Strategic Planning of Oil and Gas Companies: The Decarbonization Transition

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.

1. Introduction

The upward trend in global energy demand and, consequently, emissions of greenhouse gases, in particular carbon dioxide, is projected to continue in the long term [1,2,3]. Provision of growing demand for energy access and clean air to limit global temperature rise is a challenge. To promote problem-solving, the United Nations (UN) adopted several strategic documents (Transforming Our World: The 2030 Agenda for Sustainable Development; Paris Agreement [4,5]), which currently are the guidelines for development of national energy policies and industrial enterprise strategies. These documents set objectives for the transition to a low-carbon developmental model and expansion of the use of 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; and a sharp increase in investment in low-carbon energy [6].

The growing importance of the climate change agenda is a key prerequisite for the new energy transition 4.0. It means a pathway toward transformation of the global energy sector from fossil-based to zero-carbon by the second half of this century [7] and implies the development of a new type of economic growth based on the principles of sustainable development [8].

Fossil fuels are losing their position in the market; their place is being taken by renewables such as wind, solar energy, wave energy, biofuels, green hydrogen, etc. Over 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 sustainable 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 [11,12,13,14]. Special attention has been paid to the opportunities and problems of transitioning to clean energy in the pandemic and post-pandemic periods [15,16,17]. The role of infrastructure development and introduction of technological innovation in putting forward the renewables 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 [22,23,24] 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 [32,33,34]. 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 [38,39,40,41]. 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].

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 company 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 technological capability. To measure and evaluate the effectiveness of moving towards goals, a system of balanced scorecards was drawn up. Using economic and mathematical modeling, 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 technology, 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—almost 60%—come from oil [2]. However, the problems of methane emission and leakage in the gas industry is a matter of high concern. Despite the fact that CH₄ persists in the atmosphere for a shorter time than CO₂, the greenhouse effect from methane emissions is much higher [52]. The high share of the oil and gas industry in global greenhouse gas emissions determines its sensitivity to global decarbonization trends.

Moreover, in recent years the oil and gas market has been marked by high turbulence. The main sources of uncertainty have included geopolitical and macroeconomic shocks, emergence of new players and production regions, and technological advancements. The COVID-19 pandemic and the global economic crisis that followed have increased the unpredictability of the traditional energy market. In 2020, oil demand showed the largest annual decline in history, recording an 8.8% decrease. Natural gas proved to be more sustainable, as its global consumption fell by 1.9% [2].

The upward line of instability and volatility coupled with regulatory strengthening of the global low-carbon agenda leads to reduced investment in the oil and gas industry. According to the International Energy Agency (IEA), in 2020, for the first time, global investment in renewables exceeded investment in oil and gas production (USD 418 billion vs. USD 353 billion), and in 2021, the trend strengthened (USD 446 billion 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 refusals to implement 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 expected. Trends such as increased electricity consumption and the development of hydrogen energy support demand for natural gas. However, in the long term, natural gas positions will also decrease due to increased competition from renewables.

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.

According to forecasts, the advantages of renewable energy, such as energy security, price stability, absence of environmental costs, and wide distribution and availability, may provide the renewables sector with a significant increase in the share of total global energy consumption. The renewables industry may become world’s largest electricity producer in the long run, surpassing gas and coal (Figure 2).

Intensive development of the renewables sector is becoming the focus of so-called “green new deals“ in many countries. For example, in December 2019, the European Commission presented the European Green Deal [56], an ambitious package of measures aimed at making the EU economy environmentally sustainable. According to the document, institutional support, increased investment, and the development of technology in the renewables sector provide the basis for decarbonization of the economy at minimal cost. The United States argues that the country’s transition to a 100% clean energy economy by 2050 is “not only an obligation, but also an opportunity“ [57]. China, which generates the largest amount of CO₂ emissions annually (20% of global emissions), has also made significant progress in environmental matters. Boston Consulting Group (BCG) experts argue that coordinated and consistent work covering the entire economy of the country will allow China to achieve carbon neutrality by 2060 [58].

Changes in energy policies are driven not only by the climate agenda and the desire 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 price fluctuations and supply disruptions [59,60].

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 above, accelerated development of “green“ energy is associated with serious risks due to 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.

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 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 [70,71,72]. 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 European 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]. ExxonMobil 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 important 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 [78,79,80]. The goals and main trends of decarbonization based on analysis of the climate strategies of the world’s largest oil and gas companies are systematized in

Table 1. Goals and priority areas for the development of global oil and gas companies in the context of energy transition.

Company	2050 Emissions Target	Reduction of Oil Production	Increase in Gas Production	Solar Energy	Wind Energy	Geothermal Energy	Energy Efficiency	Bioenergy	CCUS	Low-Carbon Hydrogen	Nature-Based Solutions
Shell	Net zero (Scopes 1, 2, 3)
TotalEnergies	Net zero (Scopes 1, 2, 3)
BP	Net zero (Scopes 1, 2, 3)
Eni	Net zero (Scopes 1, 2, 3)
ConocoPhillips	Net zero (Scopes 1, 2)
Exxon Mobil	Net zero (Scopes 1, 2)
Chevron	Net zero Upstream emissions (Scope 1, 2)
Equinor	Net zero (Scopes 1, 2, 3)
Saudi Aramco	Net zero (Scopes 1, 2)
CNPC	“Near zero” emissions
Petrobras	Net zero (Scopes 1, 2)

Source: Created by the authors, data from [65,66,67,68,69,71,72,73,74,75,76,77,78,79,80].

. Only strategic plans with evidence of investment activity have been included in the Table.

Climate ambitions of the largest players in the oil and gas market are specified in Figure 3 based on the data of Table 1 and data from open sources of companies on their investment activities within the framework of decarbonization.

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 infrastructure, 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.

In Figure 4, we have combined the opportunities and challenges that oil and gas companies will inevitably face in the process of decarbonization.

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 organizations. 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 development 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 renewables 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 very tough climate commitments, is widely discussing the introduction of a carbon tax on 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 lending; accordingly, Russian oil and gas companies that do not meet these standards may lose their sources of financing.

It can be said that Russian oil and gas companies are in a difficult situation. The need to find a balance between corporate and national interests is exacerbated by the crisis in the hydrocarbon market and by environmental aspects. Resistance to change can lead to a gap between a company’s strategic goals and new market demands. Export-oriented Russian oil and gas companies are gradually realizing that more active 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.

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 unprecedented; 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 identified 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 options 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. Change of approaches to strategic planning of oil and gas companies.

Approach	Recent Development of the Energy System	Transition to a Sustainable Energy System
The role of strategic planning	Strategic decisions are made in response to emerging opportunities and challenges and are incorporated into strategic plans	Forward-looking response to new opportunities and commitments based on continuous monitoring of the energy landscape
Goal setting	Definition of long-term strategic intentions based on competitive advantages	Inclusion of climate goals and the short-term targets to achieve it in the strategy
Resources	High priority—development of oil and gas assets; emphasis—performance planning	Of high priority is optimizing the current portfolio of oil and gas assets and searching for new low-carbon solutions; while emphasis means the reduction of carbon footprint along the entire value chain
Operational arrangements	Vertical integration	Virtual integration based on the assessment of low-carbon opportunities and 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
Financial planning	Minimization of the cost of capital involved in oil and gas projects; continuous value creation	Planning for sustainable value with increased investment in low-carbon projects; assessment of the financial impact of implementation of carbon regulation
Scenario planning	Multi-scenario planning for strategic flexibility	Planning with reference to technical development scenarios and climate risks; testing strategies and asset portfolios in various scenarios
Investment	Acceleration of monetary flow to ensure returns; targeted investment; cost reduction	Investment in a new type of asset: flexible, responsive to market conditions, and operating at low costs and with a low carbon footprint
Process development	Application of standard engineering solutions	Implementation of technologies aimed at emissions reduction; digitalization of production and management processes
Targets	Development of efficiency targets (financial, operational); strategic guidelines; balanced scorecard	Development of inflexible efficiency targets based on financial and economic assessment of development options and assessment of risks and opportunities for energy transition.
Strategic partnerships	Tactical strategic alliances on a contractual basis	Building of closer partnerships that involve joint development and integration of knowledge and experience
Competencies development	Development of professional competencies in line with industry trends	Development of competencies on climate issues

Source: Created by the authors.

).

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. Development 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 environmental and climate problems, but also an opportunity to diversify and increase competitiveness in the market.

Development of a climate adaptation strategy should be based on multivariate predictive 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].

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 community, 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 experiments 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, modernization 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.

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. LUKOIL’s Balanced Scorecard for climate adaptation.

	Indicator	2019	2020	2021	2025	2030	2035	2040	2050
Prospects	1. Greenhouse gas emissions (Scopes 1, 2), million tons CO2-eq.	48.4	43.7	41.5	38.0	35.2	28.0	13.0	0
	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 volume of investments, %	<1	<1	<1	2–3	3–5	3–5	5–7	7–10
Finance	1. ROACE, %	14.8	3.2	14.7	15.0	15.0	15.0	15.0	15.0
	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
Involved parties	1. Share of commercial electricity generation from renewables out of the total volume of electricity generated, %	6.0	4.8	6.4	8.0	10.9	12.5	12.8	11.8
	2. Share of natural gas in the production structure, %	24	24	24	27	30	30	30-35	30-35
	3. Share of new suppliers that have been assessed according to environmental criteria, %	44	50	62	70	100	100	100	100
Business processes	1. Volume of APG flaring, million m3	282	260	291	<100	<50	0	0	0
	2. Electric energy savings as a result of the implementation of measures to improve energy efficiency, million kWh	159	146	105	163	189	205	223	250
	3. Renewable energy capacity, GW	0.4	0.4	0.4	1.0	1–5	5–10	10–15	15
Training and development	1. Development of climate-related competencies	<200	<200	<200	>500	>700	>1000	>1500	>2000
	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].

).

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. 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 renewables, TWh	7137	7493	7931	11692	15358	20818	27670	34987	40552
Share of electricity in total final consumption, %	20.5	20.0	20.0	21.7	23.2	26.4	31.2	36.8	42.4
Primary energy consumption, EJ	587	564	595	661	670	670	676	685	692
LUKOIL commercial power generation, TWh	18.3	17.1	15.8	19.0	20.6	23.5	28.0	33.5	38.9
LUKOIL commercial power generation from renewables, TWh	1.1	0.8	1.0	1.5	1.9	2.6	3.5	4.4	5.1
Share of commercial power generation from renewables in LUKOIL commercial power generation, %	6.0	4.8	6.4	7.7	9.4	11.2	12.5	13.2	13.1
	Actual			Net Zero
	2019	2020	2021	2025	2030	2035	2040	2045	2050
Electricity generation from renewables, TWh	7137	7493	7931	12119	17845	24211	31705	38245	41188
Share of electricity in total final consumption, %	20.5	20.0	20.0	22,0	24,3	29,2	37,1	45,1	50,9
Primary energy consumption, EJ	587	564	595	651	637	628	636	648	653
LUKOIL commercial power generation, TWh	18.3	17.1	15.8	19.0	20.6	24.3	31.3	38.8	44.1
LUKOIL commercial power generation from renewables, TWh	1.1	0.8	1.0	1.5	2.2	3.1	4.0	4.8	5.2
Share of commercial power generation from renewables in LUKOIL commercial power generation, %	6.0	4.8	6.4	8.0	10.9	12.5	12.8	12.4	11.8
	Actual			New Momentum
	2019	2020	2021	2025	2030	2035	2040	2045	2050
Electricity generation from renewables, TWh	7137	7493	7931	9715	11968	15379	19356	22864	26462
Share of electricity in total final consumption, %	20.5	20.0	20.0	21.6	22.7	24.4	26.8	29.3	31.5
Primary energy consumption, EJ	587	564	595	667	691	708	730	747	760
LUKOIL commercial power generation, TWh	18.3	17.1	15.8	19.1	20.8	22.9	26.0	29.0	31.8
LUKOIL commercial power generation from renewables, TWh	1.1	0.8	1.0	1.2	1.5	1.9	2.4	2.9	3.3
Share of commercial power generation from renewables in LUKOIL commercial power generation, %	6.0	4.8	6.4	6.4	7.2	8.5	9.4	9.9	10.5

Source: Created by the authors with the use of [1,94,95].

).

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 electrification 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.

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 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 diversification 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 technology, 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 transform 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.

The results of the study provide the following conclusions:

• 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.
• We emphasize that effective strategic planning in a highly turbulent market environment 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 simultaneous monitoring of cost and risk management;
  • Transitioning from short-term shareholder return to long-term value;
  • Moving beyond existing business models, organizational structures, and corporate culture based on experimental modeling.
• 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.
• A further line of research is empirical research on climate adaptation strategic planning for oil and gas companies.