Dec 27, 2024
Major oil companies are reconsidering their commitment to renewable energy as the climate agenda struggles.
In 2024, major European energy firms intensified their focus on oil and gas to prioritize immediate profits, leading to a slowdown - and sometimes a reversal - of their climate commitments, a trend they are likely to maintain into 2025.
This retreat by oil companies follows a global slowdown in the implementation of clean energy policies and the postponement of targets, which occurred as energy prices spiked after Russia's invasion of Ukraine in 2022.
Large European energy firms that had heavily invested in the transition to clean energy have seen their stock performance lag behind U.S. competitors like Exxon and Chevron, who have remained concentrated on oil and gas.
In this context, companies such as BP and Shell sharply reduced their plans to invest billions in wind and solar projects this year, reallocating their budgets to more profitable oil and gas initiatives.
BP, which had planned to expand its renewable energy capacity twentyfold to 50 gigawatts by the end of the decade, announced in December that it would split off almost all of its offshore wind projects into a joint venture with Japanese power company JERA.
Shell, which once aimed to become the world's largest electricity provider, has largely halted new investments in offshore wind, exited energy markets in Europe and China, and lowered its carbon reduction goals.
Equinor, Norway's state-owned company, has also reduced its renewable energy investments.
Rohan Bowater, an analyst at Accela Research, mentioned to Reuters that geopolitical events, such as the Ukraine invasion, have diminished CEO motivations to focus on low-carbon transitions amidst high oil prices and changing investor expectations. He noted that BP, Shell, and Equinor cut their low-carbon spending by 8% in 2024.
Shell reassured Reuters of its commitment to becoming a net-zero emissions energy company by 2050, continuing its investments in the energy transition.
Equinor stated that the offshore wind sector has faced challenging conditions over the past few years due to inflation, rising costs, and supply chain bottlenecks, and that it would maintain a selective and disciplined approach.
BP did not respond to a request for comment.
The oil companies' withdrawal is detrimental to climate change mitigation efforts. It is predicted that global carbon emissions, which trap heat, will reach a new high in 2024, marking it as the warmest year on record.
2025 is also expected to be a turbulent year for the $3 trillion energy sector, especially with climate-skeptical Donald Trump potentially returning to the presidency. Additionally, China, the largest importer of crude oil, is attempting to revive its struggling economy, which could increase oil demand.
Europe continues to face uncertainty due to the ongoing war in Ukraine and political instability in Germany and France.
These issues were highlighted at the annual United Nations climate conference in Baku, Azerbaijan, where President Ilham Aliyev described oil and gas as 'a gift from God.'
The summit resulted in a global climate finance agreement but left climate advocates dissatisfied, as they had hoped for a collective commitment to phase out oil, gas, and coal.
Energy companies are closely monitoring whether Trump will fulfill his promises to repeal President Joe Biden's significant green energy initiatives, which have encouraged renewable investments in the U.S.
Trump has pledged to withdraw the United States from international climate commitments and has appointed another skeptic of climate change, oil executive Chris Wright, as his energy secretary.
There are potential challenges arising from the energy majors' renewed focus on oil and gas. Demand growth in China, which has driven global prices for the last twenty years, is decelerating, with indications that gasoline and diesel consumption might be leveling off.
Meanwhile, OPEC and leading oil-producing allies have continually postponed plans to lift supply cuts, while countries like the United States increase their oil production.
Consequently, analysts anticipate that oil companies will encounter tighter financial conditions next year, with net debt for the top five Western oil companies projected to rise to $148 billion in 2024, up from $92 billion in 2022, according to LSEG estimates.
This retreat by oil companies follows a global slowdown in the implementation of clean energy policies and the postponement of targets, which occurred as energy prices spiked after Russia's invasion of Ukraine in 2022.
Large European energy firms that had heavily invested in the transition to clean energy have seen their stock performance lag behind U.S. competitors like Exxon and Chevron, who have remained concentrated on oil and gas.
In this context, companies such as BP and Shell sharply reduced their plans to invest billions in wind and solar projects this year, reallocating their budgets to more profitable oil and gas initiatives.
BP, which had planned to expand its renewable energy capacity twentyfold to 50 gigawatts by the end of the decade, announced in December that it would split off almost all of its offshore wind projects into a joint venture with Japanese power company JERA.
Shell, which once aimed to become the world's largest electricity provider, has largely halted new investments in offshore wind, exited energy markets in Europe and China, and lowered its carbon reduction goals.
Equinor, Norway's state-owned company, has also reduced its renewable energy investments.
Rohan Bowater, an analyst at Accela Research, mentioned to Reuters that geopolitical events, such as the Ukraine invasion, have diminished CEO motivations to focus on low-carbon transitions amidst high oil prices and changing investor expectations. He noted that BP, Shell, and Equinor cut their low-carbon spending by 8% in 2024.
Shell reassured Reuters of its commitment to becoming a net-zero emissions energy company by 2050, continuing its investments in the energy transition.
Equinor stated that the offshore wind sector has faced challenging conditions over the past few years due to inflation, rising costs, and supply chain bottlenecks, and that it would maintain a selective and disciplined approach.
BP did not respond to a request for comment.
The oil companies' withdrawal is detrimental to climate change mitigation efforts. It is predicted that global carbon emissions, which trap heat, will reach a new high in 2024, marking it as the warmest year on record.
2025 is also expected to be a turbulent year for the $3 trillion energy sector, especially with climate-skeptical Donald Trump potentially returning to the presidency. Additionally, China, the largest importer of crude oil, is attempting to revive its struggling economy, which could increase oil demand.
Europe continues to face uncertainty due to the ongoing war in Ukraine and political instability in Germany and France.
These issues were highlighted at the annual United Nations climate conference in Baku, Azerbaijan, where President Ilham Aliyev described oil and gas as 'a gift from God.'
The summit resulted in a global climate finance agreement but left climate advocates dissatisfied, as they had hoped for a collective commitment to phase out oil, gas, and coal.
Energy companies are closely monitoring whether Trump will fulfill his promises to repeal President Joe Biden's significant green energy initiatives, which have encouraged renewable investments in the U.S.
Trump has pledged to withdraw the United States from international climate commitments and has appointed another skeptic of climate change, oil executive Chris Wright, as his energy secretary.
There are potential challenges arising from the energy majors' renewed focus on oil and gas. Demand growth in China, which has driven global prices for the last twenty years, is decelerating, with indications that gasoline and diesel consumption might be leveling off.
Meanwhile, OPEC and leading oil-producing allies have continually postponed plans to lift supply cuts, while countries like the United States increase their oil production.
Consequently, analysts anticipate that oil companies will encounter tighter financial conditions next year, with net debt for the top five Western oil companies projected to rise to $148 billion in 2024, up from $92 billion in 2022, according to LSEG estimates.