Big Oil Scales Back Renewables, Prioritizing Short-Term Profits

Major European energy companies, including BP and Shell, are doubling down on oil and gas production in 2024, prioritizing near-term profits over their previous commitments to renewable energy, as reported by Reuters. This shift, driven by government policies that have slowed the rollout of clean energy initiatives and the soaring energy costs following Russia's invasion of Ukraine, is likely to persist into 2025.

The focus on oil and gas has been fueled by the lagging performance of European energy companies that heavily invested in renewables, compared to their US counterparts, Exxon and Chevron, who remained focused on fossil fuels. This shift has led to a significant reduction in spending on wind and solar projects by European companies, with BP spinning off most of its offshore wind projects and Shell halting investments in new offshore wind projects.

"Geopolitical disruptions like the invasion of Ukraine have weakened CEO incentives to prioritise the low-carbon transition amid high oil prices and evolving investor expectations," Rohan Bowater, analyst at Accela Research, told Reuters. He noted that BP, Shell, and Equinor all reduced low-carbon spending by 8% in 2024.

Shell, despite this shift, maintains its commitment to achieving net-zero emissions by 2050 and continues to invest in the energy transition. Equinor, in a statement to Reuters, attributed the slowdown in offshore wind investment to "demanding times in the last couple of years due to inflation, cost increases, and bottlenecks in the supply chain." BP did not respond to Reuters' request for comment.

This retrenchment by Big Oil comes at a critical time for climate action, with global carbon emissions projected to reach record highs in 2024, and 2025 shaping up to be another turbulent year for the energy sector. The election of climate-skeptic Donald Trump in the US, China's efforts to revive its economy, and ongoing uncertainties surrounding the war in Ukraine all contribute to a complex geopolitical landscape.

The shift toward oil and gas also presents potential challenges for Big Oil itself. China, a major driver of global oil demand, is experiencing slowing economic growth, indicating a potential plateau in gasoline and diesel consumption. At the same time, OPEC and its allies are facing pressure to unwind supply cuts as other countries, led by the US, ramp up their own oil production.

Analysts predict that these factors will lead to tighter financial constraints for oil companies in 2025, with net debt for the top five Western oil giants expected to rise to $148 billion, up from $92 billion in 2022, based on LSEG estimates.