KUALA LUMPUR (Dec 14): Formidable cash flow generation, increasing new energy opportunities and the development of a carbon market are a powerful force for change.

Energy research and consultancy Wood Mackenzie (WoodMac) corporate research senior vice-president Tom Ellacott in a commentary on Dec 8 said that as stakeholder pressure intensifies, it’s time for big strategic decisions.

“Those choices will set the trajectory of the energy transition that will only gather momentum.

“Expect an action-packed 12 months,” he said.

Ellacott said large publicly-listed companies will be bracing themselves for more regulatory, legal and investor challenges.

According to him, the interconnected web of stakeholders creates an amplifying effect as stakeholders have stakeholders, and everyone is under growing pressure to decarbonise.

“The relative success of the COP26 has added further urgency to act on carbon,” he added.

Ellacott said cash-rich companies can do it all in 2022 if today’s prices hold — build balance sheet resilience, invest for modest upstream growth, increase low-carbon spend and return capital to shareholders.

He said increasing shareholder distributions while repositioning the business for the energy transition will be key to rebuilding the investment story.

Ellacott also said oil and gas companies will invest in low carbon at record levels. Wind and solar will still capture the lion’s share of the capital.

“But in the coming year, we expect the strategic narrative to broaden out as CCUS (carbon capture, utilisation and storage) and hydrogen hit the mainstream,” he added.

Meanwhile, Ellacott said high commodity prices, improving equity valuations and stronger balance sheets mean more deals.

“Throw in the pressure to adapt portfolios for the energy transition and 2022 has all the ingredients for some action-packed M&A (mergers and acquisitions),” he added.