Traditional oil and gas companies backing out of wind energy
In recent developments, big oil and gas companies such as bp and Shell are stepping back from their investments in offshore wind energy. This shift is driven by a mix of financial, strategic and market reasons, marking a significant change in their approach to renewable energy.
bp’s recent actions highlight this trend. The company announced that it had written down the value of its US offshore wind business by $1.1 billion, signalling a strategic pivot back towards increasing oil and gas production. This announcement came shortly after bp ended its partnership with Equinor on three offshore wind projects aimed at supplying power to New York. In the break-up, bp sold its stake in the Empire Wind 1 and 2 projects and took full ownership of the Beacon Wind project. However, bp executives have indicated no immediate plans to advance the Beacon Wind project, which is designed to be built 20 miles south of Nantucket, Massachusetts.
This strategic pullback is in marked contrast to bp’s bold 2020 commitment to achieving net zero emissions by 2050. At that time, bp’s decision to reduce oil production by 40% and invest significantly in offshore wind was seen as a pioneering move among major oil companies. However, the company has since adjusted its strategy, opting to channel more investment into traditional oil and gas projects while exploring ways to integrate offshore wind with other renewable energy ventures that could enhance profitability.
Shell, another major player in the energy sector, is also scaling back its offshore wind ambitions. The company announced plans to cut jobs within its offshore wind division, a move driven by a renewed focus on improving returns for shareholders and reducing operational costs. Shell’s CEO, Wael Sawan, has been steering the company towards prioritising markets and segments that deliver the most value, which has led to a reduction in capital-intensive renewable energy projects.
Shell’s retreat from offshore wind is part of a broader strategy to cut structural costs by up to $3 billion by the end of 2025. This has resulted in lay-offs within Shell’s low-carbon solutions unit and the departure of key executives in its offshore wind business. The company’s decision to pull back from this sector is influenced by the high costs and challenges associated with offshore wind development, coupled with a strategic shift towards maintaining shareholder returns and performance discipline.
Both bp and Shell’s decisions reflect a broader industry trend, in which traditional oil and gas companies are reassessing their roles in the renewable energy landscape. While these companies initially made significant commitments to offshore wind, the financial and operational challenges have prompted a strategic shift.
But how is it that a company like Ørsted, a former traditional oil and gas company, is able to focus solely on renewables and run a viable business? Years ago, when it changed its name from DONG (Dansk Olie og Naturgas), it decided to sell all oil and gas properties and focus only on renewables instead. Ørsted used the proceeds from selling the oil and gas properties to build the renewable business it is today. Its former oil and gas assets are now being explored by other traditional oil and gas companies, which has not reduced the amount of fossil fuels extracted around the world.
The backing away of traditional oil and gas companies from offshore wind energy underscores the evolving dynamics of the energy sector. Is it only because of money and pleasing shareholders? Or is it currently not possible to run a viable business focusing on renewables alone? A company like Ørsted seems to prove otherwise. While the commitment to renewable energy seems to remain among these companies, the shift in strategy may influence the pace and scale of the global energy transition in the coming years.
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Floris Siteur
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