HOUSTON, Texas — Major energy companies are shrugging off pressure from environmental groups and some shareholders to abandon new spending on developing fossil fuels and instead invest in low-carbon energy sources as they anticipate high demand and earning potential in oil and gas persisting for years to come.
Energy giants such as Chevron and BP are sitting on vast amounts of cash from a record 2022 thanks to high oil and natural gas prices. The sector also has access to hundreds of billions of dollars in new financial incentives from the Inflation Reduction Act, the major climate and healthcare bill passed by Democrats and signed by President Joe Biden last year, to expand lower-carbon technologies, including renewable energy and carbon capture systems.
But some oil majors are now revisiting and scaling back earlier plans to reduce oil production, while others intend to continue spending modestly in those areas expected to enable the “green transition” compared to spending on the traditional oil and gas business.
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The retrenchment comes after years of efforts by environmentalists, and especially the Biden administration, to make it more difficult and costly to drill for oil. Market pressures, too, have made capital spending on oil projects less attractive. Those factors drove energy companies to spend more money to diversify and reduce greenhouse gas emissions in recent years to achieve net-zero by 2050 in accordance with the Paris climate agreement.
But those pressures are now being visibly overpowered by the economic and geopolitical turbulence associated with the war in Ukraine.
BP CEO Bernard Looney has reportedly privately expressed frustration at low returns in the company’s renewable energy ventures.
The company in February walked back its plan to cut its production of fossil fuels by 40% by 2030, committing to a new 25% cut by that year.
BP now plans to invest $8 billion over the next seven years in the “energy transition,” including technologies such as electric vehicle charging and renewable wind and solar and biofuels.
The company will also devote $8 billion to its oil and gas business over the same period.
“We’re all in on making the transition work,” Looney said during remarks Tuesday at CERAWeek by S&P Global, an annual energy conference. “We can’t take our eye off the energy system.”
BP competitor Shell recently announced that it is reviewing a previous plan to cut oil and gas production by between 1% and 2% per year by 2030. Wael Sawan, Shell’s CEO, said cutting production is “not healthy,” given where the global market is.
“I am of a firm view that the world will need oil and gas for a long time to come,” Sawan said.
Both Shell and BP are headquartered in Europe, where large banks and other financial institutions are moving more aggressively to constrain financing of fossil fuels compared to their U.S. counterparts.
The two companies have acted in kind, putting production cuts on the table and spending more than their U.S. competitors on renewable energy.
“They’re facing some different pressures than we face,” one industry source at a U.S. major told the Washington Examiner, pointing to different regulatory environments and investor demands favoring green energy that Europe-based majors face.
At Chevron, which earned $35.5 billion in 2022, the company increased its 2023 capital budget by 25% from the year before, focusing billions of dollars on production in the Permian Basin of Texas and New Mexico and offshore in the Gulf of Mexico.
Chevron announced record oil and gas production in 2022 and will continue growing, chairman and CEO Mike Wirth said during remarks opening the CERAWeek conference.
The world runs on “System A” and “would like to go to System B,” Wirth said, but he called for that shift to be “orderly.”
“Be careful about turning System A off prematurely and depending upon a system that doesn’t yet exist, that hasn’t been scaled and proven at the conditions that are needed to provide the energy supply of the world,” he said.
For ExxonMobil, which brought in higher earnings than any Western energy major in 2022, spending on oil and gas exploration and production activities is expected to approximate the company’s six-year budget for lower-carbon business opportunities.
Of the $23 billion to $25 billion in capital and exploration expenses Exxon expects to incur in 2023, roughly half is planned for upstream oil and gas activities.
Where Exxon is investing in low-carbon, it’s choosing technologies such as carbon sequestration and hydrogen, both of which many environmentalists say are false solutions because they would work alongside, rather than replace, oil and gas.
Prices for oil and gas are well down from their 2022 peaks, but the increased spending on exploration and production comes alongside dozens of public demands from Biden and other administration officials that the sector, particularly large integrated energy companies, increase supplies.
Biden requested more production to suppress energy prices at home and to provide more shipments to allies in Europe, whose imports from Russia are rapidly declining.
The administration established a task force with Europe to facilitate more liquefied natural gas shipments to allies there through at least 2030. The United States became the European Union’s No. 1 LNG supplier in 2022.
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Amos Hochstein, a top energy diplomat at the State Department who is helping lead the joint task force, said the administration is committed to a transition to greener energy sources but stressed the global economy needs more fossil fuels now, a reality made more certain by the war.
“We had a number of different issues [when the war started] — one was the energy policy, the clean energy future that we were trying to accelerate, and making sure that an energy crisis … doesn’t take us off course on all of our fronts, both national security and energy policy,” Hochstein said. “And we took some extraordinary steps that we never thought we would ever take within the energy system.”
