Nov 20, 2020 (Baystreet.ca via COMTEX) -- Big Oil has been frequently lambasted for trying to burnish its green credentials through half-hearted investments in renewables. That might have been true for much of the past decade, but it appears to be changing as the oil and gas majors have started putting down big money into clean energy. For instance, European oil majors including BP Plc. /zigman2/quotes/207305210/composite BP -4.61% , Royal Dutch Shell /zigman2/quotes/205095589/composite RDS.A -2.84% , Eni SpA /zigman2/quotes/200785836/composite E -2.60% , Total SA /zigman2/quotes/201824152/composite TOT -2.95% , and Norwegian national oil company Equinor ASA /zigman2/quotes/202462536/composite EQNR -4.63% have already invested billions of dollars in renewable energy and made big clean energy commitments. Yet, Big Oil just can't seem to catch a break, with stocks of oil and gas companies that are investing heavily in renewables being punished by the markets.
A good case in point is BP, one of the oil majors with some of the largest clean energy commitments. BP has announced plans to achieve net-zero status by 2030 by dramatically increasing its renewables spending. BP stock has, however, cratered 48% in the year-to-date, considerably worse than Europe's oil and gas benchmark STOXX Europe 600 Oil & Gas Index (SXEP) which is down 32% in the year-to-date or even the Energy Select Sector Fund (XLE) which has lost 41%.
BP's European peer Shell has probably done more than any other supermajor as far as investing in renewable energy goes. Recently, Shell CEO Ben van Beurden told investors that the company no longer considers itself an oil and gas company but an energy transition company. Shell has been vocal about the shift to renewables, frequently issuing the clarion call for the industry to switch to cleaner energy sources. In 2016, Shell set an ambitious goal to invest $4bn to $6bn in clean energy projects by 2020. Shell stock is down 44% YTD.
Meanwhile, ENI has the most ambitious climate change pledge with plans to lower its greenhouse gas emissions by 80% by 2050. ENI also says that its renewable portfolio will reach an installed capacity of 3 GW as early as 2023 and 5 GW in 2025. ENI stock has tanked 38%.
Clean energy transition
What's going on here clearly is a case of damned if you do and damned if you don't.
The big problem here stems from the way the renewable sector operates.
Green energy requires heavy upfront investments with longer payback periods compared to fossil fuel investments. In fact, green infrastructure is 1.5-3.0x more capital- and labor-intensive than hydrocarbons.
Oil and gas firms are still grappling with the best way to presently use dwindling cash flows; in effect, they are still weighing whether it's worthwhile to at least partially reinvent themselves as renewables businesses while also determining which low-carbon energy markets offer the most attractive future returns.