Oil Giants Shift Focus Away From Green Energy Amid Strong Profits in Fossil Fuels
As world leaders converge at a global climate summit, a notable shift is occurring in the oil industry, with major players like Exxon Mobil scaling back their renewable energy ambitions and refocusing on fossil fuels, the New York Times reports.
This pivot comes after a period of market turmoil and amidst a growing appetite from investors for higher returns, a trend that contrasts sharply with earlier promises by oil giants to transition toward wind, solar, and other green technologies.
When the pandemic hit in 2020, global demand for oil plummeted, and the prices of fossil fuels took a sharp dive. At that time, many oil companies, grappling with losses exceeding $100 billion, began to pivot toward renewable energy, believing that clean energy could not only reduce emissions but also become a more profitable long-term business. Investors were pushing for these companies to embrace wind and solar projects, believing the future lay in green energy.
However, some industry leaders, like Darren Woods, CEO of Exxon Mobil, resisted this push. In a recent interview, Woods shared that while there was significant pressure to enter the wind and solar business, Exxon did not feel it had the necessary expertise. Instead, the company focused on investments in hydrogen and lithium extraction, areas more aligned with its traditional oil and gas operations.
The decision to stay the course on fossil fuels has paid off. Exxon Mobil’s stock price has surged by more than 70 percent since late 2019, reaching a record market value of nearly $560 billion in October, although it has since slipped slightly to around $524 billion. This success stands in stark contrast to other oil companies, such as BP and Shell, which embraced renewable energy. BP, for example, saw its stock drop by around 19 percent during the same period, while Shell’s stock climbed only about 15 percent.
The diverging fortunes of these companies highlight a critical issue in the fight against climate change: While the risks of fossil fuel emissions are well documented, with scientists warning of catastrophic consequences from global warming, investors are more focused on short-term profits rather than long-term environmental impact. Christopher Knittel, a professor of energy economics at MIT, emphasized that to curb emissions effectively, both firms and consumers need to be financially incentivized to switch to low-carbon alternatives.
The rise in oil and gas profits over the past few years has further incentivized companies to focus on fossil fuels. In 2023, the median return on capital for major oil firms topped 11 percent, a stark contrast to the negative returns seen in 2020. In comparison, top renewable energy companies struggled to achieve returns higher than 2 percent, a key metric for profitability.
BP, which had pledged in 2020 to reduce its oil and gas production by 40 percent by the end of the decade, recently backtracked on its ambitious plans. The company announced it would increase its fossil fuel investments and cut back on its spending in renewable energy, writing off $1.1 billion in offshore wind investments last year. Similarly, Shell has softened its emissions-reduction goals and scaled back its expectations for growth in renewable energy, with CEO Wael Sawan admitting that the company does not see itself having a competitive advantage in renewable generation.
In the US, where environmental investing has become increasingly politicized, the focus of investors has shifted from the environmental impact of energy projects to their financial viability. Companies that had previously pursued renewable energy projects at the expense of their bottom lines are now re-centering their strategies to focus on more profitable ventures. Toby Rice, CEO of EQT, a natural gas producer, stated that some companies had “jumped the gun” by pursuing green energy too quickly, only to see devastating effects on their financial performance.
This shift in strategy also reflects the volatility of the oil industry. While oil and gas can bring significant profits, especially in periods of high demand and rising prices, these profits can evaporate just as quickly when prices dip, as seen with the recent fall in US crude oil prices from $78 per barrel to below $70. In contrast, renewable energy, which often offers more stable returns, continues to attract substantial investment, with the International Energy Agency noting that nearly twice as much capital is flowing into clean energy projects as into fossil fuels.
Despite this, the long-term trend toward clean energy investment is still evident. According to the IEA, global production of oil is expected to exceed demand by more than one million barrels per day next year, putting downward pressure on prices. This may test the profitability of oil companies, especially if prices remain low. Amy Myers Jaffe, director of the Energy, Climate Justice, and Sustainability Lab at New York University, pointed out that it remains to be seen how these companies will fare if oil prices decline further.
