Major Oil Giants Scale Back Low-Carbon Strategies Amid Shifting Market Realities
As the global energy landscape evolves, major oil companies are recalibrating their strategies, scaling back ambitious low-carbon initiatives that were once seen as the future of the energy transition. BP, Shell, and Equinor have all recently made significant cuts to their renewable energy projects and revised their plans to refocus on oil and gas development. These moves come in response to several factors, including the energy shock from Russia’s invasion of Ukraine, rising costs in renewable energy projects, and growing investor pressure for higher returns.
BP: Returning to Oil and Gas Roots
Almost five years ago, BP set out on a bold path to transform from a traditional oil and gas giant into a leading player in low-carbon energy. However, the company is now reversing course. BP has announced plans to significantly reduce its investment in renewables, halting 18 hydrogen projects and scaling back its wind and solar operations. The company has also cut its hydrogen team in London by more than half, leaving many to question whether BP has enough technical expertise to rekindle growth in its upstream oil and gas operations. CEO Murray Auchincloss has stated that BP will invest billions into new oil and gas projects, particularly in the U.S. Gulf Coast and the Middle East, as part of a broader effort to boost shareholder returns and stabilize the company’s financial performance.
Shell: A Ruthless Focus on Profitability
Shell is also pivoting away from its low-carbon ambitions, taking a more aggressive approach to improving its performance and closing the valuation gap with its U.S. rivals, ExxonMobil and Chevron. The company has scaled back its investment in floating offshore wind and hydrogen projects and retreated from several key European and Chinese power markets. Shell is seeking buyers for its Select Carbon business, which focuses on carbon offsetting projects. CEO Wael Sawan has emphasized that profitability must take precedence, even as the company refines its energy transition goals. Shell continues to focus on biofuels and some ongoing offshore wind projects but has reduced its carbon reduction targets for 2030.
Equinor: Shifting Focus Within Renewables
Norway’s Equinor, a major player in natural gas production for Europe, is also rethinking its renewable energy strategy. The company has launched an internal review of its low-carbon business, known as REN Adjust, and has decided to scrap several early-stage projects in favor of more advanced offshore wind initiatives. While Equinor remains committed to renewables, the company is adjusting its approach to ensure greater competitiveness when the market rebounds.
A Shifting Focus on Profits
While the global transition to low-carbon energy continues to gain momentum, the reality of high costs, supply chain disruptions, and technical challenges in renewable energy projects has prompted these companies to rethink their growth strategies. All three companies—BP, Shell, and Equinor—are now prioritizing investments that offer quicker financial returns, such as biofuels and hydrogen projects for use in refining operations. As BP’s Auchincloss put it, the company’s transition businesses need to generate the same level of returns as its traditional oil and gas operations in order to justify significant capital deployment.
Despite the reduced focus on low-carbon energy, these companies have not completely abandoned their renewable investments. BP, Shell, and Equinor continue to develop offshore wind projects and hydrogen initiatives, albeit at a slower pace. However, there is a growing sense of urgency to balance sustainability goals with the need for near-term financial performance.
TotalEnergies: A Contrasting Approach
In contrast to BP, Shell, and Equinor, France’s TotalEnergies has remained committed to low-carbon investments. The company has continued to aggressively expand its renewables portfolio, leaving its European rivals behind in terms of renewables capacity. TotalEnergies’ strong focus on green energy has made it an outlier among the traditional oil giants.
The Bigger Picture: Climate Targets and the Future of Oil
The slowdown in low-carbon investments comes at a time when the world is facing an increasing risk of missing the U.N.-backed target to limit global warming to 1.5°C by the end of the century. This has raised concerns about the future of fossil fuel consumption, particularly as electric vehicle adoption grows. The International Energy Agency (IEA) has predicted that global oil demand will peak by the end of this decade, further adding to the uncertainty for oil companies.
Investor sentiment remains cautious, with many questioning whether European oil giants like BP, Shell, and Equinor can maintain profitability while balancing their commitment to renewable energy. Shares of these companies have underperformed U.S. competitors, reflecting skepticism over their ability to deliver long-term value.
Conclusion: Striking the Right Balance
The ongoing changes in strategy highlight the difficult balancing act facing major oil companies. As Accela Research analyst Rohan Bowater points out, to make energy transition plans sustainable, companies need the right incentives, clear mandates from shareholders, and a focus on demonstrating tangible value. BP, in particular, finds itself caught between the need for low-carbon investment and the pressure to meet shareholder expectations. Moving forward, the question remains whether these oil giants can successfully navigate the shift toward renewable energy without sacrificing profitability.
While the energy transition remains a critical global priority, the near-term focus for many of these companies appears to be on securing financial stability in an uncertain and shifting market. Whether this strategy will prove sustainable in the long run remains to be seen.