(Oil Price) – At the 2024 edition of CERAWeek, several energy executives openly called for a rethink of the energy transition. That had never happened before. Before, everyone was on board with a move from oil and gas to electricity. Fast forward a year, and it’s official: Big Oil is done with the transition and is returning to what it does best—oil and gas.
It was BP that put the period at the end of the industry’s attempts to transform into power companies making money by building and operating wind turbines and solar installations. This was only fitting since BP was among the most ambitious of the Big Oil majors when it came to the transition.
“I lived in America long enough to know that when you’re getting an electric F-150, the world is going electric,” Bloomberg quoted now-former BP chief executive Bernard Looney as saying just two years ago in a story about the demise of the supermajors’ transition ambitions. One might argue whether Looney could have been more wrong about something or not, but one thing is for sure—Ford’s sales numbers have proven beyond the shadow of a doubt that when you’re getting an electric F-150, the world is not going electric. The carmaker has lost billions on its EV push, just like every other carmakers in the United States.
“We should abandon the fantasy of phasing out oil and gas, and instead invest in them adequately,” Aramco’s chief executive Amin Nasser said at last year’s CERAWeek. “The world population is going to increase by about 25% between now and 2050, but energy demand will increase faster than that,” Sheikh Nawaf al-Sabah, the chief executive of Kuwait Petroleum Corporation, said in a separate elaboration on that point.
Indeed, energy demand is growing at a rate that transition hopefuls are discovering cannot be sustained with wind and solar—and it needs to be sustained; otherwise, governments will have large numbers of really unhappy people on their hands. Europe is, as usual, a good case in point. The continent, especially its northwestern parts, suffered an extended period of low wind speeds this winter—something typical for the season—which led to a surge in natural gas demand and, consequently, prices.
So, ironic as it may seem, wind and solar are not a sustainable source of energy. Big Oil has only realized this recently, along with everyone else who invested big in these alternative energy sources, in the belief that forecasts about the inexorable displacement of oil by electricity were accurate. And once it realized it, it began to pull out, slowly and on the quiet at first and, now, quite openly because everyone is talking about how wind and solar are not making money.
The trend is especially pronounced with European supermajors because they went all-in on the transition, unlike the Americans, who took a much more guarded approach, focusing predominantly on carbon capture and reducing the emissions from their own operations. The stock price divergence between European Big Oil and American Big Oil is clear evidence that it was the Americans who had the smart approach. The Europeans have suffered billions in combined impairments on their wind and solar projects, much higher than expected costs and much lower than expected returns. Meanwhile, demand for oil and gas has continued to grow.
“What would be dangerous and irresponsible is cutting oil and gas production so that the cost of living, as we saw last year, starts to shoot up again,” Shell’s chief executive Wale Sawan said last year in response to emotional remarks by the head of the United Nations, Antonio Guterres that “Investing in new fossil fuels infrastructure is moral and economic madness.”
Shell reversed its bet on wind and solar before BP, refocusing on its core business. That reversal got a major legal boost after a Dutch court of appeal handed the supermajor a win against an environmentalist group that had sued it to force it to reduce oil and gas production in a bid to curb emissions. The original court ruling had included an order for a 45% cut to oil and gas production. Now, this is not going to happen, although the latest ruling is being challenged.
Big Oil is done with the transition. It is not going to exit everything all at once and it might even keep some transition businesses, as long as they are profitable. The rest is falling back on what has been tried, tested, and found to be a moneymaker: oil and gas. It is, after all, what shareholders want, and the reason they want it is that for all their environmentalist considerations that used to direct decision-making a few short years ago, most shareholders are still in the investment game because they want to make profits, not save the planet.
By Irina Slav for Oilprice.com
