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Why are BP, Shell, and Exxon backing off their
climate promises?
"If we see value, we’ll do it.
If we don’t, we won’t."
It wasn’t long ago that oil giants were trying to outdo one another
with promises to cut carbon emissions and take on climate change. In
2020, the price for a barrel of oil briefly plunged below zero, and
the world’s largest oil and gas companies portrayed themselves as
getting serious about renewables. BP promised to slash its emissions,
Shell pledged to go “net zero,” and ExxonMobil trumpeted its efforts
to transform algae into fuel.
But in recent weeks, these oil giants have begun tapping the breaks on
these much-publicized initiatives. BP
walked away from its target to reduce emissions by 35 percent by
2030 — once lauded as the most ambitious, tangible goal in the
industry — promising a cut between 20 to 30 percent instead. Shell
said it would not increase spending on renewable energy this year,
contrary to expectations. Meanwhile, Exxon
has pulled back funding from its decade-long algae effort.
These quiet announcements coincided with their recent blockbuster
earnings reports, which were celebrated by executives and excoriated
by politicians like President Joe Biden, who called
them “outrageous.” Buoyed by oil prices soaring above $100 a
barrel last year, the oil giants roughly doubled their profits from
the year before, with BP raking in $28 billion and Shell $40 billion.
Exxon, the oil major that has been the least enthusiastic about
renewables, reported even better results — $56
billion, up 143 percent from the year before and a record for a
Western oil company.
“We leaned in when others leaned out, bucking conventional wisdom,”
said Darren Woods, Exxon’s CEO, in a
call with investors, praising his company’s resistance to pulling
back on fossil fuel production.
“You know, nothing like profits rolling in to make Big Oil show its
true colors,” said Jamie Henn, the director of Fossil Free Media. “I
think over the last few weeks, we’ve seen the industry take off the
green mask that it has been wearing for the last few years and remind
us of its true identity and its real business model, which is the
continued extraction and production of fossil fuels at the expense of
our climate and communities.”
So why are oil companies slowing down on renewables now, when they
have plenty of cash to spend and the world is grappling with the
alarming fires, floods, and droughts spurred by climate change? The
ease of short-term profits when oil prices are high and the political
cover provided by concern about “energy security” have played a large
role. Heartened by last year’s flow of oil cash and dissuaded by the
rising costs of installing wind and solar, executives are turning away
from the longer-term payoffs promised by renewable investments.
Climate advocates say that Big Oil’s recent moves should serve as a
wake-up call for investors and regulators that oil companies plan to
double down on fossil fuels for as long as it’s profitable.
“If they’re not going to invest more on the energy transition now,
then when?” asked Krista Halttunen, an energy researcher at Imperial
College London.
Some oil executives have been pretty upfront about the reasons they’re
backing off. “We’re going to be driven by value,” Bernard Looney, BP’s
CEO, said on an earnings
call last week. “That’s what we’re going to be driven by. And if
we see value, we’ll do it. If we don’t, we won’t.”
The war in Ukraine, and the ensuing fuel crunch as Europe and the
United States sought to end imports of Russian oil and gas, has
created more cover for BP and other companies to ramp up oil
production in the name of energy security, said Trey Cowan, an oil and
gas analyst at the Institute for Energy Economics and Financial
Analysis. “They got the political will following what their will is at
this point,” Cowan said. In a recent interview with the Wall
Street Journal, Looney said that BP’s goal wasn’t just to deliver
clean energy, but “affordable energy, secure energy.”
The rising
costs of rare earth metals, used in wind turbines and solar
panels, may also be slowing down oil companies’ spending on renewables.
The cost of a stationary solar installation, for instance, rose 14
percent globally between the summers of 2021 and 2022, according to a BloombergNEF
analysis.
After announcing the company’s earnings this month, Wael Sawan,
Shell’s CEO, said that the company planned
to increase natural gas production and would not be ramping up
spending on renewables this year. In 2022, Shell’s capital spending on “low-carbon”
initiatives (a broad definition that includes gas) had increased
to $3.5 billion, almost a 50 percent increase over the prior year. But
the potential clean-energy profits of tomorrow don’t make good
business sense when oil and gas are making sky-high profits today,
Sawan explained. “We cannot justify going for a low return,” he said
during a conference call. “Absolutely, we want to continue to go for
lower and lower and lower carbon, but it has to be profitable.”
There are also some unexpected reasons that oil giants might be
backing off renewable investments now. Take Exxon’s recent retreat
from experimenting with making low-carbon biofuels
from algae, a venture that the company poured $350 million into
over the last decade (in addition to spending about half that sum
advertising the effort). Vijay Swarup, Exxon’s senior director of
technology, told Bloomberg
that algae still needed more work before deployment, so the
company was prioritizing carbon
capture and hydrogen instead.
Oddly enough, the Inflation Reduction Act, the landmark climate
legislation that President Joe Biden signed into law last summer,
might have something to do with it. It has shifted incentives for oil
and gas companies, which are now looking to take advantage of new tax
credits for projects that store and capture carbon dioxide, Cowan
said.
Oil companies tend to like the idea of capturing carbon released from
burning fossil fuels since it legitimizes their core business —
selling fossil fuels. Not only can they continue to emit carbon, but
they can also get tax credits for trapping and storing it. “It’s sort
of a misaligned incentive of, ‘Hey, create carbon to go store it in
the ground,’” Cowan said.
From an accounting perspective, it was also a good time for Exxon to
end its research, he said. With its high profits, the company could
write off the algae expenses as a loss without drawing a lot of
attention to it.
Oil companies may be “emboldened” by their record earnings, but Cowan
warns that many investors
are wary of getting back into oil’s boom-and-bust cycle. In the
long run, though, he bets that there will be an excess of oil on the
market again, and that with less leverage over investors, oil
companies will have to rein in the pollution they’re producing. “It
all comes down to price at the end of the day,” Cowan said. “If prices
are low, these oil and gas companies don’t look as desirable from an
investment standpoint. That’s the bottom line.”
Green Play Ammonia™, Yielder® NFuel Energy.
Spokane, Washington. 99212
www.exactrix.com
509 995 1879 cell, Pacific.
Nathan1@greenplayammonia.com
exactrix@exactrix.com
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