Big Oil Backs Away From Green Energy Goals – CleanTechnica

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A few years ago, the companies that we collectively think of as Big Oil began touting their desire to become better stewards of the Earth. They said they were going to invest in renewables like solar and wind, develop EV charging networks, and work to reduce their greenhouse gas emissions. That was then; this is now. In 2023, Bernard Looney, the CEO of BP, told the annual CERAweek conference he no longer ran an oil company. “I lived in America long enough to know that when you’re getting an electric F-150, the world is going electric. Our strategy is to transform BP from an international oil company to an integrated energy company.”

Two years later, Bloomberg reports, Looney is gone and BP is far from the low carbon fuels of the future giant it imagined. What happened? BP broke the first (and only) rule of corporate existence. Instead of increasing shareholder value, it destroyed a lot of it instead. Last week, Murray Auchincloss, who is now the CEO, pledged to “fundamentally reset” the company’s strategy and increase spending on oil and gas by nearly 20% to $10 billion a year while slashing investments in clean energy, biofuels, and batteries.

Bloomberg says the world’s supermajor oil companies are now reverting to the same fossil fuel-focused strategy that created profits for them for the last hundred years. The emphasis going will be on increasing the production of methane gas to power data centers and the artificial intelligence revolution. The transition from Big Oil to Big Energy is dead, buried under the Energy Dominance mantra of the current administration. “They have chosen to take a back seat rather than a leadership position,” said Shu Ling Liauw, CEO of Accela Research, a climate-focused investment adviser. “The integrated energy company concept is off the table.”

Five years ago, Big Oil seemed to be at a turning point. A decade of poor returns from over-spending on mega-projects hurt the industry’s reputation on Wall Street. Their business model was at odds with the goals to limit global warming to 1.5º C as agreed to by virtually all the nations of the world in Paris in 2015. ESG was what climate advocates wanted to hear about. Investors wanted the companies to “deliver all the renewables but with the same returns as oil and gas,” said Nick Wayth, who spent over 20 years at BP and helped guide the company into solar and offshore wind. “I don’t know if it was doomed to fail, but it was always going to be very challenging.”

Different Paths For Big Oil

Then a split emerged between the Americans and the Europeans. Exxon and Chevron decided to focus on cleaning up their own operations and invested in technologies like carbon capture and hydrogen, both of which are widely believed to be part of the net zero future. It didn’t hurt that they were a perfect fit with energy systems already powered by fossil fuels and supported by government incentives. Exxon and Chevron have increased oil and gas production 15% and 9%, respectively, since the end of 2019.

BP and Shell choose to focus their investments on the “electrify everything” trend championed by sustainability advocates like Mark Jacobson of Stanford that would drive the world toward net zero. They invested in everything from wind and solar generation to EV charging stations at the expense of oil and gas. In 2020, BP expected its oil and gas production would drop 40% within the decade. Shell anticipated a gradual decline of 1% to 2% annually. The two different paths had significant implications for the environment because the world’s biggest investor-owned oil companies have a big influence on the future direction of fossil fuel emissions. Despite only producing about 10% of the world’s crude oil, they tend to lead the largest oil and gas projects and their technology drives exploration for new resources.

The results from Wall Street are now in. Exxon shares have climbed 58% since the end of 2019 while BP is down 7.3%. Chevron has significantly outperformed Shell. There were plenty of unforeseen circumstances, including Russia’s invasion of Ukraine causing record fossil fuel profits in 2022 and rising interest rates eroding returns on renewables, but the difference is too big for investors to ignore. “The Europeans learned the hard way that investors want to see their capital deployed in a disciplined manner. They want to see a rate of return on that capital,” said Ben Cook, a Dallas-based portfolio manager at Hennessy Funds. “If you have to cut your dividend and share repurchases because of investments in renewables, then you’re going to get a haircut in your valuation.”

Red Ink & Peak Oil Fears

BP is not the only supermajor to pull back on its net zero goals in order to chase a higher stock price. Last month Shell wrote off almost $1 billion as it withdrew from a US offshore wind farm that became the target of Trump’s executive orders. Norway’s Equinor recently reduced its 2030 target for renewable generation. Orsted was once the poster child for net zero. The company is one of the few to truly transition away from oil and gas while reinventing itself in offshore wind. But even that transformation looks gloomier in retrospect. The company cut its dividend last year due to spiraling costs, and its shares are down 56% since the end of 2019. The investor drive for better performance on emissions has completely changed now, according to Andy Brown, a former executive at Shell who now serves as deputy board chair at Orsted. “That pressure is off, and now it’s about how you maximize returns,” he said, “The fundamental business model for renewables is challenged today.”

Despite their relative success versus their European peers, Exxon and Chevron trade at a 30% discount to the S&P 500 Index because of investor concerns about the longevity of oil demand. The US is now the world’s biggest oil producer, pumping 50% more barrels each day than Saudi Arabia, yet energy makes up just 3.3% of the wider stock index. To improve their position with investors, Exxon and Chevron are not trying to produce as much oil and methane as possible. Instead their focus is on pumping as cheaply as possible. If producers can get costs low enough, others will withdraw from the market first, allowing the bigger companies to make money even if the energy transition eventually collapses demand for oil. Exxon wants to get its break even oil price down to $30 a barrel by 2030 by growing low cost production in Guyana and the Permian Basin and selling its higher cost and less profitable operations to other companies.

Big Oil “has got incredibly good at moving down the cost curve,” said Noah Barrett, lead energy research analyst at Janus Henderson, which manages about $380 billion. “That means they’re not scared of peak oil demand. It is unlikely to be as dire for the industry as some have predicted.” Robert Johnston, research director at Columbia University’s Center on Global Energy Policy, sees things differently. He tells Bloomberg it is dangerous for oil executives to turn away from low carbon goals after just a few years of bad returns accelerated by a pro-fossil fuel US administration. “For 2025, it looks like the Americans are right and the Europeans are wrong. But the C-suite needs to be looking at the next 20 years. The longer view is that there is a huge market opportunity for the right low carbon investments.”

Finding those “right” investments is the hard part, especially now as the financial incentives contained in the Inflation Reduction Act are being rescinded by the federal government at the behest of the oil and gas industry. They paid to get their guy into office and now they expect to reap the benefit of those investments. A rough calculation is they will net $100 in profit for every dollar donated in the last election cycle. Some may think that smacks of corruption, but in America today it is just business as usual. We have come a long way since Sherman Adams was forced to leave the Eisenhower administration in disgrace because he accepted the gift of a vicuna coat. While the current crowd is striving to return America to an earlier time, it would be helpful if they remembered to include a dollop of decency along with their bountiful banquet of bombast.