The next global energy transition may pose big risks for Big Oil as world consumption continues to trend toward natural gas and renewables, Wood Mackenzie said Friday.

In the shift to lower carbon fuels, natural gas and zero-carbon fuels are forecast to satisfy at least 60% of the rise in global energy demand to 2035, with some scenarios forecasting renewable demand will grow nearly 500% over the next 20 years. Meanwhile, coal and oil demand may peak well before 2035.

“As carbon policy intensifies, the oil and gas majors will face more regulatory burden and are likely to face increasing costs,” said Wood Mackenzie’s Paul McConnell, research director of global trends. “Green financing could also mean higher cost of capital for more carbon-intensive oil assets such as oilsands, as investors shift to alternative fuels and lower-carbon technologies.”

The shift, detailed in “Fossil Fuels to Low-Carbon: The Majors’ Energy Transition,” sees strong growth in renewable energy, intensifying carbon policy and increasing low-carbon competition. Researchers investigated how the major producers are responding to the pressure to move to a low carbon-energy environment.

Only 13% of global emissions currently are covered by a price on carbon. And most of the majors’ upstream operations “are not yet directly impacted, with most policies primarily focused on the power and industrial sectors.”

Up to half of the oil and gas produced by Big Oil companies over the next decade could be hit by carbon costs, if countries and regions that currently price carbon extend policies to the extractives sectors, Wood Mackenzie found. Carbon pricing now is usually beyond the scope of emissions limiting schemes.

“While all the major oil companies put a price on carbon in their long-term planning, the big question is how much risk each has taken into account,” McConnell said.

ExxonMobil, BP plc, Chevron Corp. and Royal Dutch Shell plc, among many others, use carbon pricing on the expectation that emissions eventually will be regulated. Assumptions vary by geography, timeline and on price, which currently is estimated at $6.00-80.00/metric ton, according to Wood Mackenzie.

Last August a Rice University energy expert said in a working paper that the oil, natural gas and coal industries were facing “existential threats” as shareholders, activists and government officials pushed them to reduce carbon emissions. However, many producers have been proactive, with some calling for widespread and effective prices for carbon emissions to realize the “full and positive impact” natural gas may have.

“As costs for renewables and energy storage continue to fall, ‘subscription’-type services could open up new low-carbon growth markets,” as for example, in electric car sharing, McConnell said.

Wood Mackenzie’s study found the global oil majors are under pressure to derisk their existing business models and diversify into low-carbon energies. However, diversifying into renewables may be challenging, as it could be difficult to both justify allocating scarce capital to low-returning projects and transform existing business models.

“The timing of a transition to low-carbon energy will be critical,” McConnell said. “Diversifying to renewable energy will be a balancing act. Moving too quickly could leave money on the table from the majors’ fossil fuels business. But too slowly, and they could miss their window of opportunity. The biggest risk for oil and gas companies is to do nothing, and be left exposed to investors making their own minds up.”

In fact, the International Energy Agency, in its new World Energy Outlook for 2016, said that while the era of fossil fuels is “far from over,” government policies and cost reductions across the energy sector could enable renewables to double while energy efficiencies grow. Natural gas use should continue to expand, while the shares of coal and oil fall back.

“There is notably an emergence of three different strategies by the major oil companies — decarbonize, capitalize or grow. The majors are testing different strategies to decarbonize and mitigate risks, to capitalize by using existing capabilities to explore opportunities in renewables and to grow a profitable and substantial renewables business.”

Regardless of which path they take, the oil majors are increasing their share in natural gas, while also attempting to reduce the cost curve, he said.

“Global carbon risks could depress oil prices for the long term with slowing demand and an increase in costs, making it crucial for the majors to push break-evens down further. To facilitate the move to low-carbon energy policies, new skills will be needed through joint ventures or acquisitions.”

To deliver a “material shift” toward renewables, “a much greater proportion of capital will be needed.”