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Environmentalists and critics are having a field day after a second international energy major scaled back its renewable development ambitions in the space of just a few months.
But Big Oil’s renewed focus on profitable projects in oil and gas and the new, selective approach to wind, solar, and other clean energy solutions with the best economics could ease competition and cost pressures in the renewables industry, where the biggest developers have been complaining of soaring costs, supply chain issues, and record-high prices for green projects at government auctions.
Big Oil Pivots To Energy Security
Shell, like BP earlier this year, said last week it would invest more in oil and gas production and take “a measured approach” to projects in its Renewables and Energy Solutions division.
Both UK-based supermajors have cited energy security and the need to ensure an “orderly transition” in which people get the secure and affordable energy supply they need—and currently get from fossil fuels.
The energy transition narrative, from the oil and gas industry’s point of view, became part of the ‘energy trilemma’ as BP’s chief executive Bernard Looney has put it—delivering secure and affordable energy when and where it’s needed while raising investments in renewables and other low-carbon energy solutions.
“As the events of last year demonstrated, the sudden loss of even a small part of the world’s oil and gas can have severe economic and social costs. Reducing supply without also reducing demand inevitably leads to price spikes,” Looney said in February.
“And there’s a risk that volatility will undermine popular support for the transition – an outcome which nobody wants. We avoid that outcome by investing in today’s energy system as well as investing in the transition. And not or.”
Several months after BP’s pivot back to oil and gas – which, by the way, was welcomed by the market with shares rising – the other UK-based supermajor, Shell, said on its Capital Markets Day last week it would “take a measured approach” in renewables and “will selectively take development risk in renewable generation projects, diluting as they mature, and retaining access to the green electrons.”
The U.S. supermajors, Exxon and Chevron, haven’t invested and don’t plan to invest in wind and solar in the future; their priorities in low-carbon solutions include carbon capture and storage (CCS), hydrogen, and biofuels.
“At the end of the day, we’re a molecule company, not an electron company,” ExoxnMobil’s chief executive Darren Woods said earlier this month.
A Boon To Renewables Competitors
Investments in renewables are setting new records, and the money spent on solar power globally is set to eclipse that invested in oil production in 2023 for the first time ever.
Despite record investments in renewables, project economics have deteriorated in the past two years, also because of increased competition from Big Oil.
Two years ago in June, the biggest developer of offshore wind farms in the world, Denmark-based Ørsted, said it was concerned that the race of the biggest oil companies to enter offshore wind could lead to spikes in seabed acreage prices, which would undermine project competitiveness and the speed of technology development.
“Our concern is that if that inflation continues it will eventually come to the disadvantage of the speed with which we accelerate the technology or the competitiveness of the technology,” Ørsted’s CEO Mads Nipper told Reuters at the time.
Two years, a war in Europe, and a raging inflation in developed economies later, projects in offshore wind are threatened by the surging costs, especially for those farms where the price of electricity set to be produced from said projects is already contracted with governments for decades at fixed prices.
Just this month, Ørsted’s Nipper told the Financial Times that the UK needs to do more to support the offshore wind sector if those projects are to become worthy of the huge investments and one day be profitable.
At Ørsted’s Capital Markets Day in early June, Nipper said, “Based on where we believe we can create most value, we’ve made clear choices on where to play – and where not to play – in terms of regions, markets, and technologies.”
With Big Oil scaling back its wind and solar ambitions, “It’s become increasingly clear that it is not easy to make money in renewables and that is where the difference between us and most other actors is,” the executive told Bloomberg.
“We’re more experienced at this and probably better than them.”
According to Deepa Venkateswaran, an analyst with Sanford C Bernstein, the shift in the strategies of the supermajors to double down on oil and gas would benefit the renewable energy players.
“If they had decided to subsidize renewables with oil and gas profits, and they were willing to accept lower returns, that wouldn’t have been good for utilities,” Venkateswaran told Bloomberg.
