Year Ender: Big Oil retreats from renewables as climate agenda falters

In 2024, major European energy companies increased their focus on oil and natural gas to maximize profits in the short-term. They also slowed down and sometimes reversed climate commitments. This is a trend that will likely continue in 2025.

Oil majors have retreated after governments worldwide slowed down the rollout and set back targets for clean energy as energy prices soared in the wake of Russia's invasion of Ukraine.

The share performance of the big European energy companies, who had heavily invested in clean energy, was behind that of their American rivals Exxon & Chevron. These two had focused on oil & gas.

BP and Shell, for example, have this year drastically slowed down their plans to invest billions in wind and solar projects and shifted the spending to oil and gas projects with higher margins.

BP announced that it will spin off most of its offshore wind power projects in a joint venture between JERA and Japanese power generation company BP.

Shell, the company that once promised to be the largest electricity provider in the world, has largely stopped investing in new offshore projects, left power markets in Europe, China, and softened its carbon reduction targets.

Equinor, the state-controlled company in Norway, also reduced its spending on renewables.

Rohan Bowater is an analyst with Accela Research. He said that geopolitical disruptions such as the invasion of Ukraine had weakened CEO incentive to prioritize the low-carbon transformation amid high oil prices. Rohan Bowater, an analyst at Accela Research, said that BP Shell and Equinor would reduce their low-carbon expenditure by 8% between 2024 and 2025.

Shell said it was committed to becoming an energy company with zero net emissions by 2050, and that they continue to invest in energy transition.

Equinor stated: "The offshore segment has experienced challenging times over the past couple of years because of inflation, cost increases, and bottlenecks in supply chains. Equinor will remain selective and disciplined with our approach."

BP has not responded to a comment request.

TOUGH CLIMATE

Retrenchment by oil companies is bad for climate change mitigation efforts. The global heat-trapping emissions of carbon are expected to reach a record high in 2024. This will be the hottest year ever recorded.

Donald Trump, a climate-sceptic who is returning to the White House in 2025, will likely bring another turbulent year to the $3 trillion energy industry. China, which is the largest crude oil importer in the world, is trying its best to revive its faltering economic situation, possibly boosting oil consumption.

Europe is still in a state of uncertainty due to the conflict in Ukraine, and the political turmoil in Germany or France.

All these tensions were exposed at the annual United Nations Climate Conference in Baku, Azerbaijan, in November when President Ilham Aliyev of the host country hailed gas and oil as "a blessing from God".

The summit produced a global deal on climate finance, but disappointed those who hoped that governments would come together around the phase out of coal, oil and gas.

Energy companies will watch to see if Trump keeps his promise to repeal President Joe Biden’s green energy policies that have encouraged investments in renewables throughout the United States.

Trump has pledged to withdraw the United States of America from global climate initiatives and has appointed oil executive Chris Wright as his Energy Secretary. Wright is another climate skeptic.

OIL DEMAND

The renewed focus of energy giants on oil and natural gas can lead to a number of pitfalls.

China's gasoline and diesel consumption has plateaued, indicating a slowdown in the demand growth that has been driving global prices for 20 years.

OPEC, along with its top allies, has repeatedly delayed plans to end the supply cuts, as other countries, including the United States of America, have increased oil production.

Analysts expect that oil companies will face more financial pressures next year. According to LSEG estimates, the net debt of the five largest western oil companies is expected to increase to $148 billion by 2024. This compares to $92 billion at 2022.

(source: Reuters)