Oil Companies Ease off on Renewable Energy Investments

The robust performance of gas and crude oil prices this year, coupled with the soaring costs of renewable energy projects, has shifted the priorities of major European oil companies away from green investments. In 2023, the share of their investments allocated to renewable technologies is expected to decrease.

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While COP28 has set ambitious goals for tripling global renewable energy capacities by 2030, European oil giants find themselves slowing down their energy transition efforts. This shift is noteworthy, given that these companies were previously more engaged in the green energy sector compared to their American counterparts or oil-producing nations.

Announced earlier this year by BP and hinted at by Shell in June 2023, the reduction in their investments in green energy is now materializing. Elif Binici, oil and gas analyst at AlphaValue, notes that BP, which allocated 30% of its investments to low-carbon energies in 2022 (including the acquisition of the U.S. renewable gas specialist Archaea RNG), is expected to fall below 10% in 2023.

For Shell, 2023 is also a turning point. In November, the oil company and its partner, Ocean Winds, agreed to pay a $60 million penalty to exit a long-term power purchase agreement for an offshore plant off Massachusetts due to its declining profitability. Earlier in the year, Shell abandoned a biorefinery project in Singapore, deemed unprofitable. The proportion of the group's investments dedicated to low-carbon technologies is expected to drop to 10% this year, down from 16% last year.

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Smaller players are also following suit. In late October, Portuguese oil and gas company Galp stated that its target of 4 gigawatts of installed renewable capacity by 2025 would be challenging to achieve due to reduced project returns.

Not all companies are openly scaling back. Norwegian company Equinor, a pioneer in offshore wind, maintains its 2030 target but suggests a potential shift towards onshore wind projects rather than offshore. Ahmed Ben Salem, oil and gas analyst at OddoBHF, explains that the challenges faced by renewable energies this year, including supply chain issues, cost increases, and rising interest rates, question the legitimacy of these projects for oil and gas investors.

Competing with American oil companies to attract investors, European players prioritize preserving their returns and dividends to shareholders. High oil prices this year make oil and gas projects more financially appealing, creating a dilemma: high oil prices are needed to finance investments in energy transition, but when prices are high, the incentives to invest in renewables are weaker.

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TotalEnergies stands out in this context, communicating a new goal of achieving 100 terawatt-hours (TWh) of electricity produced by 2030. This adjustment, compared to the previous target of 100 gigawatts (GW) of installed renewable capacity, aims to reassure investors. TotalEnergies still aims to allocate nearly 30% of its investments to renewable energies and low-carbon technologies in 2023, up from 25% in 2022. Unlike its competitors, TotalEnergies engages in activities like selling electricity and vehicle charging, contributing to better profitability in its renewable projects.