BP has announced that it will “fundamentally reset” its strategy following a sharp decline in its profits, signaling a potential shift in its approach to renewable energy.
The oil giant’s net income for 2024 dropped to $8.9 billion, down from $13.8 billion the previous year, mainly due to lower oil and gas prices and reduced profits from its refineries.
The company’s upcoming strategy update, expected later this month, is anticipated to include scaling back on renewable energy projects and refocusing on oil and gas production. BP’s decision follows similar moves from rivals such as Shell and Equinor, which have also adjusted their renewable energy investments amid fluctuating market conditions.
BP initially set an ambitious target five years ago to achieve 50GW of renewable generation capacity by 2030, but it is now expected to abandon this goal. Instead, the company may cut its commitment to renewables by as much as half, scaling back from its previous $10 billion investment plan until 2030. In December, BP took a step towards this strategy shift by transferring the majority of its offshore wind assets into a joint venture with the Japanese company Jera, effectively separating them from the company’s core fossil fuel business. Additionally, BP froze new wind projects in June 2024.
BP’s profit decline and shift in strategy have raised concerns among investors, with activist shareholder Elliott Management acquiring a stake in the company. The hedge fund is expected to push for significant changes, potentially calling for boardroom shake-ups or even a company restructuring. According to analysts, this pressure is fueled by BP’s poor performance compared to other energy companies, particularly those in the US, which have maintained a focus on fossil fuels.
Russ Mould, an analyst at AJ Bell, emphasized that BP needs to present a “clear and credible plan” if it hopes to regain investor confidence. The company’s recent performance has made it vulnerable to takeover interest, and its share price has significantly underperformed compared to its rivals.
The decision to scale back green investments is in line with a broader trend among oil companies, which are increasingly prioritizing fossil fuel production despite the global push for cleaner energy. BP’s CEO, Murray Auchincloss, has indicated that the company will restructure its low-carbon business in a way that is more “capital-light,” while continuing to pursue new fossil fuel projects. This marks a departure from the company’s previous commitment under former CEO Bernard Looney to reduce oil and gas production by 2030 and focus more heavily on renewable energy investments.
Other major oil companies, such as Norwegian energy giant Equinor and Shell, have also dialed back their renewable energy investments in recent months, citing challenges in profitability and slower-than-expected progress in the transition to lower-carbon energy.
The shift in BP’s strategy has drawn criticism from environmental groups. Global Witness, for example, pointed out that BP invested nearly £9 billion in oil and gas last year, compared to just £1.3 billion in renewables and low-carbon energy. Greenpeace also voiced concerns, with spokesperson Elena Polisano urging governments to direct funds from oil companies towards extreme weather recovery efforts, citing the growing pressure on companies like BP to contribute to climate change mitigation.
Despite these concerns, BP’s decision reflects the ongoing tensions within the energy sector, where profitability remains a key driver for major companies. Former BP strategy head Nick Butler noted that oil firms typically invest in renewable energy projects only when they can see a clear profit potential, suggesting that the energy transition may be moving more slowly than anticipated.
BP’s upcoming investor day, scheduled for February 26, is expected to reveal the company’s new direction. The changes are likely to include a reduction in BP’s focus on renewables, a shift back to its core oil and gas business, and potentially a scaling back of its carbon emission reduction targets. The company is also aiming to achieve $2 billion in cost savings, which will involve job cuts amounting to 5% of its global workforce.
BBC, the Guardian, and Sky News contributed to this report.
