Oil majors slow renewable energy development, refocus on oil and gas

Major oil companies are cutting spending on renewables after governments around the world slowed the rollout of clean energy policies. They have refocused on traditional oil and gas production.

After announcing major climate commitments in recent years, many countries, led by the US—which is preparing to withdraw from the Paris Agreement under President Trump—are set to scale back their efforts to reduce emissions.

Major energy companies are responding too. Large oil companies that also operate in Europe are pushing back their decarbonisation targets and sometimes even abandoning their climate commitments. BP and Shell, which have already invested heavily in the clean energy transition, have seen their share prices underperform those of US rivals Exxon and Chevron, which have continued to focus on oil and gas. Reuters reports.

Companies are also responding to the sharp increase in demand for non-Russian gas and oil following Russia’s invasion of Ukraine.

“Geopolitical issues such as the invasion of Ukraine have weakened CEOs’ motivation to prioritise the transition to low-carbon technologies amid high oil prices and changing investor expectations,” Rohan Bowater, an analyst at Accela Research, told Reuters. According to him, BP, Shell and Equinor cut spending on low-carbon technologies by 8% in 2024.

Gas and oil look more promising in the short term

Shell said it remains committed to becoming a net-zero energy business by 2050 and continues to invest in the energy transition.

Nevertheless, this year it has largely halted investment in new offshore wind projects, exited electricity markets in Europe and China, and weakened its carbon emissions reduction targets.

BP, which had planned to increase its renewable energy capacity twentyfold to 50 gigawatts this decade, announced in December that it would put almost all its offshore wind projects into a joint venture with Japanese power producer JERA.

Instead, companies have shifted spending to higher-margin oil and gas projects. They had already doubled their oil and gas production volumes in 2024.

Norway’s state-controlled Equinor has also slowed its spending on renewables.

Will the market resolve the situation?

The renewed focus on oil and natural gas by major energy companies may come with potential pitfalls. China’s demand growth, which drove global prices for two decades, is slowing, and there are growing signs that the increase in the country’s consumption of petrol and diesel is coming to a halt.

Meanwhile, OPEC and its allies, the world’s largest oil producers, have repeatedly postponed plans to end supply cuts as other countries, led by the United States, increase oil production.

As a result, analysts expect oil companies to face financial difficulties next year. The net debt of the five largest Western oil majors is expected to rise to USD 148 billion in 2024 from USD 92 billion in 2022, according to estimates by LSEG.