Chris Goggin reviews the recent decision to reverse renewable investments in favour of increasing fossil fuel opportunities. BP is the latest global energy company to reduce investments in clean power projects and what this means for the direction of international and UK NetZero objectives.
BP has formally announced a strategy reset of their targets set five years ago by the previous chief executive who has since left the company. During 2020 BP announced a new strategy that would aim to reduce oil and gas production at 40% by the end of the decade.
Investments would instead target the emerging low carbon energy market. BP promised to limit fossil fuel production to around 1.5 million barrels a day by the end of the decade. For perspective, in 2018 BP produced 3.7 million barrels a day.
Since then, BP has recently scaled back these objectives and redefined their approach – BP will now reduce production by 25%, meaning that BP will still produce around 2 million barrels a day by 2030. BP will now direct $10 billion a year of investment towards oil and gas projects whilst reducing $5 billion a year from their green energy strategy.
Current CEO Murray Auchincloss is quoted as saying: “Our optimism for a fast [energy] transition was misplaced, and we went too far, too fast.”
BP will now refocus on starting 10 large-scale fossil fuel projects by 2027 with a possible 8 to 10 more by the end of the decade – 2030. Amongst the projects supposed to be cancelled is the £100 million HyGreen Teesside green hydrogen project. This facility was supposed to contribute 5% of the UK’s aim of introducing 10GW of hydrogen capacity into the UK grid by 2030.
BP has lost commercial ground to their rivals Shell and ExxonMobil in the last 2 years and has effectively lost a quarter of its market value. Shell and ExxonMobil have seen their market value increase over the last 2 years, as both companies have been concentrating on oil and gas production.
To replace lost revenue BP is planning to sell $20 billion of assets including the noteworthy BP subsidiary and solar power developer – BP Lightsource. BP also plan on potentially selling an additional subsidiary, lubricant company Castrol as well as their network of service stations in an attempt to cut $5 billion of costs by 2027.
Additional influences that BP are subject to include the 5% (£3.85 billion) stake share that activist hedge fund Elliot Management has acquired. An activist hedge fund is an organization that invests in a company and exerts pressure to force managerial and strategic change. Elliot Management is widely expected to demand changes to increase market value.
BP’s competitors Shell and ExxonMobil in contrast have pursued opportunities that focus on fossil fuels rather than renewable alternatives. Shell announced last year that they will reduce carbon-based climate targets. Shell’s previous aim was to weaken carbon emission intensity of all sold energy by 20% at the end of the decade. The new objective is to reduce carbon emission intensity by between 15-20%.
Carbon intensity refers to the carbon produced through each unit of activity as opposed to released atmospheric emissions. Shell’s new target allows the organization to produce more gas at lower emission intensity but will raise overall emissions as production increases.
Shell has also failed to set out “Scope 3” emission targets associated with their gas production and distribution. Scope 3 emissions consider the entire range of emissions created through an organizations value chain including elements that exist outside of direct company control like, suppliers, customers and product disposal. Shell’s gas business is expected to grow 50% by 2040.
In 2021 Shell announced they will reduce oil output every year for the entire decade from the 2019 peak of 1.9 million barrels a day. Having completed a 2021 $9.5 billion sale from a stake in a Texas Permian basin project Shell announced that this had reduced its daily oil production to 1.5 million barrels a day. Shell now plans to begin enough fossil fuel projects to add 500,000 barrels a day by 2025 highlighting a shift in strategy.
Shell has also stopped investing in offshore wind opportunities and instead focused on expanding their current portfolio of oil and gas projects.
ExxonMobil have not actively embraced renewable or alternative energies in the same way. The American organization instead aims to reduce carbon emissions by introducing a variety of low carbon energy sources into their product inventory.
ExxonMobil will invest around $20 billion to add fuels such as hydrogen, carbon capture and biofuels between 2022-2027.
Currently, ExxonMobil is the stronger company when compared to both Shell and BP. In 2024 Shell reported a net income of $5.4 billion in the third quarter of the year, down from $6.3 billion the previous year. BP reported a 30% reduction in net income at the same time, at $2.3 billion. Exxon Mobil announced net income in the third quarter at $8.6 billion – a 5.1% reduction from the previous year.
Gross yearly profits for ExxonMobil rested on $84.234 billion, Shell $23.72 billion whilst BP’s yearly gross profit is not as well advertised but published a net income of $8.9 billion down from $13.8 billion the previous year.
A subjective interpretation of current oil and gas companies moving focus away from ‘clean’ energy aims is that market and consumer demand for fossil fuels remains strong across all continents. NetZero aims are not as highly valued by both the consumer and shareholder when compared to lower energy costs and share prices.
However, an objective view could also claim that large energy companies will return to clean power objectives once the global market is in a better condition to be able to return profits from renewable investments.
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