Big Oil Chases High Fossil Fuel Returns amid Poor Renewable Showing
Europe’s major oil companies have started to scale back interim emission reduction targets, acknowledging that their priorities now lie with returning more cash to shareholders. And these returns come from the fossil fuel business, not from renewables.
The latest supermajor to ease emission targets was UK-based Shell, following in the footsteps of UK peer BP, which had already reduced emission reduction targets in early 2023.
Both oil and gas giants reaffirm their commitments to become net-zero energy businesses by 2050, but their emission targets for 2030 are now lower than they were before the energy crisis and the Russian invasion of Ukraine.
In the wake of these events, the oil and gas industry has stressed that affordability and energy security are at least as equally important as helping the world reduce carbon emissions.
Emissions could be reduced faster with more renewables, carbon capture, or hydrogen, but none of these clean energy alternatives have proved ready to replace oil and gas. And most importantly—none of these are as profitable as oil and gas.
As Big Oil relies on windfall profits to raise returns to shareholders in an attempt to lure them back after years of ESG-driven reluctance to invest in fossil fuel companies, oil and gas profits have become more important for the international majors in recent years.
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Moreover, renewables projects with good returns “have been hard to find,” Stewart Glickman, energy equity analyst at CFRA Research, has told Yahoo Finance recently.
That’s why European majors such as BP and Shell have been hitting the brakes on throwing their cash on clean energy. Scaled-down renewables businesses mean higher emissions as the oil and gas giants have doubled down on their fossil fuel businesses, at least until the end of this decade.
Shell became the latest example of eased carbon emission targets because of lower investments in the power generation business.
Last week, the supermajor reaffirmed its ambitions to be a net-zero energy business by 2050 but eased its carbon intensity target for 2030 as it has shifted away from clean power sales to retail customers.
The oil and gas giant said in its updated Energy Transition Strategy 2024 that it would aim for a 15-20% reduction in its net carbon intensity target by 2030, compared to 2016 levels, against a previous target of a 20% cut. The eased emissions target is the result of Shell prioritizing value over volume in power, with a focus on select markets and segments and selling more power to commercial customers and less to retail customers.
“Given this focus on value, we expect lower total growth of power sales to 2030, which has led to an update to our net carbon intensity target,” the company said.
Shell is also retiring its interim 2035 target of a 45% reduction in net carbon intensity, “acknowledging uncertainty in the pace of change in the energy transition,” the supermajor said in its transition strategy update.
Shell also noted that investment in oil and gas would be needed because demand for oil and gas is expected to drop at a slower rate than the natural decline rate of the world’s oil and gas fields, which is 4-5% per year.
This time last year, Shell’s competitor BP scaled down its 2030 emission reduction target and now aims for a fall of 20% to 30% in emissions from the carbon in its oil and gas production in 2030 compared to a 2019 baseline, lower than the previous aim of 35-40%, as it looks to contribute to energy security and affordability.
One activist investor, Bluebell Capital Partners, is even calling on BP to scale back its ambitions in renewable energy and renege on its goal to reduce oil and gas production.
The supermajors in America are even more vocal in defending increased investments and production in oil and gas.
ExxonMobil’s chairman and CEO, Darren Woods, said in November that “The solutions to climate change have been too focused on reducing supply. That’s a recipe for human hardship and a poorer world.”
In remarks at the APEC CEO Summit, Woods noted that the final element critical to long-term success is market-based mechanisms, as “No government can afford to subsidize the energy transition forever.”
By Tsvetana Paraskova for Oilprice.com
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