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Houston can help unlock the key to a viable energy transition

Houston’s broad energy sector can attract engineering expertise and clean tech talent, serving as a locus for knowledge-sharing on the financial and operational challenges ahead in the energy transition. Photo via Getty Images

The future of energy holds monumental and diverse expectations. Houston’s long history as the hub for oil and gas development – combined with its growing and important role in development of renewables, carbon capture, and other energy innovation – makes it a critical meeting point for discussions on strategy, investment, and stakeholder engagement in the energy transition.

In our research last fall, we detailed how the oil and gas industry was embracing capital discipline and prioritizing shareholder returns. The industry generated record cash flows and offered a combined dividend and share buyback yield of 8 percent in 2022—the highest among all industries. The industry’s commitment to maintaining capital discipline and investing in viable low-carbon projects has only strengthened in 2023.

In fact, according to our most recent research, the global upstream oil and gas industry is estimated to generate between $2.5 trillion to $4.6 trillion in free cash flow between 2023 and 2030. With capital availability not posing a significant constraint, boardrooms of oil and gas companies are engaged in discussions regarding capital allocation between hydrocarbons and low-carbon solutions, while striving to achieve desired rates of return and meet stakeholder expectations for dividend payouts.

What are the different expectations surrounding the energy transition that could potentially influence the capital allocation strategy or deployment of this free cash flow? Deloitte recently surveyed 150 industry executives and 75 institutional investors globally to find out how respondents expect capital to be deployed either back into the core business, back to shareholders, or into new low-carbon fuels and technologies.

Interestingly, while oil and gas investors and executives tend to agree on many issues, our research also indicated several key areas where expectations of the energy transition diverge.

Energy transition investment potential

Industry executives generally continue to apply discipline in evaluating bankable low-carbon projects, giving investors a chance to direct the dividends they receive into promising energy transition technology. However, sixty percent of executives we surveyed stated that they would invest in low-carbon projects only if the internal rate of return (IRR) from these projects exceeds 12 percent to 15 percent. These returns are a minimum for the industry to fund its base hydrocarbon capital expenditures and meet dividend commitments. For context, in 2022, the average IRR for most renewable power projects was less than 8 percent. Because overall, oil and gas companies are focused on returning value to shareholders, the comparatively lower IRR on some low-carbon projects can make the choice regarding these investments more difficult.

Changes in dividend payout contingent on minimum yield

Many oil and gas executives surveyed also placed higher priority on continuing to provide high dividend yield than some of the investors surveyed. Almost 50 percent of executives indicated that, in their view, dividend cuts could drive away investors. However, about 80 percent of the investors queried said they would likely continue to hold oil and gas stocks – even if companies slightly reduced dividends – to accelerate investments in lower-carbon technologies. However, three-fourths of investors said they required at least a 3 percent dividend yield.

The right technology

About 75 percent of low-carbon technology is still experimental or in early stages of development. Executives seem to remain focused on fuels and technologies — natural gas, hydrogen, carbon capture and storage — that are adjacent to their core businesses. Investors surveyed, on the other hand, tend to favor transformative technologies, such as battery storage and electric vehicles. About 43 percent of investors emphasized battery storage as a promising area.

Our research underscores the importance of immediate action to close the innovation gap. As the Energy Capital of the World, home to 4,700 energy-related organizations, Houston is positioned to lead the way. Houston’s broad energy sector can attract engineering expertise and clean tech talent, serving as a locus for knowledge-sharing on the financial and operational challenges ahead in the energy transition.

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Amy Chronis is vice chair of US Energy and Chemicals Leader and Houston managing partner at Deloitte LLP.

Kate Hardin is executive director at Deloitte Research Center for Energy and Industrials.

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A View From HETI

Haotian Wang, co-founder of Solidec, a 2025 Houston Startup of the Year finalist. Photo courtesy Welch Foundation.

We're just two weeks away from the 2025 Houston Innovation Awards, presented by InnovationMap.com, and while an expert panel of judges will determine the winners in most categories, one award is up to the public.

Voting is now open for 2025 Houston Startup of the Year, the people's choice award. Six exceptional finalists are in the running for the title, including three from the energy transition sector.

From next-gen biobased materials to technology that creates chemicals without carbon emissions, these companies are shaping the future.

Read about all of the Startup of the Year finalists and their missions below, then cast your vote. You can vote once per day through November 12.

The winner, along with winners in all other categories, will be revealed live on November 13 at Greentown Labs. Tickets to the 2025 Houston Innovation Awards are available now — get yours today.

2025 Houston Startup of the Year finalists:

Eclipse Energy

Eclipse Energy, previously known as Gold H2, is a climatetech startup converting end-of-life oil fields into low-cost, sustainable hydrogen sources. The company completed its first field trial this summer, which demonstrated subsurface bio-stimulated hydrogen production. Eclipse Energy says Its technology could yield up to 250 billion kilograms of low-carbon hydrogen.

Rheom Materials

Rheom Materials is a next-generation startup developing biobased materials for a more sustainable future. Its two flagship offerings are Shorai, a sustainable leather alternative that is usable for apparel, accessories, car interiors, and more, and Benree, an alternative to plastic without the carbon footprint.

Solidec

Solidec is a chemical manufacturing company developing autonomous generators that extract molecules from water and air and convert them into pure chemicals and fuels that are free of carbon emissions. The technology eliminates the need for transport, storage, and permitting.

FlowCare

FlowCare is developing a period health platform that integrates smart dispensers, education, and healthcare into one system to make free, high-quality, organic period products more accessible. FlowCare is live at prominent Houston venues, including Discovery Green, Texas Medical Center, The Ion, and, most recently, Space Center Houston, helping make Houston a “period positivity” city.

MyoStep

MyoStep is a next-generation, lightweight, soft exoskeleton developed at University of Houston for children with cerebral palsy. The soft skeleton aims to address motor impairments that impact their ability to participate in physical activities, self-care, and academics, via an affordable, child-friendly solution that empowers mobility and independence.

Persona AI

Persona AI is a humanoid robotics startup that is creating rugged, autonomous robots for skilled, heavy industry work for various "4D" (dull, dirty, dangerous, and declining) jobs. In May, the company announced a memorandum of understanding with HD Korea Shipbuilding & Offshore Engineering, HD Hyundai Robotic, and Vazil Company to create and deploy humanoid robots for complex welding tasks in shipyards. The project will deliver prototype humanoids by the end of 2026.

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The Houston Innovation Awards program is sponsored by Houston Community College, Houston Powder Coaters, FLIGHT by Yuengling, and more to be announced soon. For sponsorship opportunities, please contact sales@innovationmap.com.

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