* European oil majors target electricity
* Electric power demand growth expected to outdo that foroil
* Acquisitions bring access to retail power customers
* Small investments, slim margins show limits of push
* Graphic on a BP scenario https://tmsnrt.rs/2WuFSry
By Ron Bousso and Susanna Twidale
LONDON, April 4 (Reuters) - European oil companies havestarted to address what they worry may one day be an existentialthreat to their business -- the end of a century of oil demandgrowth in a low carbon world.
The emergence of the electric vehicle and demand amonginvestors and consumers for cleaner energy to limit climatechange has pushed the European side of Big Oil to take babysteps towards refocusing their businesses from oil productionand refining to electricity via natural gas and renewables.
Their funding for oil exploration dwarfs any alternatives,but they are buying up power generation and retail utilities tointegrate with their long-standing natural gas and emergingrenewables ventures.
Relatively small investments in electricity aim to help themride the energy transition by offering households and businessescleaner power than coal can provide and giving their petrolstations a green edge with EV charging.
Testing an electrification route also helps meet demandsfrom shareholders that they "future proof" their businesses.
The International Energy Agency predicts regulatory changesto curb carbon emissions will mean demand for electricity willgrow much faster than that for oil as Asia's power-hungry middleclass expands. The industry sees oil demand peaking any timefrom 2020 to 2040.
Diversification is not new to the oil and gas business andhas a patchy record at best. Oil majors have bought stakes incoal, household cleaning, pet food, nutrition, shrimp trading,nappies, hotels and steel, with limited success. Critics saypower will not deliver the profits the oil and gas companiesneed to sustain the large dividends their investors are used to.
BP lost billions in its first foray into renewables 20years ago when it rebranded itself "Beyond Petroleum". It closedits solar manufacturing division in 2011 and tried to get rid ofits wind farms but says it now has a more successful model.
"Most of the things we do today are linked to our corecapabilities," Dev Sanyal, head of BP's alternative energydivision, told Reuters. "If you can start combining moleculesand electrons in an integrated offer you start creatingsomething of greater interest."
PROFIT
Profit is the first challenge when joining the dots betweenrenewables, gas-fired plants and utilities facing growingcompetition in markets that are fragmenting fast. None of thecompanies break down their results from renewables or power.
BP returned to solar in 2017 with a $200 million investmentin UK solar generator Lightsource and dipped a toe into UKelectricity retail the same year by buying a 25 percent stake inPure Planet, a small challenger brand supplying some 100,000customers with renewable electricity.
"The renewables business last year was free cash flowgenerative... we've been moving in a positive trajectory overthe past three years," Sanyal said. "Today we have industrialcustomers and over time there could be retail customers."
He said BP plans to expand its alternative energy capacity -the biggest among the majors, according to CDP, aclimate-focused research provider that works with majorinstitutional investors. Gazprom's large hydropower interestsput it in second place ahead of Total and then Shell, CDPcalculations show.
On retail, the French and Italians are ahead.
French giant Total 's purchase of Direct Energielast year gave it a portfolio of gas fired and renewable energypower plants and a platform to challenge state-controlledutility EDF .
It is targeting seven million customers in France andBelgium by 2022 and said in a recent investor presentation itaims to make low carbon electricity 15 to 20 percent of itstotal offering by 2040.
Eni says it is now Italy’s second largestelectricity producer with six power plants, large electricitytrading business and two million customers.
Shell says it wants to become the biggestelectricity provider and over the past year has made a number ofinvestments including a Brazilian gas-fired power plant and a UKutility.
Last week it renamed that utility Shell Energy and switchedall 710,000 customers to 100 percent renewable electricity,offering them discounts on petrol and electric car charging inits petrol stations.
Mark Gainsborough, head of the Anglo-Dutch company's newenergy division, told Reuters it aims to grow its retailcustomer base in Britain.
Shell looked into acquiring the retail division of rival SSEin recent months but discussions made little progressdue to concerns over the government's decision to cap mostdomestic energy prices, industry sources said, an example of therisks facing power markets around the world. Both Shell and SSEdeclined to comment.
In a sign of the growing competition among the majors forpower assets, Total is considering a rival bid to Shell forDutch energy company Eneco, according to sources close to thematter. Total declined to comment.
Eneco is valued at around 3 billion euros and has 2.2million customers and Shell's Gainsborough said it could providea template for a power business model.
"The model aspiration is to find an integrated mode withpositions in trading and supply and having customer books,"Gainsborough said.
CAUTION
Former BP CEO John Browne, who drove the London-basedcompany's first push into renewables, said much lower productioncosts for wind and solar projects and a greater understandingabout the future growth of power markets had changed the picturedramatically since then.
"The question is whether you have the skills, the people andthe determination to make this work and are you happy that inreality the returns you make are better than the returns youmake in your other business," Browne told Reuters.
Returns on solar and wind projects are typically around 5-10percent, according to climate research provider CDP, half ofthose from many oil and gas projects.
So far the oil majors have committed a small fraction oftheir annual investment to low-carbon technologies as theybalance shareholder demands for returns and innovation.
Shell and Equinor plan to put between 5 and 6percent of their capex investments into clean energytechnologies, while Eni is targeting around 4 percent and Totaland BP plan about 3 percent each, CDP research showed.
Those numbers rise with investments in gas-fired powergeneration but are still small enough to swallow if rivals makethings difficult, particularly at the retail end, where theyinclude supermarkets, fintech startups and Amazon.
"If at the end of the day it doesn’t work these companieshave deep pockets and would be able to spin off powerdivisions," said Munir Hassan, Head of Clean Energy at law firmCMS in the UK.
The differential in returns from power versus oil and gashad not changed much, he said, but there was a new impetusbecause perceptions among shareholders and their children had.
"Some of the oil companies will succeed," Hassan said. "ButI wonder whether they will find it more painful than theyexpected."
(Additional reporting by Stephen Jewkes; editing by PhilippaFletcher)
