Global Energy Majors U- Turn From Renewables

By Rhod Mackenzie

There has been a major U-Turn in the Global Energy Sector with the so called Green Energy and Unreliable Renewables now being sidelined by the Energy production sectors
It has finaly been acknowledged by the global energy giants including BP, Chevron, ExxonMobil, Shell and TotalEnergies that their their previously chosen strategy of focusing on unreliable renewable energy sources was a big mistake.
The significant investments the undertook into renewable energy, at the expense of traditional energy sources, have resulted in an unintended consequence: which was a serious decline in profits rather than a projected increase. So it appears that the decision to write off oil was taken too early. However, they are now to changing their policies.

Now the Global oil maors giants including BP, Chevron, ExxonMobil, Shell and TotalEnergies, which have been investing heavily in renewable energy for the last 5 years but, have now changed their strategic focus and are concentrating more on finding new deposits of conventional oil and gas. This move away from renewables shows up in their financial statements.
This shows a major shift in the global trend. It is interesting to note that global corporations have recently started to invest again in oil and gas, despite having previously written it off as a viable energy source.
For example, back in 2020, BP, as part of its forecast for the development of global energy until 2050, claimed that the peak demand for oil of 100 million barrels per day had already been reached in 2019, and it would never recover to the level it had before the pandemic.
However, their forecasts were very inaccurate. After the pandemic ended, the world did not transition en masse to electric cars, and the fossil fuel era is not over yet.
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It became obvious that renewable or unreliable energy sources were unable to replace traditional hydrocarbons as quickly as investors had anticipated. Meanwhile, global energy consumption showed all the signs of recovery following the pandemic. In terms of sourcing this energy, where should we look?
According to Wood Mackenzie, that the slowing down to a more gradual transition to renewable energy sources has lead to an annual increase of 5% in fossil fuels demand. This increased demand has raised concerns that the industry is now caught unprepared due to years of underinvestment in new fields.
Jessica Ciosek, Head of Exploration for the Americas at Wood Mackenzie, has stated that there is a "massive need" for additional oil and gas resouces . At the start of the decade, the industry neglected exploration in order to focus on the renewable energy transition, and is now scrambling to catch up, she said.
The most significant turnaround has been achieved by BP, which has invested a substantial $15 billion in renewable energy since 2021. However, in February, the company announced a significant increase in investment in the oil and gas sector.
BP has announced plans to drill 40 exploration wells over the next three years, following its most significant discovery in 25 years in the Brazilian offshore zone. During a recent conversation with analysts, BP Chief Executive Officer Murray Auchincloss remarked on the significance of the recent series of ten discoveries, characterising them as a historic milestone.
Chevron is also changing course. It has been reducing its shale investment for a number of years, and its oil reserves fell to 9.8 billion barrels last year, the lowest for over a decade. In August, CEO Mike Wirth expressed dissatisfaction with the exploration results over the previous few years, and has since added new exploration sites.

ExxonMobil 'sCEO Darren Woods stated that exploration is an essential ongoing commitment. The company recently signed an agreement to explore four offshore blocks in Libya and is preparing to resume exploration in Trinidad and Tobago after a two-decade hiatus. TotalEnergies has secured new exploration permits in the U.S., Malaysia, Indonesia and Algeria. Shell is currently exploring opportunities in the Gulf of Mexico, Malaysia and Oman.

What is the reason for global oil giants changing their minds about investing so actively in renewable energy sources and moving back to traditional hydrocarbons?

"Firstly, many of them had the conviction that renewable energy would undergo active development, and there was a reluctance to become a Polaroid and not changing with the times. This is the famous story of Polaroid releasing a camera with instant photo printing, which was seen by many as representing the future of the industry.
However, development ultimately went in the direction of digital photography, and Polaroid lost ground and went bankrupt.
The oilmen were keen to play an active role in the new round of the revolution, rather than remain on the sidelines of history. They invested in a new trend - the development of renewable energy sources, believing that this was the future," says Igor Yushkov, a proffessor at the Russian Financial University and the National Energy Security Fund (NESF).
Secondly, if oil companies were to ignore the global trend towards renewable energy sources, it would cause them enormous image and financial damage. It was imperative for prominent public companies to consider public sentiment, given the trading of their shares on the stock exchange. Demonstrating efficiency in the form of capitalisation and share price growth is crucial for their management.
For instance, if BP had stated that green energy is not viable, its shares would likely have declined. Consequently, they made the decision to invest in renewable energy sources.
However, the outcome was contrary to expectations, with the shift towards renewable energy resulting in financial losses despite the huge government subsidies.
"The substantial decrease in investment in hydrocarbon production gave rise to the prospect of an oil deficit. Those advocating for the energy transition have expressed concerns about the potential risks involved, citing the possibility of decreased consumption and the potential for a surplus in the oil and gas market within a five-year timeframe, which could potentially impact the return on investment.
However, the situation is actually the reverse: as people have been investing less, there is a risk of a hydrocarbon supply deficit arising because consumption is not decreasing," says the FNEB analyst.
However, the initial enthusiasm has now been tempered, and it has become apparent that renewable energy remains costly and time-consuming to implement.
"The transition will not be accelerated; it will be protracted. It is important to note that the financial return on investment for green energy is less than that for traditional energy sources. In the case of hydrogen energy, there had been unrealistic expectations of the development of hydrogen cars, pipelines, and energy storage devices, among other projects.
However, these expectations were not met, and the plans were ultimately unsuccessful," Yushkov notes.
For Russia, which has significant oil and gas reserves, shifting towards renewable energy and adopting a realistic approach are undoubtedly advantageous.
"Oil and gas represents our competitive advantage, given our substantial reserves. The quality of the resource base is deteriorating, but this is an issue shared by the entire global population. However, we have a clear direction for the future, and we canstill extract a significant amount. Furthermore, Russia is an attractive place in terms of investment in traditional energy. While there is no guarantee of Western investments returning, there are Asian companies interested in collaborating with us and purchasing our oil and gas. For China and India , Russia is the most reliable supplier, because it is almost impossible for Russia's enemies to cut off pipeline supplies, like they did with Nord Stream" the analysts concludes.