Big Oil walks back climate pledges as earnings show 2022 was their most profitable year ever

The financial results of the world’s largest energy companies this week showed that last year was their most profitable year, prompting many to reduce their previous commitments to move further into renewable energy.

US oil company Exxon announced last week that it made a profit of US$56 billion last year, the highest figure on record for a publicly traded oil company. The eye-popping numbers mean that even after paying for all of its costs, from exploration, development, salaries, taxes and legal and regulatory fees, the Texas-based company earned more than $6 million per hour last year.

He was not the only one to profit from the sudden drop in the price of oil, which experienced a pandemic before jumping above $120 a barrel after Russia’s invasion of Ukraine.

US rival Chevron said its profits topped $35 billion last year, more than double the $15 billion from the previous year, while Anglo-Dutch giant Shell earned $40 billion. British oil major BP isn’t far behind, earning just $28 billion last year, the highest annual figure in the company’s 114-year history.

French oil giant Total will post its financial results on Wednesday, and the trend is likely to continue. Collectively, profits at the five major oil conglomerates probably exceeded $200 billion last year, according to data analytics firm Refinitiv.

It’s quite a departure from the first two years of the pandemic, when energy demand cratered due to lockdowns and travel restrictions, and capital-intensive oil companies lost money at every pumpjack.

Red ink has a silver coating

For environmentalists, the sea of ​​red ink in all of Big Oil’s books has a silver lining: it forces them to increase their commitment to green, as they contemplate a future in a world of clean, carbon-free energy.

Major oil companies like BP have even committed to becoming carbon neutral by 2050, while some smaller ones have gone even further – using carbon capture technology to take more carbon out of the atmosphere than they emit, even as they pump more oil.

Chevron and Shell are partners in one such project in Alberta and more are in the works.

By 2020, BP has predicted that demand for fossil fuels may have peaked, and as part of its carbon neutral plan it says it plans to cut oil and gas production by 40 percent by the end of the decade. But so far nothing has been done.

BP published its 2023 spending plan this week, forecasting an extra $8 billion in clean energy investments by 2030, but also increasing spending plans for oil and gas projects by the same amount.

“We provide the oil and gas that the world needs today – and at the same time invest in accelerating the energy transition,” said CEO Bernard Looney.

Shell’s spending plans show a similar gap, with the company reporting spending $3.5 billion on green energy initiatives last year, about one-sixth of its total spending of $25 billion. The company has so far refused to make any major pledges on emissions reductions, but shareholder activist group Follow It has led a successful move to get shareholders to vote on a plan to adopt one at an upcoming annual general meeting.

“Shell cannot claim to be in transition as long as investment in fossil fuels dwarfs investment in renewables,” the group’s founder, Mark van Baal, said in a press release.

Chevron booked a profit of about $35 billion last year, and plans to spend half of that on various projects around the world. Of this, only about $2 billion is earmarked for finding and developing projects that can produce renewable energy or reduce carbon emissions.

In addition to raising oil and gas spending plans, BP also lowered its pledge to reduce output by 40 percent to just 25 percent by 2030, news that did not surprise the company’s critics.

“This should be the final nail in the coffin of the oil industry’s green claims,” ​​Keith Stewart, with Greenpeace Canada, told CBC News in an interview. “Even though Big Oil is making profits, they are delaying action on the climate crisis to make extra money while people and ecosystems pay the price in more extreme weather, wildfires, droughts and floods.”

Proposed windfall tax

“Governments should pay back bigger profits to invest directly in climate solutions, because the oil companies won’t,” he said.

A fortune tax on huge profits is a popular idea among environmentalists, but others say it does nothing to decarbonize the world’s energy system while making short-term problems worse.

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Rafi Tahmazian, a portfolio manager with Canoe Financial, said talk of introducing a windfall tax was not in sight. “It doesn’t make your problem go away,” he told CBC News in an interview. “It shows you how myopic everybody is in their thinking. You tax these companies, they will reduce their production.”

The incentive to pump more oil, not less, is especially great for the three European-based oil majors, because they are now tasked with maintaining European energy needs in the face of Russian oil sanctions.

“They are in Europe where they are now on deck for whatever power you can muster,” he said. “BP is shifting gears to increase oil because Europe needs it.”

Tahmazian said BP’s about-face in reducing oil output makes sense since the company’s shares have been relatively laggards due to green initiatives in the first place. “They are being punished in the market because they are taking a loss from a profit point of view.”

Dennis McConaghy, a former executive at the Trans Canada pipeline company, said the record profits at the oil giant reflect “a fundamental dilemma between climate targets and a world we cannot do without hydrocarbons.”

While he said he expects major oil companies in Canada and around the world to continue to invest in renewable energy, “it’s clear they’re going to reinvest large amounts in conventional hydrocarbon development.”

“Because the reality is … demand for oil is strong and will likely increase in the short term despite climate goals.”