Exxon, Shell & Co. are holding back on green investments

Dusseldorf Never in their history have the big oil companies made as much money as they did last year: Exxon Mobil, Chevron, Shell, BP, Equinor and Total Energies made a profit of $204 billion. That is twice as much as in the previous year. 2021 was already a record.

New Shell CEO Wael Sawan said of the billions in profit: “What we are seeing here is the reality of an underinvested system. The result is volatile energy prices like last year, especially in the gas sector.” On January 1, the former head of Shell’s gas and renewables segment succeeded long-time boss Ben van Beurden.

The British oil and gas company doubled its profits last year from $20 billion to $40 billion. Despite the record results, Shell has now announced that it will not increase its investments in green energy for the time being. In 2022, the company invested 3.4 billion in solar, wind and other low-carbon solutions.

Instead of concentrating on the green conversion, the new Shell CEO plans to further expand the gas business in 2023: “We won’t be able to do without fossil energies for quite a while,” comments the manager. Oil companies like Exxon and BP are also putting more emphasis on the fossil fuel business again. They want to benefit from the increasing demand for oil and gas.

But despite rising investments, supply is likely to be scarce and prices are likely to remain at a high level.

In 2023, demand could increase by 1.9 million to 101.7 million barrels per day, the highest level ever, according to estimates by the International Energy Agency (IEA). China could account for nearly half of global demand growth, experts say, although the form and speed at which the country reopens after the pandemic remains uncertain.

Situation on the energy markets remains tense

The oil companies have been benefiting from the skyrocketing energy prices for more than a year. In the summer of 2022, the price of a barrel of North Sea Brent rose to a ten-year high of just under $125.

Because Russia, as one of the most important exporters of oil and gas, failed primarily as a supplier for Europe, fossil raw materials became a scarce commodity worldwide. In any case, the situation on the oil and gas markets has been tense since the corona pandemic. Meanwhile, the industry shut down expensive conveyor systems due to the slump in demand. Many of them have not yet been put back into full operation to this day.

oil price

85

U.S. dollar

is the current rate for a barrel of Brent.

Above all, the overall situation drove the prices for natural gas to unimagined heights: Compared to the pre-crisis level, one megawatt hour of gas briefly resulted in a 1000 percent premium. In the meantime, prices on the world market have calmed down again. A barrel of North Sea oil Brent is currently at 85 US dollars. One megawatt hour of gas for just under 60 euros. For Big Oil, the high prices meant a real rain of money.

>> Also read: After record profits in the oil industry: Exxon sues against the EU excess profit tax

Due to the currently high demand for oil and gas, the British BP group wants to produce more fossil raw materials by 2030 than planned. The London-based company originally wanted to reduce its output by 40 percent compared to 2019. Now it should only be 25 percent.

“We will invest more in today’s energy system,” said BP CEO Bernard Looney at the balance sheet presentation in London. He announced that the company would invest an additional eight billion dollars in the traditional fossil fuel business by 2030. Just as much should also flow into the expansion of renewables. For comparison: In 2022 alone, BP invested more than eight billion dollars in oil and gas projects.

Overall, the Western oil companies are reluctant to make large investments despite rising demand. “That’s why we will continue to see scarce markets and volatile prices,” predicts the head of the US group Exxon Mobil, Darren Woods. The head of the French oil and gas group Total Energies, Patrick Pouyanné, does not rule out a renewed increase to up to $100 per barrel of oil.

The five largest western oil companies (Exxon Mobil, Chevron, Shell, BP and Total Energies) are increasing their investments in the exploration of new oil and gas projects.

Instead of investments, the record profits flow into higher dividends

But the increases are just high enough to “counteract the effects of cost inflation,” explains oil expert Rebecca Fitz of the management consultancy BCG. “The industry’s big players remain very focused on capital allocation and are focused on value creation and returns rather than significant growth,” Fitz said.

In practice, this means that instead of investments, the record profits flow into higher dividends and share buybacks. All five companies are significantly increasing the distributions to shareholders for the current year. Sometimes by up to 10 to 15 percent.

Total planned share buybacks over the next two years is well over $100 billion. The prices of the oil companies increased noticeably after the announcement.

>> Also read: Energy company Shell doubled its profit in 2022 – shareholders are the winners

Environmentalists, on the other hand, are anything but happy about Big Oil’s decisions. After the record results, the organization Client Earth in the UK even filed a lawsuit against each and every one of the Shell executives. The accusation: the board members did not adequately prepare the oil and gas company for the risks of climate change.

Client Earth is not only a non-profit environmental law organisation, but also a shareholder in Shell. The activists are supported in their lawsuit by a small group of pension funds and asset managers.

As recently as 2021, Shell lost a high-profile case in the Netherlands, led by the organization Milieudefensie. The court ordered Shell to reduce its emissions by 45 percent by 2030 compared to 2019 levels. The oil company has appealed the decision.

More: “We had to pull the emergency brake”: Why the new German solar boom is faltering

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