BP, Shell, and Exxon Signal One Thing: Oil Isn’t Going Anywhere

Energy News Beat

BP, Shell, Exxon, and Chevron are boosting fossil fuel investments after disappointing returns on green energy ventures.
BP is increasing oil and gas spending by 25% and Shell is prioritizing LNG growth.
U.S. supermajors stayed the course and are now outperforming.

Ever since BP admitted that its attempt to go green had ended in a disaster, the flow of news from the energy industry has been in one single direction: back to oil and gas, which make money. Indeed, Big Oil has finally accepted it will not transform into Big Green Power and has gone back to what it does best: hydrocarbons.

In late February, when it made its very unsurprising admission, BP said it would boost spending on oil and gas production by 25% annually while slashing investments in transition-related business by 70%. The new strategy did not come easily to BP’s leadership, by the way. It came as the result of a pressure campaign from activist investor Elliot Management, which called BP out on its unrealistic expectations from the transition gamble.

As part of turnaround plans, the supermajor eyes launching an impressive 27 new oil and gas projects over the next five years, the FT reported in an overview of the company’s midterm strategy, noting, however, that even with these projects, BP’s 2030 oil and gas production will be slightly lower than its 2019 production—per plans. The important bit, however, is that it will not be reducing this production as it previously intended to do amid its green pivot.

Now, while BP has made no special mention of natural gas as a focus for its strategy, the overall shift in targets to refocus on the core business speaks volumes, and these volumes are not in favor of switching from hydrocarbons to electricity. The supermajor just announced the final investment decision on a Trinidad and Tobago gas project, due to start producing in two years with a peak output of 62,000 barrels of oil equivalent daily. It also got an approval from the Iraqi government to start the development of two oil fields in the north. BP is very much back.

Meanwhile, Shell is acting like it never left. Another troubled European supermajor, the Anglo-Dutch company has had a less winding path to the realization that any massive bets on an energy transition from hydrocarbons to the weather are high-risk. Shell was ordered by a court to cut its oil and gas production to reduce emissions, but it got lucky with its appeal, and the second court struck down that order right about the time it was becoming clear investments in wind and solar were not living up to expectations.

Now, Shell is focusing on gas. The company recently updated its immediate plans, reducing its spending target for the next three years and prioritizing natural gas. Between 2025 and 2028, the supermajor plans to spend between $20 and $22 billion, which is down from a 2023 annual spending plan of between $22 and 25 billion per year. For its production targets, Shell is eyeing a 4-5% increase in annual LNG sales in the years until 2030.

Despite this return to business as usual—which the U.S. supermajors never departed from—some commentators continue to argue that the days of the oil and gas industry are numbered. Despite mounting evidence to the contrary, arguments are being put forward that the energy transition is “unstoppable”, that it is successfully displacing oil and gas, and that the traditional energy business is doomed, despite the right short-term outlook. In this context, “short term” actually refers to at least two decades.

In truth, the fact that Exxon, Chevron, and the rest of the big U.S. oil and gas players have been consistently outperforming their European peers is evidence enough that the above arguments are questionable, to put it mildly. The supermajors that continued to focus on their core business while making some concessions to the transition camp but without overexerting themselves financially have done a lot better than the green pivoters in Europe.

Exxon is planning to boost its oil and gas production by 18% over the next five years—to which end it will increase spending, defying the argument that Big Oil is cutting spending because it knows oil is doomed. Chevron is in the process of buying Hess Corp. and its prolific assets in Guyana, and it just started a major expansion at the Tengiz field in Kazakhstan that will add 260,000 bpd to the mammoth field’s production. American Big Oil does not seem to be buying the peak oil scare.

Neither does the company that may be the one exception to the rule that the transition doesn’t work for Big Oil. TotalEnergies has been an enthusiastic adopter of a diversification away from oil and gas, and into low-carbon electricity. However, while doing this, the French supermajor has somehow managed to keep focused on its core business. In a recent update, TotalEnergies boasted substantial emission reductions while booking the highest return on average capital employed among its peers, at 14.8%. As luck and reality would have it, TotalEnergies’ EACOP project in Uganda just got the first tranche of much-needed financing. Peak oil is still not on the horizon if the biggest in the business and their plans are any indication.

By Irina Slav for Oilprice.com