European oil majors backtrack on renewables

The major European oil companies, British Petroleum (BP), Shell, Equinor (of Norway) find enough reasons to cut their investments on green energy sources like wind and solar, and focus on oil and gas, their regular business staple, in 2025. This is seen as a slide from the climate target commitments these companies had made this year and earlier. BP had aimed at reaching 50 gigawatts of green energy by the end of the decade. But it feels unable to do so.

It wants to spin off its wind power projects into a joint venture with the Japanese electric company JERA. Shell has given up its ambitious goal of becoming the largest electric company and has stopped its investments in new offshore wind power projects, which is a blow to curbs on carbon emissions effort.

Equinor has slowed down its investments in renewable sources of energy. Rohan Bowater, energy analyst at Accela Research says, “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.”

He told the news agency Reuters that the three oil companies had reduced low-carbon spending by 8 per cent. Norway’s state-owned Equinor said in a statement, “The offshore wind has been through demanding times in the last couple of years due to inflation, cost increase, bottlenecks in the supply chain, and Equinor will continue to be selective and disciplined in our approach.”

The picture is clear. The major oil companies cannot invest in low-carbon energy sources unless they are in a financially sound position. They also face the problem that every other player in the $3 trillion oil sector joins the effort to reduce the dependence on fossil fuels.

The European oil markets are looking over their shoulder to the American oil majors, Exxon and Chevron, who are making profits on the increased oil and gas marketing, leaving their European counterparts behind in the market. With President-elect Donald Trump set to take office on January 20, there is the fear that the US will not do anything to move towards the green transition. Trump is a self-confessed anti-climate change advocate, a climate-change denier in effect.

The European economy is not exactly doing well enough, and China’s demand for diesel and petrol which had plateaued is bound to slow down, which would dampen the demand for oil.

Market observers think that the European oil majors are making a policy mistake if they think there is a need to go back and sell more of oil to keep afloat financially. The argument implies that this is the time that the oil companies should stick to their low-carbon goals because the future demand will rely on green energy sources.

The choice is stark. People and governments are aware that it cannot be business as usual in the matter of carbon emissions, and that to avoid catastrophe the move to renewable energy sources is inevitable. It is in the interest of the major oil companies that they should be treading the alternative path to remain in business in another form. Closing shop of such huge enterprises is a disaster for the economy if thousands of people are thrown out of jobs, and the marketing infrastructure in operation now were to become redundant.

It is not the case that the transition will happen at once. It will take time. But the remedial measures have to be taken to save the oil marketing companies. They have to switch their profiles and their businesses even as the car-makers across the world are doing by moving to the manufacture of electric vehicles (EVs). Giving up the process of moving to alternative sources of energy is not good business strategy.