Will Big Oil's Energy Efficiency Initiatives Pay Off?

It goes without saying that members of Big Oil including Chevron are the world's premier producers of oil and natural gas, the two resources that will remain the primary sources of energy for years to come. At the same time, many oil companies readily admit the importance of energy efficiency, particularly when it comes to serving the energy needs of rapidly developing economies. Across the globe, emerging economies are devouring energy at an alarming rate, which compels certain majors like Chevron and others to take efficiency seriously.

Big Oil's pragmatic approaches to renewable energy and energy efficiency—meaning, focusing on pursuing technologies that leverage current strengths—might not pay off in the short run, but are critical to expansion in the emerging markets.

More efficient energy companies coming soon
Chevron understands that the most cost-effective energy solutions will come directly from energy efficiency and conservation. That's why it launched a subsidiary known as Chevron Energy Solutions Co. to pilot the company's efforts toward reducing emissions, and has been extremely effective in upgrading facilities and incorporating renewables into the broader business.

For example, in recent years Chevron has supplemented its growth in Indonesia and the Philippines with geothermal energy. Chevron now prides itself on being one of the world's leading geothermal producers, and currently supplies 890 megawatts of electricity capacity in Indonesia and the Philippines, which is enough to serve millions of customers.

Not to be outdone, Chevron's biggest rival, integrated behemoth ExxonMobil , is determined not to fall behind in this regard. Since 2000, ExxonMobil's Global Energy Management System has allowed the company to pinpoint and effectively act on several energy-saving initiatives specifically in its downstream and chemicals businesses. On the upstream side of the business, ExxonMobil launched a program called the Production Operations Energy Management System. These efforts have combined to effectively limit the company's operational energy usage, which was flat in 2012 versus 2011.

BP employs a similar strategy. Its chemical plants are specifically designed to increase production while simultaneously driving down emissions and waste. In fact, BP cites efficiency as the single largest opportunity it has to reduce its global footprint. And, like ExxonMobil, BP has targeted considerable opportunities in its refining business. For example, BP is developing proprietary technologies to produce fuels from hydrocarbon resources other than oil in China, a nation that has to import more than half of its oil. These processes will allow BP to compete in the fast-growing emerging economies in a cost-effective manner.

Why this matters
It may be tempting to dismiss Big Oil's energy efficiency programs. After all, Chevron, ExxonMobil, and BP still reap the vast majority of its profits from traditional oil and gas exploration and production. However, that would be short-sighted. Growth going forward is in the emerging markets, where success hinges largely on providing large amounts of cost-effective energy.

The sheer numbers involved are staggering. Consider ExxonMobil's projections for future energy consumption in under-developed nations. Between 2010 and 2040, ExxonMobil predicts global oil demand will only continue to grow, at a compound annual rate of 0.8% to nearly 225 quadrillion BTU's. And, natural gas and renewables, including wind and biofuels, are expected to see significantly higher growth rates than oil and are likely to become economically viable.

To summarize, while it's unlikely investors will see the benefits of their initiatives show up on the income statement, the long-term advantages will surely be felt. Chevron, ExxonMobil, and BP are quickly becoming much more energy-efficient companies than investors are accustomed to. Expansion into the emerging markets will be helped a great deal by increased efficiencies. Not only do these initiatives make for good public relations, they stand to meaningfully improve economics as well for members of Big Oil. Since future growth in developed nations like the United States will be far out-weighed by growth in the emerging economies, success in the emerging markets will result in sustained growth for many years.

Technological gains have been made lately in areas other than energy efficiency
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The article Will Big Oil's Energy Efficiency Initiatives Pay Off? originally appeared on Fool.com.

Bob Ciura owns shares of BP p.l.c. (ADR). The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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