European supermajors have been all but shouting about it: they are diversifying into renewable energy, and they will all be net-zero companies by 2050, in line with Paris Agreement targets. But who will get there first?
Shell, BP, and Total have all been pretty active in the renewables department in the past few years, with motivation flowing in from investors who want to see a more sustainable business that will continue to maintain strong dividends wherever oil prices go, from governments pushing for cleaner energy, and from environmental activists pressuring Big Oil into taking responsibility for its carbon footprint. So, how have they been doing?
Shell: the world’s top utility?
Last year, the Anglo-Dutch supermajor revealed plans to become the world’s largest utility by 2030. What’s more, it made it clear that as the largest utility, it would rely on a mix of energy sources, from gas to renewables.
Indeed, over the last year, Shell has been actively investing in all sorts of electricity ventures, including acquisitions of gas suppliers and distributors, but also investments in solar and wind power projects. Notable among them were the 804-MW Mayflower offshore wind project that the authorities of Massachusetts approved last year and the 120-MW solar farm that Shell said earlier this year it would build in Queensland—its first utility-scale renewable project in Australia.
It is telling that when oil prices crashed in March and Big Oil had to start revising spending plans, Shell announced cuts in its core business—and in dividends—but almost no changes in its so-called new energy business. CEO Ben van Beurden noted that the gas and new energy division would bear a quarter of the total investment cuts, but the new energy segment would see little change to investment plans.
Related: Oil & Gas Still King Despite Renewable Hype
It looks like Shell is doing a lot to become greener. It has revised its carbon footprint goals up, planning to reduce its products’ footprint by 65 percent by 2050 and by 30 percent by 2030. That’s up from 50 percent by 2050 and 20 percent by 2030, respectively, under earlier plans. To do this, Shell will boost its production of renewable power, biofuels, and hydrogen.
But is this enough?
BP on the reinvention path
In its first-quarter report for this year, BP said it would reduce its annual capex by 25 percent to $12 billion. Of this, $1 billion would come from downstream operations and the rest from the upstream segment. “Meanwhile our investment in low-carbon activities remain unchanged, and in 2020 we expect to invest around $500 million,” chief executive Bernard Looney said.
Looney said in March that over the coming years, BP would be increasing investments in low and no carbon projects while reducing investment in oil and gas. The scales will be moving, and in a few decades, if the company sticks to its plan, its core business may no longer be its core business, as unbelievable as this may sound.
Like Shell, BP plans to be a net-zero energy company by 2050. Unlike Shell, BP’s emission reduction goals are more modest, at 50 percent of the total emissions produced by the products the company sells. Yet BP is no less ambitious than its peer: it has a substantial presence in biofuels and solar, as well as wind. BP is also investing in energy management, arguing such solutions help end-consumers of energy lower their own carbon footprint, contributing to the overall decline.
Most recently, BP went a step further, launching a feasibility study for the production of hydrogen from solar and wind farms—the so-called green hydrogen that many see as a feature of the next stage in the world’s energy transition. The supermajor, like its peer Shell, is making long-term clean energy plans. But is this the best a supermajor can do?
Total on a renewable spree
Total has been investing in renewable energy, storage systems, and system developers, and even EV batteries like there’s no tomorrow. In a certain sense, there is no tomorrow, or at least, no tomorrow that will be like yesterday for the energy industry. So, the French supermajor is preparing.
In its first-quarter report, Total listed as many as six acquisitions and investments in solar, wind, energy storage, and its first foray into EV batteries. At the same time, the French supermajor announced spending cuts of 25 percent to $14 billion for the year but, like BP, kept its low-carbon business untouched, with spending planned at a generous $1.5-2 billion.
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Also aiming for net-zero in emissions by 2050, Total has plans to have its low-carbon electricity operations come to account for 15 to 20 percent of its sales by 2040. To this end, Total is building a portfolio of renewable power generation projects to reach a total of 25 GW in installed capacity from renewable sources by 2025. But is there anything more that can be done?
Well, Norway’s Equinor is investing more in renewables than in its core business over the next five years, according to Rystad Energy. The former Statoil is firmly on renewable ground from now on, it seems. But this doesn’t mean what the three supermajors are doing is nothing. It may not be enough, and according to green lobbyists, it is far from enough, as investments in renewables are a tiny portion of overall spending for all except Total. And yet it is undoubtedly more than any of them were doing thirty years ago and maybe even ten years ago.
The renewable shift is accelerating; this is obvious. Where it will eventually lead remains to be seen, but Shell, BP, and Total are equipping themselves for the journey, and it looks like they are equipping themselves well. They will still be selling oil and gas as long as there is demand for these. But they will also be selling electricity, and if their plans pan out, a lot of this electricity will come from zero-carbon sources.
By Irina Slav for Oilprice.com
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The industry will emerge leaner from the coronavirus ordeal but it will have no alternative but to cut dividends drastically if it is to survive rather than sink under the weight of its outstanding debts. Many of the oil majors are already opting for cutting this route.
Moreover, the industry is set to see its total annual revenues plunge by $1 trillion this year from $2.47 trillion in 2019 to $1.47 trillion this year. The projection for 2021 is $1.79 trillion. This means that the industry will have to focus all its available resources on its core business, namely oil and gas.
There was no ambiguity whatsoever when the CEOs of ExxonMobil and Shell the world’s two biggest supermajors recently made their positions on peak oil demand very clear. Darren Woods the chief executive of ExxonMobil declared that “the long-term fundamentals that drive our business have not changed." This was echoed by Shell’s CEO Ben Van Beurden who said that it is entirely legitimate to invest in oil and gas because the world demands it". "We have no choice." Even the International Energy Agency (IEA) joined them by saying that peak oil demand is years away.
Indeed, oil and natural gas will continue to dominate the supermajors’ core business and the global energy scene throughout the 21st century and probably far beyond.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
This question was asked several times. Yes, there is something that I can suggest.
What more can the major oil companies in the U.S. do?
We'll get there eventually. But first we'll need to put back the environmental protections that the current administrations relishes taking down.
Today, we are seeing socially responsible investors give the edge to companies taking a longer view by protecting clean air and water. Our climate should operate within natural cycles, and not be skewed by massively dumped pollutants. We know what to do -- if we look beyond our noses.