On 11th February, the company made headlines with its order for a 100MW hydrogen Proton Exchange Membrane (PEM) electrolyser in Lingen, partnering with Accelera Electrolysers by Cummins. This move seemed to reinforce BP’s commitment to green hydrogen production.
However, just a fortnight later, on 26th February, BP announced a significant strategic shift—scaling back its renewables programme by £5 billion per year whilst ramping up traditional oil and gas exploration by £10 billion annually.
This pattern isn’t unique to BP; other European energy giants with deep roots in oil and gas are making similar moves. The pressure from investors for higher returns and the widening performance gap with US oil majors like Exxon Mobil and Chevron are pushing companies back toward fossil fuels. The performance gap has been widening due to divergent strategies, market conditions, and policy environments. The factors contributing to this divergence are:
1. Strategic Focus 🎯
U.S. Companies: U.S. oil and gas firms have prioritised short-term profitability and shareholder returns, focusing heavily on traditional oil and gas production. This includes increasing capital expenditures (57% of U.S. executives anticipate higher spending in 2025) to boost production, particularly in resource-rich areas like the Permian Basin. U.S. firms have also embraced mergers and acquisitions (M&A) to consolidate assets and improve efficiency.
European Companies: European oil majors, such as TotalEnergies and BP, were increasingly shifting toward renewable energy and low-carbon initiatives, driven by stricter environmental policies and shareholder pressure. For instance, TotalEnergies allocated $5.88 billion to renewables in 2023, a much larger proportion than U.S. peers like ExxonMobil. This focus on diversification has slowed short-term profitability but aligns with long-term energy transition goals.
2. Policy Environment
U.S.: The regulatory environment under the new administration has remained relatively favourable for traditional oil and gas operations, including easier permitting for drilling on federal lands. This has allowed U.S. companies to maintain robust production levels despite global uncertainties.
Europe: European governments have implemented stricter climate policies, including carbon taxes and renewable energy mandates, which have pressured oil companies to accelerate their transition strategies. These policies have led to higher operational costs for traditional oil and gas operations compared to the U.S.
3. Capital Discipline
U.S. Companies: U.S. firms have maintained strong capital discipline but are more focused on immediate returns through dividends and share buybacks rather than reinvesting heavily in low-carbon technologies.
European Companies: European firms have been allocating significant portions of their capital expenditure to renewable energy projects, which require longer payback periods but align with global decarbonisation trends.
4. Market Conditions
U.S. Market: The U.S. benefits from abundant domestic resources (e.g., shale oil) and a strong export market for liquefied natural gas (LNG), supported by growing global demand for LNG infrastructure. This has bolstered revenue streams for U.S. companies.
European Market: Europe faces challenges such as higher energy costs, reliance on imported hydrocarbons, and weaker refining margins due to increased competition from capacity additions in other regions (e.g., Africa, Middle East).
5. Financial Performance
U.S. Companies: Stronger financial performance is evident in higher cash flows and profitability due to a focus on traditional energy sources and favourable market conditions.
European Companies: While European firms are achieving steady returns, their aggressive shift toward renewables has led to slower growth in short-term profitability compared to their U.S. counterparts.
The US Energy Landscape and Political Shifts
The shifting stance of European energy majors may also be influenced by the new US administration. With energy security and cost reduction at the forefront of its agenda, the administration appears focused on revitalising domestic manufacturing, which could mean a renewed emphasis on fossil fuels.
But does this signal the end of renewables growth in the US? That seems unlikely. Even in 2021, 3 million of the 7.8 million energy-related jobs in the US were tied to renewables and carbon-neutral initiatives—accounting for about 40% of total energy jobs. Under the Biden administration, these numbers were expected to grow by 25% between 2020 and 2025. With the new administration now in place, one key question remains: will these projections hold, or will policy shifts stall progress? 3 million renewables-related roles will influence a much larger base of voters that are reliant upon its future success.
Europe Stays the Course
While the US direction remains uncertain, the EU has shown no signs of wavering from its commitment to Net Zero targets in line with the Paris Climate Accord. The European renewable energy sector employed approximately 1.8 million people in 2023, demonstrating the economic importance of the green transition. The question now is how European energy firms can continue to balance investor demands with the continent’s long-term sustainability goals.
What’s Next?
The push and pull between short-term profitability and long-term sustainability is creating uncertainty in the global energy market. Will political and economic realities force energy majors to sustain their recent investment plans shifts? Or will technological advancements and public demand for clean energy keep the renewables momentum alive? At NovAzure, we believe that it will be the latter.
What do you think—will major energy companies stay committed to renewables in the long run, or are we seeing the start of a wider retreat? Let us know your thoughts!
