Why Big Oil Is Scaling Back Renewables Investment
- Big Oil’s returns in the renewables business were slim, at best, even before the 2022 energy and inflation shocks.
- To shore up share prices and close that gap with the U.S. giants, BP and Shell changed tack and returned to their roots.
- While the majors aren’t abandoning all the renewable projects they embarked on in 2020 and 2021, they have started to scale back investments.
Europe’s biggest oil and gas companies have changed their approach to energy supply twice over the past five years.
First came the ambitions to become major players in the renewables sector and goals to reduce oil and gas production by the end of the decade. That was in 2019 and early 2020 when Big Oil firms were racing to announce major shifts in strategy toward conventional and green energy.
This strategy held for about two years until the energy market shocks from the Russian invasion of Ukraine and the financial shocks of soaring inflation and rising interest rates upended everything again.
Poor Returns, Soaring Costs
Big Oil’s returns in the renewables business were slim, at best, even before the 2022 energy and inflation shocks. Following these shocks, the soaring costs made investments unprofitable, and the European majors Shell, BP, and Equinor took millions of U.S. dollars in impairments on European and U.S. projects in 2023.
Meanwhile, oil and gas production and trading were reaping high returns, and the majors’ profits skyrocketed to all-time highs. European oil and gas giants saw their valuation gap widen to the U.S. peers, ExxonMobil and Chevron.
To shore up share prices and close that gap with the U.S. giants, BP and Shell changed tack and returned to their roots—the core business of pumping and trading conventional energy, which they see (again) as crucial to delivering to consumers while the world moves forward with the energy transition. Read more