development of the global energy system is already clearly
visible: under the influence of changes to energy policy and the development of new tech-
nology, the role of fossil fuels is decreasing, while the competitive positions of renewables
are strengthening. The global decarbonization paradigm raises important questions: Is
the ultimate goal of energy transition a transition to completely carbon-free energy, or
is it renewable energy combined with more efficient use of fossil energy resources? Is it
possible to ensure the availability of energy in sufficient volumes and at affordable prices
in the context of the energy mix transformation? How can the oil and gas sector remain a
significant part of the new, low-carbon energy system?
Emissions from the oil and gas sector in Scopes 1 and 2 account for about 12% of global
anthropogenic emissions. The greatest concern in the context of moving towards carbon
neutrality is still the emissions of the oil and gas sector in Scope 3, which accounts for
more than 30% of total global emissions [1,2]. Meanwhile, an important trend in industry
development is that the level of increase in emissions is outpacing the level of production.
This is due to an increase in production of unconventional resources. Most emissions—
Emissions from the oil and gas sector in Scopes 1 and 2 account for about 12% of
global anthropogenic emissions. The greatest concern in the context of moving towards
carbon neutrality is still the emissions of the oil and gas sector in Scope 3, which accounts
Energies 2022, 15, 6163 for more than 30% of total global emissions [1,2]. Meanwhile, an important trend in 5 ofin-
26
dustry development is that the level of increase in emissions is outpacing the level of pro-
duction. This is due to an increase in production of unconventional resources. Most emis-
sions—almost 60%—come from oil [2]. However, the problems of methane emission and
almost 60%—come from oil [2]. However, the problems of methane emission and leakage
leakage in the gas industry is a matter of high concern. Despite the fact that CH4 persists
in the gas industry is a matter of high concern. Despite the fact that CH4 persists in the
in the atmosphere for a shorter time than CO2, the greenhouse effect from methane emis-
atmosphere for a shorter time than CO2 , the greenhouse effect from methane emissions
sions is much higher [52]. The high share of the oil and gas industry in global greenhouse
is much higher [52]. The high share of the oil and gas industry in global greenhouse gas
gas emissions
emissions determines
determines its sensitivity
its sensitivity to global
to global decarbonization
decarbonization trends.trends.
Moreover, in recent years the oil and gas market has been marked by
Moreover, in recent years the oil and gas market has been marked by high
highturbulence.
turbulence.
The main sources of uncertainty have included geopolitical and macroeconomic shocks,
The main sources of uncertainty have included geopolitical and macroeconomic shocks,
emergence of
emergence of new
new players
players andand production
production regions,
regions, and
and technological
technological advancements.
advancements. The The
COVID-19 pandemic and the global economic crisis that followed have increased un-
COVID-19 pandemic and the global economic crisis that followed have increased the the
predictability of of
unpredictability thethetraditional
traditionalenergy
energymarket.
market.InIn2020,
2020,oil
oildemand
demand showedshowed the largest
the largest
annual decline
annual decline in inhistory,
history,recording
recordinganan8.8% 8.8%decrease.
decrease. Natural
Naturalgasgasproved
provedto betomore
be moresus-
tainable, as its global consumption fell by
sustainable, as its global consumption fell by 1.9% [2]. 1.9% [2].
The upward
The upward line line ofof instability
instability andand volatility
volatility coupled
coupled with
with regulatory
regulatory strengthening
strengthening
of the global low-carbon agenda leads to reduced investment in the oil and gas
of the global low-carbon agenda leads to reduced investment in the oil and gas industry.
industry.
According to the International Energy Agency (IEA), in 2020,
According to the International Energy Agency (IEA), in 2020, for the first time, for the first time, global in-
global
vestment in renewables exceeded investment in oil and gas production
investment in renewables exceeded investment in oil and gas production (USD 418 billion (USD 418 billion
vs. USD 353 billion), and in 2021, the trend strengthened strengthened (USD 446 billion billion vs.vs. USD 384
billion) [53]. Experts predict that global investment in hydrocarbon production will not
reach pre-pandemic levels in the near future [54]. In particular, the reduced investment is
due to optimization of costs for new projects. However, a significant part of the reductions
is associated with delays or refusalsrefusals to to implement
implement projects.
projects.
These factors determine a wide range of possible options for the development of the
oil and gas sector (Figure 1). A gradual decrease in the share of oil in the global energy
mix is
is expected.
expected. Trends
Trendssuch suchasasincreased
increasedelectricity
electricityconsumption
consumption andandthethe
development
development of
hydrogen
of hydrogen energy
energysupport
support demand
demand for for
natural gas.gas.
natural However,
However,in the longlong
in the term, natural
term, gas
natural
positions will will
gas positions also also
decrease due due
decrease to increased competition
to increased fromfrom
competition renewables.
renewables.
The share of oil in the energy mix 2050 The share of natural gas in the energy mix 2050
The level of 2021 The level of 2021

BP Net Zero BP Net Zero
IEA NZE IEA NZE
BP Accelerated BP Accelerated
IEA SDS Shell Sky 1.5
Equinor Rebalance IEA SDS
Shell Sky 1.5 Shell Waves
BP New Momentum IEA APS
IEA APS Equinor Rebalance
Shell Waves Shell Islands
Equinor Reform IEA STEPS
Shell Islands Equinor Rivalry
IEA STEPS BP New Momentum
Equinor Rivalry Equinor Reform
0% 10% 20% 30% 40% 0% 10% 20% 30% 40%
Figure 1. Forecast
Figure 1. Forecast of
ofthe
theshare
shareofofoil
oiland
andnatural
natural gas in in
gas thethe
world energy
world mixmix
energy by 2050. Source:
by 2050. Created
Source: Cre-
by the
ated byauthors usingusing
the authors data from [1,2,28,29].
data from [1,2,28,29].
Meanwhile, at the end of 2020, global demand for renewable energy increased by 3%,
and the share of renewables in global electricity production reached a record 29% [2]. In
European Union (EU) countries at the end of 2020, the share of renewables in electricity
generation (38.2%) exceeded the share of fossil fuels (37%) for the first time [55]. This was
facilitated by an increase in economic competitiveness of renewables through large-scale
investment in technological innovation.
Meanwhile, at the end of 2020, global demand for renewable energy increased by 3%,
and the share of renewables in global electricity production reached a record 29% [2]. In
European Union (EU) countries at the end of 2020, the share of renewables in electricity
Energies 2022, 15, 6163 generation (38.2%) exceeded the share of fossil fuels (37%) for the first time [55]. This6 was of 26
facilitated by an increase in economic competitiveness of renewables through large-scale
investment in technological innovation.
According to forecasts, the
the advantages
advantages of of renewable
renewableenergy,
energy, such
such asas energy
energysecurity,
security,
price stability,
stability,absence
absenceofofenvironmental
environmental costs, and wide distribution and availability,
costs, and wide distribution and availability, may
may provide
provide the renewables
the renewables sectorsector
with awith a significant
significant increase
increase in theofshare
in the share totalof total energy
global global
energy consumption.
consumption. The renewables
The renewables industry
industry may become may become
world’s world’s
largest largestproducer
electricity electricity
in
producer in the
the long run, long run,gas
surpassing surpassing
and coalgas and 2).
(Figure coal (Figure 2).
Share of renewables in primary energy Share of renewables in electricity generation

consumption 2050 2050
The level of 2021 The level of 2021
Shell Islands BloombergNEF Red Scenario…
IEA STEPS BP New Momentum
BloombergNEF Red Scenario Shell Islands
BP New Momentum IEA STEPS
Shell Waves BP Net Zero
IEA APS Shell Waves
BloombergNEF Gray Scenario BloombergNEF Gray Scenario…
Shell Sky 1.5 IEA APS
IEA SDS BP Accelerated
BP Accelerated Shell Sky 1.5
BP Net Zero BloombergNEF Green…
Irena Global energy… IEA SDS
IEA NZE Irena Global energy…
BloombergNEF Gray Scenario IEA NZE
0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
Forecast for
Figure 2. Forecast for the
the share
share of
of renewables
renewables in
in the
the global
global energy
energy mix
mix and
and electricity
electricity production
production by
2050. Source: Created
Created by the authors using data from [1,2,7,27,29].
Intensive development
development of the renewables sector is becoming the focus of so-called
“green new deals“
“green new deals“ininmanymany countries.
countries. ForFor example,
example, in December
in December 2019,2019, the European
the European Com-
Commission
mission presented
presented the the European
European Green
Green Deal
Deal [56],
[56], ananambitious
ambitiouspackage
packageof of measures
measures
aimed at
aimed at making
makingthe theEU
EUeconomy
economy environmentally
environmentally sustainable.
sustainable.According to the
According to document,
the docu-
institutional support, increased investment, and the development
ment, institutional support, increased investment, and the development of technologyof technology in the
in
renewables sector provide the basis for decarbonization of the economy
the renewables sector provide the basis for decarbonization of the economy at minimal at minimal cost.
The United
cost. StatesStates
The United argues that the
argues thatcountry’s transition
the country’s to a to
transition 100% clean
a 100% energy
clean energyeconomy
econ-
by 2050 is “not only an obligation, but also an opportunity“ [57]. China,
omy by 2050 is “not only an obligation, but also an opportunity“ [57]. China, which gen- which generates
the largest
erates amount
the largest of CO2ofemissions
amount annually
CO2 emissions (20% of
annually global
(20% emissions),
of global has also
emissions), hasmade
also
significant progress in environmental matters. Boston Consulting Group
made significant progress in environmental matters. Boston Consulting Group (BCG) ex- (BCG) experts
argue argue
perts that coordinated and consistent
that coordinated work covering
and consistent the entire
work covering theeconomy of the country
entire economy of the
will allow China to achieve carbon neutrality by 2060 [58].
country will allow China to achieve carbon neutrality by 2060 [58].
Changes in
Changes in energy
energy policies
policiesare
aredriven
drivennot
notonly
onlybybythe
theclimate
climate agenda
agendaand
and thethe
desire to
desire
decarbonize the economy. For a number of countries, this is an opportunity to improve
to decarbonize the economy. For a number of countries, this is an opportunity to improve
energy security by reducing dependence on hydrocarbon resources, which are subject to
energy security by reducing dependence on hydrocarbon resources, which are subject to
price fluctuations and supply disruptions [59,60].
price fluctuations and supply disruptions [59,60].
Renewable energy is becoming a long-term action priority for energy leaders as they
Renewable energy is becoming a long-term action priority for energy leaders as they
work towards greater integration into the global energy system [61]. However, as noted
work towards greater integration into the global energy system [61]. However, as noted
above, accelerated development of “green“ energy is associated with serious risks due to
above, accelerated development of “green“ energy is associated with serious risks due to
technological and environmental features of renewables. To date, problems with storage,
technological and environmental features of renewables. To date, problems with storage,
reliability, and stability related to renewables generation are yet to be solved. Green
energy still has a higher total cost, needs subsidies, and requires additional environmental
assessments. This raises the dilemma of a sustainable energy system: accelerated transition
from fossil fuels to renewable energy against the backdrop of underinvestment in the oil
and gas industry can cause global shortages as well as a significant increase in the costs of
energy resources.
Energies 2022, 15, 6163 7 of 26
Under these conditions, it is important to act based on balanced and thoughtful

decisions and to strive for maximum synergy between various countries, businesses, and
societies in the energy mix evolution. Clean energy should be affordable and sufficient
not only in terms of gradual reduction of dependence on fossil fuels, but also in terms of
providing additional energy for the growing global economy.
Meanwhile, the oil and gas sector should move from the category of “prisoner“ to the
category of “partner“. The challenge for oil and gas companies is to take a central role in
decarbonization of the energy system. Focusing on process efficiency, coupled with moving
towards solutions that reduce CO2 emissions and use alternative energy sources, will allow
oil and gas companies to stay competitive. Engineering capabilities and experience in
large-scale project management, resources, and skills may be a significant contribution of
oil and gas companies to global decarbonization.
3.2. Global Oil and Gas Companies: From Big Oil to Big Energy
Climate-friendly policies and increased competition from renewables are forcing
oil and gas companies to make strong commitments to climate change and to integrate
decarbonization into their strategy and management systems. The traditional business
model based on a guaranteed demand for hydrocarbons has worked for many decades, but
now it has little force. It is important for governments, investors, and society to understand
how oil and gas companies can adapt to the energy transition.
The economic crisis caused by the COVID-19 pandemic has accelerated these processes
and adjusted the strategies of oil and gas companies. The year 2020 became a turning point
for oil and gas players: from that moment on, they entered a new cycle, the focus of which
was investing in more efficient and clean fixed assets and optimizing the current portfolio
of upstream assets. The new investment course is aimed at creating a foundation that will
be sustainable in various scenarios of global energy system development. According to
McKinsey experts, “the winners will be those that use this crisis to boldly reposition their
portfolios and transform their operating models” [62].
By the end of 2020, global oil and gas companies reduced the declared value of
their traditional assets by more than USD 50 billion, which clearly demonstrates their
new vision on long-term development [2]. The nature of investment in oil production is
changing markedly: projects with easy commercial prospects, including a short cycle and
proximity to existing infrastructure, are becoming a priority. The low carbon intensity of
natural gas increases interest in gas fields and LNG (liquefied natural gas) projects [63].
Vertically integrated companies are showing the structural shift in investment: global
decarbonization reduces motivation for oil and gas exploration and reserve replacement
and boosts investment in downstream and petrochemicals.
Back in 2019, according to the IEA, investment by oil and gas companies in clean energy
amounted to a small share of total capital investment—less than 1% [64]. In 2020–2021,
green diversification, including renewable power generation, hydrogen, and CO2 capture,
significantly accelerated as more oil and gas companies announced decarbonization and
net zero emission targets.
Today, however, stakeholders want concrete decarbonization strategies from oil and
gas companies, including significant reductions in oil and gas production, expansion of
renewables capacity, as well as well-thought-out roadmaps that set out achievable emissions
reduction targets. As noted in the IEA report, “No energy company will be unaffected
by clean energy transitions. Every part of the industry needs to consider how to respond.
Doing nothing is simply not an option“ [64]. Today, most oil and gas companies have
already presented their development programs within the framework of energy transition,
demonstrating different levels of ambition.
European producers feel rather confident about the upcoming changes; they choose
the rapid growth of renewables in their portfolios as the main tool for decarbonization.
The trend of renaming and rebranding has been observed among European operators.
Companies are trying to move away from associations with fossil fuels and to position
Energies 2022, 15, 6163 8 of 26
themselves as advanced, diversified energy companies that can generate energy from
various sources, including renewables, and are ready to make a significant contribution to
climate-related problem-solving.
Over the past few years, European oil and gas companies have already significantly
increased their presence in the renewable energy market. Business mergers and acquisitions
have been their main tool. At the same time, the practice of creating one’s own business in
the field of green energy has been widely used, especially in situations in which synergy
with the main activity is obvious. For example, BP, Equinor, Shell, and TotalEnergies, all
having offshore experience, are actively involved in offshore wind energy projects.
TotalEnergies is one of the pioneers among the oil and gas majors in the context of
clean energy investments. The company implements a wide range of energy services,
including oil and gas, low-carbon electricity, and carbon neutral solutions as integrated
parts of the business [65,66]. BP has chosen a similar strategy. Recognizing oil and gas as
an important component of its activities, the company is actively diversifying its portfolio
by investing in various forms of energy, such as solar, wind, biofuel, and hydrogen [67,68].
Shell plans to focus on selling of electricity generated from renewables. At the same time, in
order to secure funding for its transformation, Shell prefers to avoid abrupt reductions in oil
production, decreasing it by 1–2% annually over the next decade [69]. The Italian company
Eni joined forces with IRENA in 2021 to promote renewable energy and to accelerate
the energy transition [70–72]. Equinor, a company with national commitments, has also
chosen energy opportunities integration. The company successfully uses its accumulated
technological and financial potential to diversify its portfolio, planning to become a global
leader in the field of offshore wind energy [73,74].
The strengthening of the positions of European companies in the rapidly growing
renewable market is primarily due to their desire to secure themselves against sharp ups
and downs in the hydrocarbon market. Moreover, tough EU government measures to
achieve net zero emissions targets, as well as the depletion of traditional fuels, are forcing
companies to look for growth in clean energy segments.
American companies, somewhat belatedly, are following the path taken by their Euro-
pean counterparts. They are announcing environmental initiatives in a moderate manner.
ConocoPhillips’ climate strategy aims to limit the carbon intensity and greenhouse gas
intensity of its own business operations. The company adjusted its portfolio by abandoning
capital-intensive projects and projects with a higher emission intensity [75]. ExxonMo-
bil remains focused on global production in shale basins and offshore [76]; Chevron is
increasing production in the Permian Basin and the Gulf of Mexico [77]. To reduce their
carbon footprints, US companies plan to focus on CO2 capture and storage projects, as
well as hydrogen initiatives. However, the situation may turn around in the near future.
The US presidential administration is placing a premium on the climate agenda and the
development of renewables [57]. New government climate guidelines may encourage
American majors to pursue more intensive decarbonization.
National Oil Companies (NOCs) such as Saudi Aramco, China National Petroleum
Corporation (CNPC), and Petrobras are in a more challenging position due to their impor-
tant role as contributors to national budgets. The companies need to remain competitive
and efficient in the face of a wide range of non-commercial challenges and to adapt to a
low-carbon economy. As a rule, NOCs remain “faithful” to oil and gas resources and focus
on the development of more energy-efficient and low-carbon oil production technologies,
as well as gas production increases, in particular for hydrogen production [78–80]. The
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Source: Created by the authors, data from [65–69,71–80].
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Figure 3 based on the data of Table 11 and
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Figure 3. Climate ambitions of global oil and gas companies. Source: Created by the authors using
Figure 3. Climate ambitions of global oil and gas companies. Source: Created by the authors using
data from [65–69,71–80].
data from [65–69,71–80].
It is important to note that, despite the positive momentum in the issue of carbon
neutrality commitments and emission reduction targets, a number of companies can see
the lack of a clear plan or strategy to achieve the desired result. Moreover, long-term goals
are not always accompanied by specific short-term objectives, which would make it easier
to assess progress and increase company responsibility. In this regard, there are concerns
that loud statements about climate goals may turn out to be a marketing strategy. Soon
companies will have to prove the feasibility of declared commitments discharge.
Thus, the strategic developmental trends of oil and gas companies in the context of
climate issues are significantly different. For instance, European operators are monetizing
their hydrocarbon assets and are looking for opportunities in new “clean“ market segments.
Without a doubt, such a transformation is associated with high financial costs and huge
risks. Several specialized players already exist in the new market. The investment and
operating features of the renewables business differ from oil and gas projects. An important
constraining factor is technologies that may not yet be available to companies or are still
underdeveloped. Moreover, reduction of social pressure along the way does not eliminate
the need to strike a balance between diversification and investor expectations.
At the same time, such a transition opens up long-term opportunities for economic
growth, innovative renewal, and development of competencies. In addition, best practices
in asset and infrastructure management will enable these companies to create value through
a low-emission operating model and a highly efficient ecosystem.
American companies, as well as NOCs at this stage, are united by their prioritization
of traditional activities. Highly available hydrocarbon reserves, developed transport in-
frastructure, and the supply chain do not allow companies to refocus towards alternative
energy sources in a radical way. These companies are primarily focused on improving
energy efficiency and developing their gas business. Moreover, these operators can become
leaders in the production of hydrogen and the development of technologies for capture
and storage of carbon dioxide. Such a gradual decarbonization strategy has significantly
fewer risks. However, the probability of a late response to market demands is high. This
may lead to investment loss and deterioration of good standing in the market.
frastructure, and the supply chain do not allow companies to refocus towards alternative
energy sources in a radical way. These companies are primarily focused on improving
energy efficiency and developing their gas business. Moreover, these operators can be-
come leaders in the production of hydrogen and the development of technologies for cap-
Energies 2022, 15, 6163 ture and storage of carbon dioxide. Such a gradual decarbonization strategy has signifi-11 of 26
cantly fewer risks. However, the probability of a late response to market demands is high.
This may lead to investment loss and deterioration of good standing in the market.
In
In Figure
Figure4,4,we
wehave combined
have combinedthethe
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3.3. Russian Oil and Gas Companies: Balance of Interests

We have analyzed the climate ambitions of Russian oil and gas companies separately
from other corporations, since the orientation of state policy, the goalsetting of market
participants, and the priorities of scientific research differ from the approaches of foreign
colleagues [81].
Despite the fact that Russia ratified the Paris Agreement in 2019, the country’s climate
policy is subject to significant criticism from experts, businesses, and environmental organi-
zations. To date, regulation in the field of climate change is specified in a number of state
regulatory documents [82,83]. Indeed, the quantitative goals for 2050 are not included in
the documents, nor are specific measures to reduce and prevent greenhouse gas emissions
outlined. Meanwhile, a significant increase in domestic consumption and an increase in
fossil fuel exports through 2035 are specified as target values. In the context of the develop-
ment of renewable energy, one can also note the existing constraints in state regulation and
the lack of support measures that create barriers to increases in renewable capacity.
This situation reflects Russia’s special approach to the problems of climate change.
According to the statement of the Minister of Energy of Russia, A.V. Novak, “within the
framework of the general trend to reduce greenhouse gas emissions into the atmosphere, it
is necessary not to look for ways to abandon traditional generation, but for opportunities
to reduce the impact” [84]. This position is due to the high dependence of the country’s
socioeconomic development on the performance of the oil and gas sector [85]. It is expected
that the focus of Russia’s climate policy will be production of low-carbon types of energy
based on existing oil and gas reserves, improvement of the energy efficiency of industrial
sectors, and introduction of modern technologies that reduce emissions into the atmosphere.
As a tendency to create clean energy in the country, one can name a “road map” for
the development of hydrogen energy through 2024, aimed at production increases and
expansion of the scope of hydrogen applications [86].
The development of the Russian oil and gas sector reflects the state policy guidelines.
Today, Russian players are just starting to include the climate factor in their strategies. The
first declarations about moving towards net zero are being made. Common methods of
carbon footprint reduction are being applied. Participation of Russian companies in renew-
Energies 2022, 15, 6163 12 of 26
ables projects is mainly associated with optimization of their own power consumption. On
top of this, much less attention is being paid to asset portfolio optimization. Development
of gas projects, as a rule, is driven more by intentions to diversify the core business rather
than to decarbonize it.
Gazprom plans to participate in the implementation of pilot hydrogen energy projects
in Russia. The company considers hydrogen as one of the means to reduce the carbon
footprint of natural gas supplies, as well as a commercial product [87]. Despite its high
level of greenhouse gas emissions, the company has the lowest carbon intensity in the
industry (Figure 5). LUKOIL is implementing a number of commercial renewable projects,
including projects outside Russia [88]. Rosneft plans to develop the resource base of natural
gas, as well as technical solutions for carbon capture, chemical neutralization, transport,
and storage [89].
Regarding selection of business decarbonization strategies, Russian companies are,
in many ways, similar to American ones. Growing environmental demands are forcing
companies to reduce emissions and to improve energy efficiency. However, the oil and gas
sector remains a priority for companies, and it is unlikely that this situation will radically
change in the coming 10 years.
The Russian oil and gas business, integrated into the global energy system, is being
pushed to reduce its carbon footprint by external factors such as regulatory risks and
requirements of foreign investors and partners. For example, the EU, which accepted
Energies 2022, 15, x FOR PEER REVIEWvery tough climate commitments, is widely discussing the introduction of a carbon 12 tax on
of 25
fossil fuel imports. The introduction of a carbon levy, according to BCG estimates, could
potentially cost the Russian oil and gas sector USD 1.4–2.5 billion annually [90]. On top of
this, leading financial and credit organizations are switching to the principles of sustainable
leading financial and credit organizations are switching to the principles of sustainable
lending; accordingly, Russian oil and gas companies that do not meet these standards may
lending; accordingly, Russian oil and gas companies that do not meet these standards may
lose their sources of financing.
lose their sources of financing.
250 100
222.1
76.6 79.0
200 75.0 74.4 73.6 80
73.6
64.3 68.0 68.0
63.9
150 60
111.0
100 81.0 40
71.0
45.5 43.7 39.0 38.5
50 20
16.2 13.5
0 0
TotalEnergies
Equinor
Gazprom
Rosneft
Shell
BP
Eni
LUKOIL
ConocoPhillips
Exxon Mobil
GHG emissions (scopes 1, 2), million tonnes CO2e Carbon intensity, gCO2e/MJ
Figure
Figure5.5.Greenhouse
Greenhousegas
gasemissions
emissionsand
andcarbon
carbonintensity
intensityofofoiloiland
andgas
gasproducts
productsinin2020.
2020.Source:
Source:
Created by the authors using data from [65–69,71–76,87–89,91].
Created by the authors using data from [65–69,71–76,87–89,91].
ItItcan
canbebesaid
saidthat
thatRussian
Russianoil
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andgas
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companiesare aregradually
graduallyrealizing
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thatmoremoreactive
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decarbonization
measures are needed to maintain a strong market position. Remaining competitive in the
context of energy transition requires reassessing the strategic planning systems of oil and
gas companies and developing new approaches to strategy formation.
Energies 2022, 15, 6163 13 of 26
measures are needed to maintain a strong market position. Remaining competitive in the
context of energy transition requires reassessing the strategic planning systems of oil and
gas companies and developing new approaches to strategy formation.
3.4. New Approaches to Strategic Planning of Oil and Gas Companies in the Era of
Energy Transition
Development of effective strategies is a decisive point in a business environment
outlined by increased risk and uncertainty. Today, a company’s development strategy
must consider many more unforeseen circumstances than required only very recently [92].
Flexibility and continuity, investment in the capabilities needed for the future, and going
beyond current business models through experimentation should be the hallmarks of
a modern strategy. The task of strategic planning is to identify and evaluate business
development opportunities in a new, turbulent environment and to determine specific
measures to achieve strategic goals. Meanwhile, strategic planning may be effective not only
in terms of achievement of certain quantitative indicators, but also due to synergistic effects.
Until recent times, the well-known tools of strategic planning could be effectively
applied based on current conditions of economic development. However, the situation
observed in the global market at the present stage of development can be called unprece-
dented; the economy had not previously encountered such shocks. Particularly notable are
the drivers of this change affecting the oil and gas industry, which was already struggling
to create long-term values.
For research purposes, we have turned to three modifications of strategic planning
models. The model of the Harvard Business School [38] is based on integration of the iden-
tified opportunities and challenges of the external environment, expressed in the form of
key success factors, as well as strengths and weaknesses of a company’s resource potential,
expressed in its distinctive development abilities. The model assumes the consideration of
unique characteristics of an individual company along with multivariance of alternatives.
The Ansoff matrix [39] is supplemented by an analysis of financial and organizational
capabilities of the company. A distinctive feature of the model is feedback, which ensures
interactivity of the procedure for the formation of a strategic plan and continuity of the
process of its implementation. G. Steiner’s model [40] is characterized by a strict sequence
of stages of strategy development and detailed results. Additionally, the model’s author
points to the connection between strategic planning (as long-term) and medium-term and
tactical planning.
We propose a strategic planning model for an oil and gas company (Figure 6). In the
course of the model construction, the key reference point was to consider the trends of the
current stage of development of the global energy system.
In the course of model construction, we tried to reflect the systemic nature of the
strategic planning process, interconnection of all elements, and co-direction of actions
to achieve goals. The model aims to provide necessary flexibility by considering all op-
tions with respect to the development of the external situation. The strategy within the
framework of this model may make a business more sustainable and capable of addressing
current challenges.
Going beyond the current business framework changes the approach to strategic
planning of oil and gas companies (Table 2).
Climate adaptation planning is an important part in the strategic planning of oil
and gas companies in the era of energy transition. A climate adaptation strategy defines
long-term targets and strategic approaches to reduce greenhouse gas emissions. Develop-
ment of a climate adaptation strategy is a complex, multi-stage process that is unique for
each individual company and depends on geography, asset mix, production technologies,
management features, and available competencies.
Effective climate adaptation is a major strategic innovation that requires a complete
overhaul of corporate governance principles and available technology, as well as a shift in
the way of thinking. Meanwhile, climate adaptation is not only a way to solve environmen-
organizational capabilities of the company. A distinctive feature of the model is feedback,
which ensures interactivity of the procedure for the formation of a strategic plan and con-
tinuity of the process of its implementation. G. Steiner’s model [40] is characterized by a
strict sequence of stages of strategy development and detailed results. Additionally, the
Energies 2022, 15, 6163 model’s author points to the connection between strategic planning (as long-term) 14 of
and26
medium-term and tactical planning.
We propose a strategic planning model for an oil and gas company (Figure 6). In the
course
tal of the model
and climate construction,
problems, theopportunity
but also an key reference point wasand
to diversify to consider
increase the trends of the
competitiveness
current
in stage of development of the global energy system.
the market.
Figure 6. Strategic
Figure 6. Strategic planning
planning model
model for
for an
an oil
oil and
and gas
gas company.
company.Source:
Source:Created
Createdby
bythe
theauthors.
authors.
Development of a climate adaptation strategy should be based on multivariate pre-

dictive assessments, with reference to scenarios for the development of the global energy
system, prospects for technology development, as well as an analysis of options for carbon
regulation. On the top of this, it is required to use a risk-based approach and to consider
global and local trends in climate change, including economic, political, technological, and
social features [93].
Energies 2022, 15, 6163 15 of 26
Table 2. Change of approaches to strategic planning of oil and gas companies.
Approach Recent Development of the Energy System Transition to a Sustainable Energy System
Strategic decisions are made in response to emerging opportunities Forward-looking response to new opportunities and commitments based on
The role of strategic planning
and challenges and are incorporated into strategic plans continuous monitoring of the energy landscape
Definition of long-term strategic intentions based on competitive
Goal setting Inclusion of climate goals and the short-term targets to achieve it in the strategy
advantages
Of high priority is optimizing the current portfolio of oil and gas assets and
High priority—development of oil and gas assets;
Resources searching for new low-carbon solutions; while emphasis means the reduction of
emphasis—performance planning
carbon footprint along the entire value chain
Virtual integration based on the assessment of low-carbon opportunities and
Operational arrangements Vertical integration technologies that may be tightly integrated with global company operations,
markets, and competencies
Planning horizon Cyclical nature of planning Reduction of planning time horizons; planning out of cycles
Minimization of the cost of capital involved in oil and gas projects; Planning for sustainable value with increased investment in low-carbon projects;
Financial planning
continuous value creation assessment of the financial impact of implementation of carbon regulation
Planning with reference to technical development scenarios and climate risks;
Scenario planning Multi-scenario planning for strategic flexibility
testing strategies and asset portfolios in various scenarios
Acceleration of monetary flow to ensure returns; targeted investment; Investment in a new type of asset: flexible, responsive to market conditions, and
Investment
cost reduction operating at low costs and with a low carbon footprint
Implementation of technologies aimed at emissions reduction; digitalization of
Process development Application of standard engineering solutions
production and management processes
Development of inflexible efficiency targets based on financial and economic
Development of efficiency targets (financial, operational); strategic
Targets assessment of development options and assessment of risks and opportunities for
guidelines; balanced scorecard
energy transition.
Building of closer partnerships that involve joint development and integration of
Strategic partnerships Tactical strategic alliances on a contractual basis
knowledge and experience
Development of professional competencies in line with industry
Competencies development Development of competencies on climate issues
trends
Source: Created by the authors.
Energies 2022, 15, 6163 16 of 26
To achieve strong performance in the era of energy transition, oil and gas companies
need to conduct a strategic assessment of assets and, using a flexible approach, adapt
their portfolio structure to changing conditions. An integrated portfolio seems to be the
most efficient. In addition to evaluation of financial returns, oil and gas companies need
to evaluate the strategic potential of assets in terms of strengthening their competitive
positions in the market. An important feature is the carbon intensity of the asset portfolio.
An environmental lifecycle assessment of new products and activities will be required to
determine their potential for transition to a low-carbon energy system. Understanding
emissions and the factors that cause them, as well as the ability of an oil and gas company
to reduce its carbon footprint, becomes an important competitive advantage.
There is a necessity to increase investment in research and development of technology
aimed at emissions reduction in the processes of production and supply of hydrocarbons.
Digital technology providing effective interaction and optimization of the continuous value
chain is becoming an important value driver. New operating models shall ensure the
adaptability of production processes and the ability of quick responses to change in the
market situation. The relevance of development of new competencies, of formation of
partnerships, and of strengthening inter-sectoral consolidation is increasing.
3.5. Strategic Climate Adaptation Planning for an Oil and Gas Company
As already noted, today Russian oil and gas companies are taking win–win steps to
adapt to the new energy landscape. However, the expansion of economic mechanisms
associated with the course of the global economy towards decarbonization requires specific
actions from Russian operators to ensure sustainability in the long run. We offer lines for
strategic planning of climate adaptation for the Russian oil and gas company LUKOIL.
LUKOIL is a global, vertically integrated company that accounts for about 2% of
world oil production and about 1% of proven hydrocarbon reserves. The company shares
the ambition of achieving net zero emissions by 2050 by implementing a wide range of
measures to manage climate risks and to identify opportunities for energy transition [94,95].
As part of the development of the LUKOIL strategic planning system, we offer a strategic
climate adaptation map (Figure 7).
The features of state regulation in Russia noted above determine the fact that LUKOIL’s
climate adaptation should be based on cooperation with partners, the innovation commu-
nity, and customers in order to accelerate the development of new and valuable solutions.
This will provide an opportunity to reduce financial risks and to move faster from experi-
ments to scaling up of innovations in promising areas of development.
Integration processes necessitate an increase in the speed and dynamism of decision-
making. The key features of LUKOIL’s operating model should be adaptability and speed.
In the era of energy transition, oil and gas companies can no longer afford to form long-
term strategic plans. This will require effective management teams that are able to address
changing market signals in a rapid manner and coordinate internal actions. In addition,
it is necessary to support employee training, develop entrepreneurial skills, and increase
the commitment of employees to reach their full potential. In this case, the company will
become a priority choice for highly qualified specialists.
The market already demands hydrocarbons with low production costs and a low
carbon footprint, so in the short term, LUKOIL should focus on cost optimization and
decarbonization of its own operations. Implementation of energy management, moderniza-
tion of equipment, innovation, and digital transformation will ensure the effectiveness of
operations and a more rational use of resources and energy. It is important to implement
real-time operational monitoring tools that will increase productivity while reducing costs.
Energy efficiency can be identified as one of the main areas of climate change adaptation
for LUKOIL and other Russian operators. New guidelines for energy efficiency will create
stricter requirements for suppliers in terms of the carbon footprint of their products and
services. Increased efficiency in oil and gas production will free up funds for innovation
and development of new, “clean” business processes.
In the era of energy transition, oil and gas companies can no longer afford to form long-
term strategic plans. This will require effective management teams that are able to address
changing market signals in a rapid manner and coordinate internal actions. In addition, it
is necessary to support employee training, develop entrepreneurial skills, and increase the
Energies 2022, 15, 6163 17 of 26
commitment of employees to reach their full potential. In this case, the company will be-
come a priority choice for highly qualified specialists.
Figure
Figure 7. 7. Strategicmap
Strategic mapof
of climate
climate adaptation
adaptationforfor
LUKOIL. Source:
LUKOIL. Created
Source: by thebyauthors
Created with the
the authors with the
useuse of [94,95].
of [94,95].
Under conditions of high market turbulence and challenges in fundraising, a more

detailed and dynamic allocation of capital becomes a prerequisite. We offer an investment
assessment for LUKOIL according to three profiles: return on investment capital, carbon
intensity (quantitative characteristics), and strategic potential (qualitative characteristics).
Focusing on efficiency and progressive transformation without having to sacrifice
profitability will allow LUKOIL to alter boundaries by implementation and scaling up
new energy sources, processes, and technologies that go beyond what is commercially and
technically feasible today. In the long run, it will be possible to construct a new portfolio
of clean energy solutions. Biofuels, hydrogen [96], and CCUS technologies [97,98] have
huge potential.
A system of indices based on the strategic map is proposed as a tool for implementation
monitoring and evaluation of the effectiveness of the climate adaptation strategy (Table 3).
Energies 2022, 15, 6163 18 of 26
Table 3. LUKOIL’s Balanced Scorecard for climate adaptation.
Indicator 2019 2020 2021 2025 2030 2035 2040 2050

1. Greenhouse gas emissions (Scopes 1,
48.4 43.7 41.5 38.0 35.2 28.0 13.0 0
2), million tons CO2 -eq.
Prospects 2. Intensity of methane emissions, % 0.3 0.3 0.3 0.3 0.2 0.2 0.1 0
3. Share of investments in renewables
and energy solutions out of the total <1 <1 <1 2–3 3–5 3–5 5–7 7–10
volume of investments, %
1. ROACE, % 14.8 3.2 14.7 15.0 15.0 15.0 15.0 15.0
Finance 2. Fitch Credit Rating BBB+ BBB+ BBB+ BBB+ A A A AA
3. EBITDA growth rate, % 10.9 −44.4 97.2 15–20 15–20 15–20 15–20 15–20
1. Share of commercial electricity
generation from renewables out of the 6.0 4.8 6.4 8.0 10.9 12.5 12.8 11.8
total volume of electricity generated, %
2. Share of natural gas in the
Involved parties 24 24 24 27 30 30 30-35 30-35
production structure, %
3. Share of new suppliers that have
been assessed according to 44 50 62 70 100 100 100 100
environmental criteria, %
1. Volume of APG flaring, million m3 282 260 291 <100 <50 0 0 0
2. Electric energy savings as a result of
Business the implementation of measures to
processes 159 146 105 163 189 205 223 250
improve energy efficiency,
million kWh
3. Renewable energy capacity, GW 0.4 0.4 0.4 1.0 1–5 5–10 10–15 15
1. Development of
Training and <200 <200 <200 >500 >700 >1000 >1500 >2000
climate-related competencies
development
2. Number of patents received 30 25 26 >50 >100 >100 >100 >150
Source: Created by the authors with the use of [94,95,99].
Energies 2022, 15, 6163 19 of 26
For more than 10 years, LUKOIL has been developing renewable energy and has a
large portfolio of generating assets based on renewables. Its renewables capacity in 2021
amounted to 416 MW and included four hydroelectric power plants in Russia, seven solar
power plants in Russia, Romania, Austria, and Bulgaria and a wind farm in Romania.
Meanwhile, the company plans to expand its energy capacity based on renewables and
is exploring new opportunities in regions with suitable climatic conditions and ongoing
support programs. LUKOIL plans to invest USD 15 billion in green energy over the
next 10 years, which is 30% more than the entire renewables support program in Russia.
Investment may increase renewable capacity by 15–30 GW [99].
LUKOIL’s key area of renewable energy is commercial power generation. We consider
the dynamics and forecast of LUKOIL’s commercial power generation in three scenarios
for the development of the global energy system, as proposed by the company BP (Table 4).
It should be noted that the share of electricity in total final consumption has shown
stable growth over the past decades and is currently 20% [2]. Renewables-based electrifica-
tion is a central element in all scenarios for the development of the global energy system.
In this regard, this area is the most promising for LUKOIL as part of the decarbonization
strategy outside its own operations. Using its experience, competencies, and advantages in
the field of supply, LUKOIL will be able to scale up its clean electricity business and take a
highly competitive position in this market segment.
Thus, it is not easy for LUKOIL and other Russian oil and gas companies to find a
compromise between support of a stable level of hydrocarbon production and creation of a
green energy market in Russia. The existing restrictions in government regulation and the
lack of support measures limit a more active climate adaptation. In this regard, Russian
operators should develop a dialogue with the government authorities regarding joint
implementation of new sustainable solutions that have long-term value. The introduction
of national carbon regulation in Russia and measures to support decarbonization and
adaptation projects, taking into consideration specifics of the Russian oil and gas industry,
will significantly expand the ability of companies to reduce greenhouse gas emissions.
In the short run, the priorities of the national economy, as well as highly available
hydrocarbon resources, do not allow Russian players to become leaders in terms of new
energy solutions. A key strategy for Russian oil and gas companies should be efficient
use of traditional energy resources with a minimal carbon footprint, coupled with a more
intensive assessment of growth options in low-carbon businesses in order to reduce the
technical gap with global leaders and to preserve the interests of investors.
Table 4. Dynamics and forecast of LUKOIL’s commercial power generation from renewables in the
scenarios of the development of the energy system.
Actual Accelerated
2019 2020 2021 2025 2030 2035 2040 2045 2050
Electricity generation from
7137 7493 7931 11692 15358 20818 27670 34987 40552
renewables, TWh
Share of electricity in total final
20.5 20.0 20.0 21.7 23.2 26.4 31.2 36.8 42.4
consumption, %
Primary energy consumption, EJ 587 564 595 661 670 670 676 685 692
LUKOIL commercial power
18.3 17.1 15.8 19.0 20.6 23.5 28.0 33.5 38.9
generation, TWh
1.1 0.8 1.0 1.5 1.9 2.6 3.5 4.4 5.1
generation from renewables, TWh
Share of commercial power
generation from renewables in
6.0 4.8 6.4 7.7 9.4 11.2 12.5 13.2 13.1
generation, %
Energies 2022, 15, 6163 20 of 26
Table 4. Cont.
Actual Net Zero

2019 2020 2021 2025 2030 2035 2040 2045 2050
7137 7493 7931 12119 17845 24211 31705 38245 41188
renewables, TWh
20.5 20.0 20.0 22,0 24,3 29,2 37,1 45,1 50,9
consumption, %
18.3 17.1 15.8 19.0 20.6 24.3 31.3 38.8 44.1
generation, TWh
1.1 0.8 1.0 1.5 2.2 3.1 4.0 4.8 5.2
6.0 4.8 6.4 8.0 10.9 12.5 12.8 12.4 11.8
generation, %
Actual New Momentum
2019 2020 2021 2025 2030 2035 2040 2045 2050
7137 7493 7931 9715 11968 15379 19356 22864 26462
renewables, TWh
20.5 20.0 20.0 21.6 22.7 24.4 26.8 29.3 31.5
consumption, %
18.3 17.1 15.8 19.1 20.8 22.9 26.0 29.0 31.8
generation, TWh
1.1 0.8 1.0 1.2 1.5 1.9 2.4 2.9 3.3
6.0 4.8 6.4 6.4 7.2 8.5 9.4 9.9 10.5
generation, %
Source: Created by the authors with the use of [1,94,95].
4. Discussion
The oil and gas industry is facing new challenges today due to transition of the global
economy to a low-carbon development path. The COVID-19 pandemic has significantly
affected the structure of supply and demand, thus sharpening the issues of operational
and financial efficiency of oil and gas companies. These events should be considered as
the beginning of a long-term trend that will inevitably lead to change in the strategies and
business models of oil and gas companies.
Today, decarbonization is becoming an integral part of the activities of any oil and
gas company. There is lack of balance between speech and action, but the trends and
directions are clear. However, there is no perfect strategy, but rather a range of directions
in which companies may move forward. It is difficult to find a universal approach that
will be optimal for all companies in the sector, both in terms of emission reduction and
economic efficiency.
Oil and gas companies are at the very beginning of their path to zero emissions,
and today it is difficult to unequivocally determine if the “green” transformation is a
fundamental change in the investment paradigm of oil and gas companies, and whether
companies will be able to achieve the announced decarbonization targets. The era of
traditional energy resources is not yet over, and investment in low-carbon energy has a
Energies 2022, 15, 6163 21 of 26
lower return than oil and gas projects. However, it is safe to say that doing nothing is the
worst strategy. Companies that do not want to integrate into the energy transition will
become outsiders very soon.
While renewable energy has a higher cost and a number of process and environmental
issues, oil and gas companies should take advantage of this time to make long-term
bets. Companies have the necessary process capacity and innovative thinking to meet
the challenge of greenhouse gas reduction. Meanwhile, apart from high risks, energy
transition opens broad prospects. Oil and gas players have the opportunity to make
fundamental changes that can provide long-term impetus to move onto a sustainable
development pathway.
Based on our analysis, we have identified three key strategic priorities for oil and gas
companies in the era of energy transition, which, in our opinion, will help companies to
integrate into the new low-carbon energy system in a more seamless manner:
• Maintain traditions—Reduction of investment in oil and gas assets will not solve
climate problems. Reduction of supply against a background of increased demand
threatens access to resources and raises prices. Moreover, hasty portfolio diversifica-
tion into low-carbon solutions may hinder value creation. It is important for companies
to continue to focus on the efficient use of hydrocarbons based on existing reserves.
A structured approach, including capital discipline, operational excellence, the latest
digital technology, energy efficiency, and industrial and natural CO2 capture technol-
ogy, may significantly increase the climate competitiveness of oil and gas resources.
Actively searching for and implementing new solutions that are not available today to
reduce the carbon footprint across the value chain will help change the rules of the
game and regain investor confidence.
• Analyze new benchmarks of growth—The development of a strategy during the period
of energy transition should be formed not only under the pressure of state regulators,
investors, and society. Integration of low-carbon solutions into the portfolio of assets
should be based on a strategic analysis of the investment attractiveness of new projects,
production capabilities, features of the organizational structure, and corporate culture.
Only in this case, the chosen lines of development will not be a declaration of intent or
a marketing ploy, but an effective and implementable strategic plan.
• Plan to improve flexibility—During the changing energy basis, the concept of strategic
planning should be significantly transformed. Today’s bureaucratic and sometimes
formal planning process is a structured, organized act of thought to identify the most
unexpected market opportunities and turn them into competitive advantages. The
leader of the energy transition will be the one who can build an effective strategic
planning system that will consider the new realities of the energy landscape, and will
be based on transforming threats into opportunities.
We believe that the future winners in the energy market will be those who can trans-
form and scale their processes and involve the best assets of traditional energy sources and
low-carbon solutions. We assume that by using their accumulated experience of structural
transformation, innovation, and development of integrated energy solutions, oil and gas
companies will be able to find solutions regarding greenhouse gas emissions reduction and
remain a significant part of the market.
5. Conclusions
This study analyzes the impact of climate change problems on the prospects for
development of the global energy system and the structure of energy balance. It identifies
the emphasis of the strategies of the world’s largest oil and gas companies in the framework
of energy transition and articulates the opportunities and risks of decarbonization. Critical
analysis of approaches to strategy formation for oil and gas companies has made it possible
to develop a model of strategic planning and to articulate directions for improvement
of methods and principles for designing strategic plans in order to ensure a sustainable
position in the new market paradigm.
Energies 2022, 15, 6163 22 of 26
The results of the study provide the following conclusions:

1. Evolution of the energy balance due to a strengthened climate agenda dictates the
need for key players in the oil and gas market to revise their strategic plans. European
oil and gas companies are actively changing the development pathway and intend
to compete in the wider energy arena. However, these companies have yet to prove
the benefits of low-carbon investments. US companies and NOCs are maximizing
hydrocarbon profits and are less prepared for new market conditions. Regardless of
the chosen behavioral model, oil and gas companies need to transform their principles
and tools for strategic planning, forecasting, and portfolio management of investment
and technology.
2. We emphasize that effective strategic planning in a highly turbulent market environ-
ment is critical to ensure sustainable competitiveness. The main characteristics of
strategic planning in oil and gas companies in the era of energy transition include:
• Carefully monitoring and promptly responding to limitations and prospects
offered by the market;
• Determining their role in the low-carbon market and developing new competitive
advantages that were previously unavailable;
• Searching for opportunities that promote flexibility and efficiency with simulta-
neous monitoring of cost and risk management;
• Transitioning from short-term shareholder return to long-term value;
• Moving beyond existing business models, organizational structures, and corpo-
rate culture based on experimental modeling.
3. The proposed lines of LUKOIL’s climate adaptation strategy have been developed
with reference to analysis of the priorities of the national economy and the interests of
the company, as well as regulatory restrictions regarding the implementation of low-
carbon solutions in Russia. Our proposals will allow the company to take advantage
of the opening prospects of energy transition and realize its existing potential.
4. A further line of research is empirical research on climate adaptation strategic planning
for oil and gas companies.
Author Contributions: Conceptualization, A.C. and E.R.; methodology, E.R.; research algorithm,
A.C. and E.R.; validation, A.C. and E.R., formal analysis, A.C. and E.R.; investigation, A.C. and
E.R.; writing—original draft preparation, A.C. and E.R.; writing—review and editing, A.C. and E.R.;
visualization, E.R. All authors have read and agreed to the published version of the manuscript.
Funding: This research received no external funding.
Institutional Review Board Statement: Not applicable.
Informed Consent Statement: Not applicable.
Data Availability Statement: Not applicable.
Conflicts of Interest: The authors declare no conflict of interest.
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Energies 2022, 15, 6163. https://doi.org/10.3390/en15176163 https://www.mdpi.com/journal/energies

2. Literature Review and Research Methodology

The level of 2021 The level of 2021

0% 10% 20% 30% 40% 0% 10% 20% 30% 40%

Share of renewables in primary energy Share of renewables in electricity generation

Under these conditions, it is important to act based on balanced and thoughtful

Pro- in Gas Pro-

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Energy in Gas Pro- Energy

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duction duction duction

gen gen gen Production

tions tions tions duction

in clean energy as share of

3.3. Russian Oil and Gas Companies: Balance of Interests

Development of a climate adaptation strategy should be based on multivariate pre-

Table 2. Change of approaches to strategic planning of oil and gas companies.

Under conditions of high market turbulence and challenges in fundraising, a more

Table 3. LUKOIL’s Balanced Scorecard for climate adaptation.

Indicator 2019 2020 2021 2025 2030 2035 2040 2050

Actual Net Zero

The results of the study provide the following conclusions:

95. LUKOIL. Sustainability Report. 2021. Available online: https://www.lukoil.com/Sustainability/SustainabilityReport (accessed

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