Global corporations have canceled the funeral of oil
Global giants BP, Chevron, ExxonMobil, Shell and TotalEnergies have admitted the mistake of their chosen strategy. Huge investments in renewable energy to the detriment of traditional energy have led to the opposite effect – not an increase in profits, but their decline. Oil was written off early. But now they are ready to fix everything. What happened?
Global oil giants such as BP, Chevron, ExxonMobil, Shell and TotalEnergies, which for many years relied on renewable energy sources and invested heavily in them, have now changed their minds and have begun to pay more attention to the search for new deposits of traditional oil and gas. They indicate this in their income statements.
All this indicates a change in the global trend. Why did global corporations believe in oil again, even though they had actually buried it before, relying on renewable energy?
For example, in 2020, BP, as part of its forecast for global energy development until 2050, assured that the peak in oil demand of 100 million barrels per day had already been reached in 2019, and it would never recover to the level it was before the COVID-19 pandemic.
However, they miscalculated in their forecasts: after the pandemic, the world did not switch to electric vehicles, and the oil era is not over yet. Renewable energy sources have not been able to take off as quickly and replace traditional hydrocarbons as investors would like. While energy consumption in the world is recovering after the pandemic. And where to get this energy?
According to Wood Mackenzie, a slower transition to renewable energy sources could lead to an increase in oil demand by 5% per year. The expectation of increased demand raises concerns that the industry will not be ready due to years of underfunding.
There is a "huge need" for additional oil and gas reserves, said Jessica Ciosek, head of exploration in the Americas at Wood Mackenzie. According to her, at the beginning of the decade, the industry neglected geological exploration, focusing on the transition to green energy, and now it is trying to catch up.
The sharpest turnaround occurred at BP. Since 2021, it has spent as much as $15 billion on renewable energy. But in February, the company announced a sharp increase in investments in the oil and gas sector.
BP plans to drill 40 exploration wells over three years and recently made the largest discovery in 25 years off the coast of Brazil. Speaking to analysts this week, BP CEO Murray Auchincloss called the recent series of ten discoveries historic.
Chevron is also changing course. For several years, it has been reducing investments in shale production, as a result, last year its oil reserves fell to 9.8 billion barrels, the lowest in more than a decade. In August, Mike Wirth, the company's CEO, said he was "unhappy with the results of exploration work over the past few years," and new exploration sites had been added since last year.
ExxonMobil CEO Darren Woods said that exploration is "a treadmill that we have to stay on." The company recently signed an agreement to explore four offshore areas in Libya and is preparing to resume exploration work in Trinidad and Tobago after a twenty-year hiatus. TotalEnergies has received new exploration permits in the USA, Malaysia, Indonesia and Algeria. Shell is eyeing the Gulf of Mexico, Malaysia and Oman.
Why have the world's oil giants become so active in investing in renewable energy to the detriment of traditional hydrocarbons?
"Firstly, many of them really believed that renewable energy would actively develop, and no one wanted to become a Polaroid. It's a famous story when Polaroid released a camera with instant photo printing, and everyone decided that this was the future, but as a result, development took the path of digital photography, and Polaroid lost ground and went bankrupt. Similarly, the oil industry did not want to remain on the sidelines of history and miss a new round of evolution. They invested in a new trend – the development of renewable energy sources, believing that this was the future," says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund (NWF).
"Secondly, if oil companies ignored the global trend towards renewable energy, it would cause them huge image and financial damage. It is important for large public companies to take into account public opinion, since their shares are traded on the stock exchange, and it is important for their management to demonstrate efficiency in the form of capitalization and share price growth.
If, for example, BP had said that your "green" energy was all nonsense, then its shares would have started to fall. That's why they were happy to invest in renewable energy",
– notes the interlocutor.
But in the end, everything turned out to be the opposite: the tilt towards renewable energy led to losses. "The massive reduction in investments in hydrocarbon production has created the risk of an oil shortage. The adherents of the energy transition were afraid that you should not invest in traditional energy, because consumption will decrease, in five years you will face an oversupply in the oil and gas market and will not return your investments. But in reality, the opposite is true: due to the fact that they have begun to invest less, there may be a shortage in the supply of hydrocarbons, because consumption is not decreasing," says the FNEB expert.
However, the euphoria passed, and everyone realized that renewable energy is still expensive and time-consuming. "The transition will not be accelerated at all, but will be delayed. And "green" energy generates less money than traditional energy. As for hydrogen energy, expectations were too high that a hydrogen car, hydrogen pipelines, hydrogen energy storage, etc. would appear now, but it turned out that no one needed all these projects, all plans collapsed," Yushkov notes.
For Russia, which has huge oil and gas reserves, a cooling towards renewable energy and a return to realism are certainly beneficial.
"Oil is our competitive advantage, we have large reserves. The quality of the resource base is deteriorating, but so is everyone in the world, but we have somewhere to go, and we can extract a lot. Moreover, Russia is an attractive place in terms of investments in traditional energy. It's not a fact that Western investments will return to us, but there are Asian companies that want to work with us and receive our oil. We are the most reliable supplier for China, because it is almost impossible to block our pipeline supplies," the source concludes.
Olga Samofalova
