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Hello readers,

Welcome to another edition of the newsletter, rounding up the biggest developments in the oil and gas industry in July. As subscribers, you’re also getting a preview of our new Zero Carbon Analytics branding, which we’ll be rolling out across our website shortly.

We start with the news that fossil fuels are “running out of road” due to the falling cost of renewables, according to UN Secretary-General António Guterres. Some facts from IRENA, published to coincide with his speech:

• 91% of large renewable projects commissioned last year were more cost-effective than fossil fuel alternatives;
• solar PV was 41% cheaper than the lowest-cost fossil fuel alternatives, while onshore wind projects were 53% cheaper;
• battery storage systems costs have declined by 93% since 2010.

Given the huge cost competitiveness of renewables, it shouldn’t be that surprising that India has hit its goal of 50% installed electricity capacity from non-fossil sources five years ahead of its target.

This month I’m taking a look at the International Court of Justice’s landmark legal opinion, whether the EU’s promise to buy more US energy is an empanada (I’ll explain), why oil companies have walked away from a science-based net zero target, and much more.

I’m going to be on leave in August, so there’ll be a brief pause for the newsletter, but we’ll be back in early October with a round up of September’s biggest developments.

Please share this newsletter with your colleagues and contacts who can subscribe here.

Thanks,

Murray

Oil and gas in the transition

States must curb fossil fuels

In what has been described as a turning point in international climate law, the world’s highest court, the International Court of Justice (ICJ), has issued its opinion on the “obligations of states in respect of climate change”. It found that countries have a duty to curb emissions, and those that fail to do so may be liable to pay compensation to countries impacted by climate change. Fossil-fuel production, consumption, the granting of exploration licences or the provision of subsidies “may constitute an internationally wrongful act” attributable to the state or states involved. Governments are also responsible for regulating companies, as part of their responsibility to reduce emissions. The ICJ’s opinion is not legally binding, but is expected to be highly influential in individual climate litigation cases. Although its opinion runs to 140 pages, the last three pages contain its unanimous findings and are well worth a read.

Even more oil from OPEC

OPEC+ agreed to raise production by another 548,000 barrels per day (bpd) in August, with another similar increase expected in September. This would end the 2.17 million bpd in voluntary production cuts from eight OPEC+ members, and bring the total production increase since April to 2.5% of global demand. This flood of oil is being felt in the US, where almost half of executives in its key onshore oil producing region expect to drill fewer wells than they had planned this year, with large producers more likely to see their drilling significantly fall.

The flipside to OPEC’s production increases is the weakness in demand, with the IEA forecasting the slowest oil demand growth since 2009, excluding the pandemic. Even the more bullish OPEC has cut its oil demand forecasts for the next four years, in large part due to weak demand in China. Saudi Arabia, the driving force within OPEC, may well be playing a long game – pushing down prices to gain market share and disincentivise other companies and countries from investing in new projects.

The EU’s oil and gas empanada

The US and EU trade deal included a commitment for the EU to buy USD 250 billion of oil, gas and nuclear technologies for each of the next three years. The number was described by experts as “pie in the sky” given that this is more than triple the value of oil and gas imports to the EU last year, and that “it is private companies not states that contract for energy imports.” The European Commission hit back at the criticism stating that the figure was based on “a thorough and robust assessment”, however its figures amounted to only half of the USD 250 billion target. My bet is that it is a promise made with little intent of actually being realised, or as the Polycrisis says, it’s an EMPANADA – Everyone Makes Promises And Never Actually Does Anything.

EV sales keep growing

EVs are close to reaching half of sales of buses and two and three wheelers, according to BNEF’s latest EV Outlook. The growing share of two and three wheelers is particularly crucial for oil demand forecasts for developing and emerging markets, where they make up a significant portion of the transport system. China’s dominance of the EV sector is stark, accounting for more than half of global EV sales, more than half the world’s public chargers, and well over three-quarters of manufacturing capacity for lithium battery cells and their components.

Other news from around the world:

• Pakistan is seeking to sell excess LNG amid a supply glut, just a few years after struggling to secure LNG supplies during the European energy crisis. The country has seen a huge growth in solar power following that crisis, resulting in a decrease in gas-fired power generation, and with it a declining need for gas. The country may be tied by the terms of its contract with Qatar, however, which usually prevent the resale of Qatar’s LNG exports, unlike the more flexible terms offered by exporters such as the US.
• The German cabinet has approved a deal with the Netherlands to drill gas in the North Sea, close to a UNESCO World Heritage site. In what may be the most meaningless company commitment ever, the company proposing the project, One-Dyas, has said that it would halt operations “when demand for natural gas ceases” – which apparently means “aligning with the goal of climate neutrality”. Someone urgently needs to tell this company that “climate neutrality” requires slightly more than promising not to sell something only when no one in the world wants it.
• BP and Shell have joined Eni, OMV and Repsol in resuming oil and gas exploration in Libya, despite the country being divided following more than a decade of internal conflict.

Energy transition strategies

Major oil and gas companies Shell, Aker BP and Enbridge have all quit the Science Based Targets initiative (SBTi) advisory group, following a disagreement of the proposed net zero standard for oil and gas companies, according to the FT. The SBTi had proposed that to receive the standard, companies should not develop new oil and gas fields and that production should fall significantly. Shell said that it withdrew after seeing the draft standard which “did not reflect the industry view in any substantive way”. Work on the standard has now been paused. All credit to SBTi for sticking to the science of what is required, rather than allowing the industry to shape the rules to fit corporate views.

The Indian state-owned Oil and Natural Gas Corporation (ONGC) is planning to spend USD 22 billion by 2030 on decarbonisation, including renewables, green hydrogen and ammonia and carbon capture and storage. The company aims to start importing LNG, as well as targeting 10 GW of renewable capacity and 2 million tonnes per year of green ammonia production by 2030. As the company’s director of strategy said; “There is a glut of oil worldwide […] In this scenario, we are thinking of making ONGC a future-ready company. This means we are now going for diversification other than the [oil and gas exploration and production] business.” Surprising statements coming from a state-owned oil company, as these have often been the laggards in the energy transition.

Clean energy investments

BP has pulled out of a proposed USD 36 billion renewable energy and hydrogen project in Australia. The proposed project would use 26 GW of wind and solar to produce 1.6 million tonnes of green hydrogen per year, one of the largest projects of its kind in the world. BP also sold off its US onshore wind business, which managed 1.3 GW of power generation. The decisions are in line with BP’s strategy to reset its focus to oil and gas production and to raise USD 20 billion in asset sales.

TotalEnergies has started building a 1 GW solar project in Iraq that will supply power to 350,000 homes. The government hopes the project will help achieve its goal of increasing solar capacity from 42 MW at the end of 2024 to 12 GW by 2030.

Hydrogen and ammonia

The European Commission has proposed giving a green light to “blue” hydrogen made from natural gas with carbon capture and storage, with the fuel set to meet the proposed threshold of reducing emissions by 70% compared to traditional fossil fuels. It’s likely this proposal will receive some pushback when it is debated by the Parliament and Council, with some calling for a tighter definition that only includes hydrogen made from renewables.

Carbon capture and storage (CCS)

CCS is one of the few “low-carbon” industries that stands to benefit from Trump’s “Big Beautiful Bill”, with subsidies for CO2 used to increase oil production now raised to the same level as for geological storage. That the oil and gas industry will be the main beneficiary of this seems more than coincidental, with the industry also benefitting from reduced minimum tax rates for oil production. The New York Times has a useful breakdown of the energy winners and losers from the legislation.

From Zero Carbon Analytics

• Imports of LNG in the Philippines will rise six-fold before the end of the decade, costing the country an estimated USD 3.9 billion over five years, according to new analysis published with the Center for Renewable Energy and Sustainable Technology (CREST). 
• LNG cannot guarantee energy security for Southeast Asian countries, despite these countries planning to spend nearly USD 12 billion on new LNG import infrastructure. Supply disruptions and competition with Europe present significant risks to importing countries, while the deployment of domestic renewables and the ASEAN power grid can increase their energy independence and resilience.

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Hello readers,

June was a busy month for the oil and gas industry, with war in the Middle East prompting speculation of an impending oil and gas supply crisis before Trump bombed his way to peace, and with it, returned oil prices to their downward trajectory. I’ll be looking at what this latest round of conflict means for the state of oil and gas and the energy transition, how investment in solar is outstripping oil, and a series of world firsts in the use of hydrogen and carbon capture and storage.

One bit of analysis that stuck with me this month – the biggest anticipated growth markets for LNG are all located in the global ‘sun belt’ where there is the highest potential for solar generation. These countries, so far led by South and Southeast Asia, are already seeing huge growth in solar. This increase signals “a structural shift in how electricity demand is being met—faster, cheaper, and more locally than new gas infrastructure can deliver”, according to a leading economist at a think tank founded by gas companies. Those in the industry hoping for a boom in LNG demand from these same countries could yet be disappointed.

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I’m also starting to post more regular content on LinkedIn, so please follow or connect with me.

Thanks,

Murray

Oil markets shrug off the risk of war in the Middle East

Israel’s attack on Iran, the subsequent conflict and the US decision to bomb Iranian nuclear facilities pushed speculation about the impact on the oil and gas markets to the top of the news agenda this month. As well as risks from oil production in Iran and gas production in Israel, by far the biggest concern was whether Iran would attempt to disrupt or block shipping through the Strait of Hormuz, which carries a fifth of the world’s oil and gas. Should it have happened, oil prices were forecast to top USD 100 or even up to USD 300 per barrel. For gas, the impact would be comparable to the energy crisis of 2022, with prices in Europe and Asia likely to more than double.

While China is the largest buyer of oil and gas that flows through the Strait of Hormuz, our analysis found that Japan is at greatest risk from any disruption to shipping through this crucial channel. This is because fossil fuel imports only account for 20% of China’s energy needs, whereas Japan imports 87% of its energy as fossil fuels – leaving it hugely vulnerable. In Europe, we found that Belgium and Italy are most exposed to the direct risks of any disruption in the Strait, with a fifth to a tenth of their gas imports at risk. The early 2020s energy crisis showed the extent to which fossil fuel prices increase inflation, and how well renewables can reduce energy costs, inflation and economic volatility.

While President Trump was backing the Israeli strikes on Iran, he also kept a close eye on the impact on oil markets – posting on Truth Social “Everyone, keep oil prices down, I’m watching!”. While the message was definitely intended to include American drillers, I can’t help but think that “everyone” that Trump was watching was intended to include Saudi Arabia and the OPEC countries.

Yet, coming out of the crisis, what has become clear is that this was not a moment of historic volatility – but of an oil market supplied with so much oil, facing such little demand, that as the FT put it “war in the Middle East isn’t enough to save the oil industry from the threat of $50 barrels.” As the veteran Bloomberg columnist Javier Blas wrote, “the market finds itself swimming in oil.” It is oil producers who are facing the biggest risks right now, especially those trying to expand production. In the face of weak demand and falling prices, the world simply does not need more oil supply. 

Oil and gas in the transition

Solar investment outstrips oil drilling

Investment in fossil fuels is set to fall this year, with a 6% drop in investment in oil production, according to the International Energy Agency (IEA). Fatih Birol, the head of the IEA, said that “This is the first time we have seen such a decline, except for Covid, because of lower prices and lower oil demand”. The report also highlights the huge shifts within investment in the industry, with state oil companies in the Middle East and Asia set to account for 40% of oil and gas spending, up from 25% a decade ago.

This decline in fossil fuel investment is in stark contrast to booming clean energy investment, which is set to reach USD 2.2 trillion this year, double the amount invested in fossil fuels. This means that spending on oil production will only reach USD 420 billion, USD 30 billion short of the amount going into solar.

Past the peak?

Despite all the talk of peak oil demand later this decade, crude oil production remains below the high of 2018 and isn’t set to top it next year either. One of the big reasons behind this has been the lack of demand from China where the “extraordinary” sales of electric vehicles  prompted the International Energy Agency to bring forward its expectation of peak demand by two years to 2027. Hot on the heels of electric cars, electric trucks are now taking off in China, accounting for around a fifth of sales in April, eroding demand for diesel. All eyes will now be on India, which is forecast to see the sharpest rise in oil demand globally over the next five years. How much of the growing economy’s transport needs are met by internal combustion engines or electric vehicles will be crucial to determining the future of global oil demand.

What is OPEC’s plan?

OPEC continues to increase production, and – with supply exceeding demand – oil prices are falling, which generally speaking hurts OPEC producers as they get less money per barrel. This has prompted oil market watchers to wonder what OPEC is up to. One view is that production from outside OPEC, such as in the US, will level off, so the supply glut will be temporary. But there are a range of other factors at play: the production cuts OPEC had agreed to weren’t working to prop up prices any more, some countries were cheating on their quotas, Trump was pushing OPEC to deliver lower oil prices, and with lower prices OPEC can hurt international oil companies and prevent the US shale industry gaining a greater market share. As one anonymous commentator was quoted in the FT, it’s still unclear whether OPEC’s aim is “to regain market share, hurt US shale, please Trump, or all of the above”.

UK considers emissions, and economic benefits, of new fossil fuel projects

The UK has issued its new rules for the permitting of fossil fuel projects, bringing government policy into line with the Finch ruling by the UK Supreme Court, which found that the emissions from the burning of fossil fuels have to be taken into account as part of the permitting process. While this represents a major step forward in assessing the climate impacts of new fossil fuel projects, the policy also allows the harms of these emissions to be considered alongside the “potential economic and other advantages of the project”. One of the first key tests for the policy is likely to be in the decision over the controversial Jackdaw and Rosebank fields, where the licences had previously been revoked by the courts, but developers Shell and Equinor, respectively, are set to seek new approvals under the new guidance.

The EU’s Russian fossil fuel phaseout

The European Commission proposed several measures to put pressure on Russia, including a ban on Russian gas contracts using trade law to avoid a veto by Hungary and Slovakia, as well as ending imports of refined products made with Russian crude and pushing for a lower cap on crude oil prices. As a sign of the rifts that continue within Europe, the German government is working to block any attempts to start the remaining Nord Stream pipeline, while the Austrian energy minister suggested that the EU should be open to restarting Russian gas imports if the war ends.

Canada backs fossil fuel production while wildfires rage

The new Canadian Prime Minister Mark Carney has proposed a “grand bargain” with the oil industry, aiming to increase production and exports while (so he claims) reducing emissions. The Canadian legislature subsequently passed legislation fast-tracking major infrastructure projects, giving the government new powers to sidestep protections for the environment and Indigenous people. Yet with oil workers being evacuated from production sites in Alberta due to raging wildfires, it feels like there’s a subtle message about whether expanding fossil fuel production is wise.

Alaska at risk, but US production declining

The US Department of the Interior has put forward a proposal to scrap a Biden-era rule that protects huge swathes of Alaska’s National Petroleum Reserve from oil and gas extraction. The proposal is part of Trump’s “drill, baby, drill” agenda, however so far the results aren’t looking good for the President, with crude oil production in the US set to drop next year – the first time since 2015, outside of the pandemic.

Energy transition strategies

TotalEnergies is facing the first greenwashing court case in France, with claims that it misled consumers in the marketing of its 2021 rebrand from its previous name – Total. Three environmental NGOs claim that TotalEnergies made misleading statements in 44 pieces of communication, including claims that it was a “major actor in the energy transition”, as well as claims on its commitment to net zero and the promotion of natural gas. A judgement is expected in October.

Rumours continue that Shell is considering buying out BP, prompting Shell to make an official statement that it had not been in talks with BP and had no intention of making a bid for the company. Under UK takeover rules, Shell now cannot approach BP for the next six months, except in certain circumstances – such as if another company makes a bid for BP. Given BP’s continually lagging share price, even this statement may not be enough to end the speculation.

Clean energy investments

In May, Equinor secured a major u-turn from the Trump administration, allowing its USD 5 billion offshore wind project in New York to go ahead. It now turns out that the day before the government’s decision, New York’s governor called President Trump, offering to reopen negotiations over the construction of a USD 1 billion gas pipeline from Pennsylvania to New York, which Trump had supported but state regulators had opposed. It remains to be seen if that pipeline will now get the go-ahead, but it appears this may be the price of getting presidential approval for the wind farm.

BP made investments in two major solar projects this month, alongside other corporate partners. In Azerbaijan, it is building a USD 200 million photovoltaic plant which will provide power to BP’s Sangachal oil and gas terminal (reducing BP’s operational emissions) and to the Azeri electricity grid. In Taiwan, Lightsource BP has secured USD 200 million in financing for a fishery solar project, installing solar panels over fish farms.

Hydrogen and ammonia

A “world first” pilot of blending 50% hydrogen and 50% natural gas took place at a gas power station in the US. The project by Georgia Power and Mitsubishi Power claims to have reduced emissions by 22%, which highlights the challenges of using hydrogen blending to reduce emissions. As hydrogen has a much lower energy density than natural gas, using a 50:50 mix with natural gas means the majority of the energy still comes from the gas – so the emissions reduction is comparatively low. Given the expected high costs of hydrogen production, this is a lot of hydrogen spent for not a lot of carbon saved.

Carbon Capture and Storage (CCS)

Norway reached two firsts this month, with the opening of the world’s largest industrial carbon capture and storage project, and the first commercial transport of CO2 by ship for storage. The CCS project is estimated to cost USD 3.4 billion over its first ten years of operation, of which a massive USD 2.2 billion will be subsidised by the Norwegian government. The chief executive of Heidelberg Materials, where CO2 for the project is being captured, acknowledged that “this project would have been impossible without the support of the Norwegian government.” The government hopes that with the rising price of carbon in Europe, the project could be commercially viable within 10-15 years.

From Zero Carbon Analytics

As well as the briefings on risks linked to the conflict in the Middle East, we also published:

• An analysis showing that Trump’s policies have hurt the US economy and fossil fuel companies, but that the market value of clean industries has rebounded and investment remains at historically high levels.
• A joint ZCA and E3G briefing of 22 updated NDCs, including their commitments on fossil fuel subsidies, fossil fuel phaseout and alignment with the 1.5C target.
• An analysis of scenarios produced by an influential Japanese government-linked think tank, the IEEJ, showing that its predictions of high future gas demand are based on unrealistic assumptions about future emissions, renewables and CCS.

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Hello readers,

It may not have been the biggest news item last month, but the landmark judgement from Germany’s courts that high-emitting companies can be held liable for the damage their emissions cause is possibly the most consequential. While the case was dismissed due to the assessment of low flooding risk to the claimant’s home, the landmark legal precedent opens the door to more cases seeking compensation from fossil fuel companies.

What has been driving the headlines is OPEC+’s massive supply increases, the resulting drop in oil prices and what this means for the industry. Western international oil companies are holding to their production plans, but their finances are being squeezed. US producers are cutting spending, and the US shale boom might even be over. All that and more in this round-up of the most important developments in the oil and gas industry last month.

Please share this newsletter with your colleagues and contacts who can subscribe here.

Thanks,

Murray

Oil and gas in the transition

Fossil fuel company litigation

I’ll start this month’s edition with the news of a historic and unprecedented win in efforts to hold big emitters accountable for their climate impacts, ironically enough through a court defeat. A decade-long court battle between a Peruvian farmer and German energy company RWE over the risk of glacial flooding caused by the company’s carbon emissions concluded with the court dismissing the claim. However, the court only dismissed the claim because it assessed that the farmer’s property was not at risk. On the law, it found – for the first time – that major emitting companies can be held responsible for the impacts of climate change, including the financial costs associated with the risks of future impacts. The judge was emphatic in countering the claims made by RWE in its defence, stressing that the distance between the emissions and impact, and RWE’s legal supply obligations, did not prevent the company from being accountable for the impact of its actions. The case cannot be appealed, but it sets a groundbreaking precedent for future cases seeking financial compensation for the impacts of climate change from major emitters. 

In another major development, major oil and gas companies, including ExxonMobil, Chevron, Shell and BP, are being sued for the first time for wrongful death as a result of the impacts of climate change. The case focuses on the death of Juliana Leon, who died during a heat dome in the Pacific Northwest. Her daughter is now bringing the case against seven fossil fuel companies, claiming that they knew about the impacts of climate change and funded campaigns to undermine the scientific consensus on climate change.

OPEC is turning on the taps and crashing the oil price

OPEC+ has once again decided to increase its oil supplies by 411,000 barrels a day in June and July, with the block on track to raise production by a total of 2.2 million barrels per day by the end of September. With the International Energy Agency forecasting demand growth of just 740,000 barrels per day this year, the OPEC+ rise sets the stage for a massive oversupply of oil. As a result, oil prices dropped to the low USD 60 per barrel range throughout May.

Saudi Arabia, a key driving force in OPEC’s decision-making, has briefed allies and experts that it is no longer willing to accept the big production cuts it has voluntarily made in recent years to prop up prices, and is now happy to live with lower oil prices. No one is certain why Saudi and OPEC are doing this – not least as it hurts government finances – but it looks like they are willing to sacrifice some short-term pain to get a greater share of the oil market.

In spite of the huge surge in OPEC production and the likely oversupply of oil to the market, almost all of the big western oil companies maintained their investment plans when reporting their first-quarter financial results. ExxonMobil, Chevron, Shell and TotalEnergies all kept their plans for new oil production, despite lower oil prices.

For anyone hoping for more demand to suck up the huge supplies coming to the market, India looks set to disappoint. The rapidly developing, most populous country in the world has long been seen as the next big growth market for oil after China, as its growing middle classes were expected to follow China and the West in their demand for oil. Yet this growth is not happening. Over the last three months oil demand in India has fallen, and this year’s growth may be the lowest for a decade outside of the pandemic. With sales of electric two-wheel vehicles booming, India may not be the growth market the oil industry has been hoping for.

The end of the US shale boom?

Despite Trump’s promises to “drill, baby, drill” on the campaign trail, the US oil industry is having such a tough time that its leaders are questioning whether the US fracking boom is now over. The chief executive of Diamondback Energy, one of the largest producers in the prolific Permian basin in the US, said that “it is likely that US onshore oil production has peaked and will begin to decline this quarter.” 

Oil companies are now cutting spending and reducing activity in the face of increasing supplies from OPEC+ and falling prices. US oil output is forecast to fall by 1.1% next year, a sharp reversal from years of rapid growth. US oil companies’ share prices have fallen the hardest of any sector since Trump’s ‘liberation day’ tariffs, drilling activity has fallen and, despite the fall in oil prices, gasoline prices – the key target of Trump’s energy policies – are actually up 6 cents a gallon since he took office.

Europe’s Russian gas uncertainty

The European Commission proposed a new plan for ending the imports of Russian fossil fuels; however, crucially, they haven’t said how this can be achieved. Gas importers in Europe face major compensation claims if they break their existing contracts with Russia. Sanctions would provide legal cover, but the EU doesn’t have the required unanimity among member states to impose them. 

If the ban does go ahead, the US stands to be the major beneficiary in the short term. EU gas demand is falling rapidly, but it’s still likely to need a few years of additional US LNG to fill the gap. However, if the plan doesn’t work and there is even a small return of Russian pipeline gas to Europe, USD 120 billion of investment in the US LNG industry would be at risk. For now, German Chancellor Friedrich Merz has publicly said that he is backing a proposed EU ban on the Nord Stream pipeline, which would bring Russian gas to Germany.

No more new gas power before 2030?

One major development which hasn’t received the media attention it deserves is the big bottleneck slowing the deployment of new gas electricity generation. There is now such a huge backlog in orders and along the global supply chain that it’s unlikely a company could order a gas power turbine now and have it operational before 2030. Supply chains aren’t the only problem. Wood Mackenzie analysts have also found major stumbling blocks for increasing gas power across major markets. In the US, construction costs have risen while power prices are below the cost of new gas generation, in Asia imported gas is too expensive, and in Europe climate goals are limiting the space for more gas power. This is all making some of the gas industry’s bullish projections for gas demand growth look a lot more questionable.

Pacific LNG exporters eye growth, but will China’s demand for gas keep pace?

The Australian government has extended the operating lifetime of the North West Shelf LNG project to 2070, set to result in 6 billion tonnes of greenhouse gas emissions. Canada is set to begin its first LNG exports in June, according to Shell, the developer of the west coast project. Both Australia and Canada are relying on growing Asian demand as the destination for their LNG. Yet in China, Asia’s largest LNG importer, demand growth remains elusive. A few years ago, demand was forecast to keep rising, yet imports remain below 2021 levels and are expected to drop by 11% this year. Slower economic growth, cheap renewables, domestic gas production and pipeline imports have all sapped the country’s demand for the super-chilled fuel. If the trend continues, a lot of the industry’s hoped-for future demand may fail to materialise.

Energy transition strategies

Oil and gas company finances are under significant pressure from the drop in oil prices. Most of the big companies presented their financial plans for this year based on the assumption that oil would be USD 70 per barrel, when it’s now much more likely that prices will be closer to USD 65 or even USD 60. The majors have all said they are well prepared for a downturn in prices, but as a Bank of America analyst told the Financial Times, “ten years into an efficiency drive that has made a lot of companies a lot thinner, the scope to offer more [budget cuts] is much reduced”. Analysts Wood Mackenzie have already forecast that the five supermajors will cut investment by nearly 5% this year as a result of the lower oil price.

BP for sale?

Speculation is rife that Shell is considering buying its rival BP, with the latter’s shares having dropped by a third over the last year. Publicly, Shell is denying any interest in a megamerger, stating that it wants to focus its cash on share buybacks, which it is spending USD 3 billion on every quarter. Chevron, ExxonMobil, TotalEnergies and Adnoc are also reportedly assessing the prospects of buying the company, according to reporting in the FT. However, despite the apparently attractive current valuation of BP, each potential buyer has major hurdles to being willing or able to complete the deal. Exxon and Chevron are focused on ongoing court battles with each other over drilling in Guyana, the UK government may try and block any effort by Adnoc to buy BP, and TotalEnergies might not be interested in keeping enough of BP’s operations for a deal to be worthwhile.

Shell under pressure from investors and threats of legal action

Shell has plenty of other challenges to focus on; more than a fifth of its shareholders backed a resolution at its AGM questioning the company’s bid to become the world’s biggest supplier and trader of LNG. The motion called on Shell to disclose more information about its LNG and gas business and goals, and questioned how the proposed gas expansion was compatible with the company’s climate goals. Shell also faces the prospect of another lawsuit in the Netherlands led by the Dutch non-profit Milieudefensie. This new case, which comes after courts overturned the previous effort to impose an emissions reduction obligation on Shell, would instead seek to block Shell from opening new oil and gas fields.

Saudi feeling the strain of low oil prices

Saudi Aramco and the Saudi government are feeling the pinch from the drop in global oil prices. Aramco has already cut its dividend by around a third, yet it still couldn’t afford to cover the cost of those payments from its revenues in the first quarter of this year. With the Saudi government and sovereign wealth fund owning 97% of Aramco’s shares, the state is the main loser from the dividend reduction. As a result, the country is now running an increased budget deficit and is reassessing its planned investments to diversify the economy’s reliance on oil exports.

Clean energy investments

Equinor’s USD 5 billion Empire Wind project in New York will now go ahead, after the Trump administration u-turned on the order it imposed the previous month to stop construction on the project. The decision is a reprieve for the project, but not for the wider US offshore wind industry, which still faces the pause in permitting for new wind projects implemented in January. Elsewhere, Equinor and Polish utility Polenergia have secured EUR 7.2 billion in financing to go ahead with two wind farms off the coast of Poland, which together will generate 1.4 GW of electricity from 2028.

Hydrogen and ammonia

The European Commission has announced EUR 992 million in funding for 15 renewable hydrogen projects, which together will be capable of producing 2.2 million tonnes over ten years. Though the 0.2 million tonnes per year (mtpa) these projects offer is a big step up from the EU’s current 0.02 mtpa capacity, it’s still a long way from the EU’s target of 10 mtpa by 2030, and according to Wood Mackenzie “it is unlikely all of the awarded capacity from this round materializes by 2030.”

While the clean hydrogen industry in Europe is struggling to grow, in the US it is facing an “existential threat” from Trump’s ‘Big Beautiful Bill’. The proposed legislation, which passed through the House of Representatives in May, would end the tax credit for low-carbon hydrogen production – both from renewables and natural gas with CCS. Analysts at Wood Mackenzie estimate that 95% of announced green hydrogen projects in the US are at risk if the tax credit is terminated.

An example of the implications of this is what happens to ExxonMobil’s agreement inked in May to supply Japan’s Marubeni with 250,000 tonnes a year of low-carbon ammonia. The deal is dependent on Exxon making an investment decision on the proposed Baytown hydrogen facility in Texas, a decision that relies on the low-carbon hydrogen tax credit.

The following text went straight to our readers’ inboxes and is now available here for your interest. If you’re not a subscriber yet, sign up via the subscribe button in the top right corner.

Hello readers,

The global economy would be USD 28 trillion better off were it not for the extreme heat caused by the emissions of the world’s largest fossil fuel companies. That’s the remarkable headline finding of a recent study in Nature, which used extensive climate modelling to determine the exact contribution of some of the world’s largest fossil fuel companies to average temperatures, extreme heat, and the economic costs of these. Saudi Aramco, Gazprom, Chevron, Exxon and BP have each caused USD 1.45 to USD 2.05 trillion in economic damage. And that’s actual GDP lost just from extreme heat experienced between 1991 and 2020, never mind the additional costs resulting from other climate impacts, or the huge economic and human toll future warming will bring. As the study says, “science [is] no longer an obstacle to the justiciability of climate liability claims” – in other words, data is now fully capable of supporting climate liability claims in court. Investors should be taking a close look at how companies are (not) accounting for these enormous risks.

This month’s newsletter takes a look at why oil prices are tumbling and what this might mean for the US, the possible impact of China’s domestic oil and gas production boom, why BP’s problems hinge on oil and gas as much as renewables, and Exxon’s new status as the (joint) top spender on “low carbon” amongst the big oil companies.

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Thanks,

Murray

Oil and gas in the transition

Tumbling oil prices fail to push up demand

As I write this, oil prices are hovering near USD 60 a barrel, with this month’s prices the lowest since the pandemic. The nose dive in price is partly driven by weakening demand expectations, exacerbated by the impact of Trump’s tariffs on global economic growth, and OPEC+ deciding to boost supply in May by three times the amount previously planned. Prices this low will put huge pressure on producers’ finances and lower investment in drilling. Low oil prices should, the theory goes, lead to more demand – but such a rebound remains elusive. Instead, the oil market is now forecast to have the biggest excess of supply this century, outside of the pandemic.

Could US production fall?

Rystad Energy estimates that many US oil companies need prices of USD 62 per barrel or more to break even, meaning current prices will already be putting them under financial pressure. If oil prices drop further, to USD 50 a barrel, production could fall by as much as 8% in a year, according to S&P Global Commodity Insights. One reason that production could fall so quickly is the short lifecycle of US shale production – projects can start quickly, but also run out much more quickly than more traditional projects, which can operate for decades. According to Wood Mackenzie, the ‘Lower 48’ (all US states bar Alaska and Hawaii) need to add new supply equal to Norway’s annual output each year just to maintain production.

Alaska LNG: geopolitics vs prices

Trump’s National Energy Dominance Council is planning a summit on the proposed USD 44 billion Alaska LNG project in early June. The summit aims to secure financial support from Japan and South Korea for the project, which would see gas extracted from Alaska’s North Slope and piped 800 miles across the state to an LNG terminal on the Pacific coast, for both domestic use and export to Asia. The summit will be a key test of what is more important to Japan and South Korea – relations with the Trump administration or project economics. The idea of an Alaskan LNG project has been around for nearly 30 years without getting off the starting blocks, as it is seen as being prohibitively expensive. Yet with investment in the project one of the few bargaining chips Japan and South Korea hold in trade negotiations with the US, it’s not impossible they may decide the price is one they must pay.

US goes it alone in failing to back renewables for energy security

At the International Energy Agency’s recent energy security summit in London, the US stood alone in not backing clean energy, instead pushing for more reliance on oil and gas. UK Prime Minister Keir Starmer and European Commission President Ursula Von Der Leyen were unequivocal: homegrown clean energy is the route to achieving energy security and reducing consumers’ bills.

China’s domestic oil and gas boom

Oil production in China has reached an all-time high, placing it joint fifth in the world alongside Iraq and behind only the US, Saudi Arabia, Russia and Canada. Yet with domestic oil consumption dropping last year, China’s drillers are focusing more on gas – with gas production set to exceed that of oil this year. China’s domestic production boom, driven by a desire to rely less on fossil fuel imports, serves to add to the huge glut of oil and liquefied natural gas (LNG) that is set to push down prices for the fuels worldwide.

In April, China’s imports of LNG were predicted to fall 20% on the previous year, which as the world’s largest LNG buyer, has a big impact on the global market. In the same month, it was reported that China has stopped importing US LNG, following the start of the recent trade war.

Groundbreaking global carbon tax on shipping

In a triumph of multilateralism, countries around the world have agreed a “first ever” global tax on greenhouse gas emissions (GHGs) caused by shipping, making it the only industry to have agreed internationally mandated targets to reduce emissions. Or, to be a bit more balanced, in a very rare display that multilateral climate diplomacy isn’t dead, a majority of countries have agreed a tangled compromise that will tax shipping emissions above a certain threshold. The money raised will be spent on promoting “zero and near-zero emission fuels”, and will certainly put the brakes on shipping industry oil demand, even if it falls far short of the Paris goals. Carbon Brief has all the details.

Around the world

• Russia’s oil industry is proving resilient to Western sanctions, with producers drilling wells at the fastest rate in five years and a third above pre-war levels. This means that Russia’s oil production capacity remains virtually unchanged from 2016. The country has seen a significant drop in exploration drilling, driven by lack of access to specialist technology and by uncertainty around future global oil demand.
• Mexico is considering allowing a significant expansion of domestic fracking as it seeks to reduce reliance on the US, which currently provides 70% of the country’s gas supply. Mexico holds the sixth-largest shale gas reserves in the world, but there are splits in the government over whether to allow an expansion of the controversial drilling technology.
• The long-delayed Tanzania LNG project is now aiming for a decision before October 2025. The USD 42 billion project reportedly stalled over negotiations between the government and the project developers Shell, Equinor and Exxon. Key outstanding issues include the government’s requests for a share of the gas to be reserved for domestic use and for the developers to work with local companies. 
• Trump has resumed his “maximum pressure” campaign against Venezuela’s Maduro regime, scrapping sanctions exemptions for Chevron, Eni, Repsol, Shell and BP’s operations in the country. The withdrawal of international oil companies could see the country’s oil production fall to about 100,000 barrels per day, a huge drop from the 2.5 million barrels per day it pumped out in 2016.

Energy transition strategies

Oil companies under pressure, but not from investors

We are now in company AGM season, and the world’s largest oil companies are facing what are set to be their worst results since the pandemic. The income of the five biggest Western oil companies fell by about USD 90 billion from 2022 to 2024, and oil prices this year are set to be around a fifth lower than last year. As a result, upstream spending on producing oil and gas is expected to drop for the first time since 2020.

While the market holds its feet to the fire, investors aren’t doing the same. Dutch group Follow This, which has been at the forefront of shareholder activism for years, is not filing any climate resolutions against companies this year. Exxon is set to face no shareholder proposals (or any issue) for the first time in 25 years. Possibly not a surprise, given Exxon sued one of its own shareholders last year to stop them from filing proposals. No one wants to go to court against a company with pockets as deep as Exxon’s.

BP’s oil and gas is the problem

When BP’s corporate strategy came under fire from activist-investor Elliott Investment Management, it responded by expanding oil and gas production and shifting away from renewables. But it turns out that oil and gas is as much of the problem as anything else.

Elliott Management, now one of the company’s biggest shareholders, isn’t happy with the new plan either. Rather than growing its oil and gas business, the investor wants BP to focus on increasing free cash flow – returning money to its shareholders. The FT reports that Elliott believes that the company should “cut spending across its oil and gas business because its future oil resources are sufficient.” The investor’s view is that BP’s problem isn’t about whether the company should focus more on oil and gas against renewables, rather that the company has done a bad job of running its projects and has let costs run up. As if to underline BP’s oil and gas troubles, the company reported a 48% drop in profit as a result of weaker gas trading and refining results.

Now the chair of BP’s board is set to go, as well as the head of strategy who oversaw the previous focus on reducing oil and gas production. The company is touting new gas fields to show its determination to refocus on its core business, while cutting its low-carbon mobility team. Yet BP was hit with the biggest protest vote of any FTSE 100 company in the last five years, and its ability to maintain its crucial share buybacks are at risk from low oil prices. BP doesn’t seem to be getting the message, and is a very long way from being out of the woods yet.

How TotalEnergies avoided a strategy u-turn

A useful FT deep-dive explores how TotalEnergies’ transition strategy survived while peers like BP and Shell dramatically u-turned on their climate plans. According to the analysis, TotalEnergies’ strategy success is due to its plan to expand, rather than reduce, oil and gas production to finance its transition spending, and its focus on electricity generation as a whole rather than purely renewable energy. While the company might not have u-turned, it is far from heading the right direction, and was recently given an ‘F’ grade by Carbon Tracker for its climate efforts – the same score as Saudi Aramco.

Clean energy investments

In what may come as a surprise to many readers, Exxon is set to become the joint-top spender on “low-carbon” energy of the oil majors, alongside TotalEnergies. The company, often thought of as an oil and gas stalwart with little interest in the energy transition, has committed USD 30 billion to “low emissions opportunities” before 2030. This puts Exxon ahead of BP and Shell, which have recently significantly reduced their clean spending plans. Unlike European oil companies’ focus on renewables, Exxon’s “low-carbon” spending concentrates on lithium extraction, CCS, biofuels and hydrogen. This month, Exxon won a regulatory battle against Occidental Petroleum for the rights to extract lithium in Arkansas, a project which, if successful, stands to benefit from the Trump administration’s efforts to increase domestic production of the critical mineral.

Equinor is considering legal action against the US government over its decision to halt construction of the Norwegian company’s USD 4.5 billion wind farm off the New York coast. US interior secretary Doug Burgum demanded Equinor halt construction of the wind farm, which is 30% complete, in April as part of the Trump administration’s efforts to curtail the US wind sector. If built, the project could supply electricity to around half a million homes in New York.

Carbon Capture and Storage (CCS)

In Europe, the UK and Dutch governments are throwing their weight behind CCS. The UK government and Italy’s Eni have given “the final go-ahead” for a project to transport and store carbon dioxide off the coast of Liverpool. The pipeline is a key part of HyNet North West, one of two CCS clusters set to receive almost GBP 22 billion from the UK government. The Dutch government has stepped in to provide EUR 639 million to the country’s largest CCS project, after TotalEnergies and Shell chose to withdraw some of their planned investments. The decisions come in the context of the companies’ cutting their ‘low carbon’ spending; neither TotalEnergies nor Shell responded to Reuters’ request for comment on the decision to withdraw finance from the project.

Japan and Malaysia are reportedly close to securing a deal for the export of liquified CO₂ from Japan for underground storage in Malaysia. Japan considers carbon dioxide export essential to meeting its climate goals, even though the technology has not been proven at scale. It remains to be seen if the thorny details of the deal can be agreed, including who will be responsible for the long-term monitoring of carbon storage sites for leakage – a task spanning hundreds, if not thousands, of years.

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Hello readers,

First, a brief reminder from this month’s news on why the future of this industry is so important. 2024 saw 151 ‘unprecedented’ extreme weather events. Half of the increase in global emissions from energy last year was due to it being the hottest year on record. The disastrous loop of hotter temperatures drove more demand for electricity for cooling, driving emissions ever higher. Half of the world’s carbon emissions in 2023 came from just 36 fossil fuel companies.

One nugget of good news that I’d missed is that sales of combustion engine cars peaked way back in 2018, and sales have fallen by nearly a quarter since then.

More positive news this month came from China, where demand for oil and gas is well below expectations, and from the UK, which is advancing its commitment to end exploration of new oil and gas fields. On the corporate side, BP’s still facing pressure – both for not moving further away from renewables as well as from investors unhappy with its return to its core oil and gas business. Shell has doubled down on its strategy, focusing on returning money to shareholders rather than growing its business.

Please share this newsletter with your colleagues and contacts who can subscribe here.

Thanks,

Murray

Oil and gas in the transition

China’s weakening demand for oil and gas

Some surprisingly good news on oil and gas from China this month. The country’s total consumption of crude oil dropped by 1.2% last year, with Chinese crude imports in 2024 dropping for the third time this decade. Demand for diesel peaked in 2019 and petrol consumption likely peaked in 2023 – with petrol sales dropping 9% year-on-year in 2024. The Chinese government is pushing refiners to reduce fuel output and focus on producing products for the petrochemical industry. If oil demand keeps falling, this could have a significant impact on global oil markets.

Chinese LNG imports are also now set to fall this year, with BloombergNEF revising down its forecast by more than 10%. Cheaper alternatives, such as coal and renewables, coupled with increased alternative supplies of gas domestically and from Russia have all pushed down demand for LNG imports. Many LNG exporters and traders have relied on the prospect of increasing Chinese demand for the fuel. If this decline continues, or even if demand remains stable – it could add to the expected glut of LNG later this decade and put pressure on the finances of LNG exporters. The state-run importer of Pakistan, another Asian country previously thought of as a key driver of LNG demand, is asking suppliers to divert scheduled shipments due to a lack of demand. Asian gas demand might not be all the industry hoped it would be.

US oil and gas, from “drill, baby, drill” to “nil, baby, nil”?

There’s been lots of coverage over the last month of the challenges faced by US oil and gas drillers due to the Trump administration’s policies. US Energy Secretary Chris Wright has been adamant that the sector can boost oil production even if prices go as low as USD 50 per barrel, the price floated by one of Trump’s leading trade advisers as being key to reducing inflation. No one else seems convinced, as Daniel Yergin, a Pulitzer Prize-winning energy historian told the FT, “at $50 a barrel the economics of shale don’t work”.

Oil executives were damning of Trump’s policies in their responses to the (anonymous) Dallas Federal Reserve survey; “the administration’s chaos is a disaster for the commodity markets”, “‘drill, baby, drill’ is nothing short of a myth and populist rallying cry,” and “the threat of $50 oil prices by the administration has caused our firm to reduce its 2025 and 2026 capital expenditures” read some of the responses. Drillers reported that prices needed to be at least above USD 65 per barrel to make a profit, and more than 60% of companies expect Trump’s steel tariffs to hurt oil and gas demand. Bloomberg described the executives’ take on Trump’s policies as ‘Nil, Baby, Nil’.

As if the policy challenges weren’t enough, drillers now face the prospect of having already drilled the most promising regions of the prolific Permian basin. US oil production is likely to peak before 2030 according to Oxy CEO Vicki Hollub, and as drillers focus on more marginal wells the costs of production are set to rise.

The U.S. Environmental Protection Agency (EPA) administrator Lee Zeldin announced that he was “driving a dagger through the heart of climate-change religion” in the “most consequential day of deregulation in American history”. The EPA is planning to roll back regulations across the board – including power plant pollution and car and truck emissions. The agency also wants to rewrite the finding that climate change endangers public health and welfare, which underpins huge amounts of climate regulation in the US. Expect a long road ahead for these rules which are likely to face extensive legal challenges. As David Doniger, a climate expert at the Natural Resources Defense Council, told AP: “In the face of overwhelming science, it’s impossible to think that the EPA could develop a contradictory finding that would stand up in court.”

One stunning fact from the US – ‘marginal wells’ make up 77% of active oil and gas wells in the US, produce less than 6% of the country’s oil and gas, and are estimated to account for 40 to 60% of the industry’s emissions from operations. These marginal wells keep operating because they benefit from a multibillion dollar federal tax break. Madness.

2.3 trillion in stranded assets

A new study found that if governments meet their climate targets, this would result in USD 2.3 trillion worth of fossil fuel assets becoming “stranded” – economically unviable before the end of their operating life. Even if governments take no further action on climate change – an extremely unlikely scenario – global stranded assets would still amount to USD 872 billion.

Tanzania to launch new licensing round

Tanzania is launching its first oil and gas licensing round for over a decade, largely focused on new prospects in the Indian Ocean. A final deal on the country’s long-delayed proposed LNG terminal is reportedly also due soon, but given how long negotiations have taken so far, I’m not holding my breath.

UK proposes no ‘new’ fields, but not the end of drilling

The UK government has confirmed its manifesto pledge not to issue new licences to explore new oil and gas fields. The proposals, which were set out in a consultation and have not yet become government policy, appear to allow room for some new drilling to continue – either within existing licenced areas, or through ‘tie-backs’ where new projects link into existing infrastructure. 

US backs Mozambique LNG

The US Export-Import Bank (Exim) has re-approved a USD 4.7 billion loan for TotalEnergies’ proposed LNG terminal in Mozambique. The loan was originally agreed in 2020, before the project was paused after an outbreak of violence in the region. The US decision will now likely put pressure on the UK and the Netherlands, which had previously approved loans to the project but have since committed to stop providing international finance for fossil fuel projects.

World’s second biggest LNG exporter set to import LNG

Australia, which remains the world’s second largest LNG exporter, is facing the ‘almost inevitable’ prospect of having to import LNG. The country’s gas reserves and export terminals are located in the west and north, while the centres of demand are in the south east. Without domestic pipelines to connect the two, the country is set to join the ranks of countries competing to buy gas.

Energy transition strategies

Shell is buying itself

In what Shell announced as an acceleration of its current strategy, the company promised to cut costs, reduce spending and return more money to shareholders. Shell said it would increase the share of cash flow going to shareholders to 40-50% from 30-40%, cut planned spending by around 10%, and find another USD 3 billion-4 billion in cost savings. The sheer scale of Shell’s planned share buy backs is remarkable. The company has already bought a fifth of its own shares since 2023, and by 2030 it will have bought 40% of its remaining shares. Asked by the FT if Shell was in danger of liquidating itself by buying so many of its own shares, CEO Wael Sawan said he was comfortable with a much smaller number of investors. The big question is whether Shell can grow, or even sustain itself, with such limited investment. Am I being too optimistic to hope that Shell might be shifting away from growth and instead prioritising returning money to shareholders?

BP’s troubles aren’t over

BP’s shift away from renewables has reportedly not satisfied the activist investor widely cited as the driving force behind the company’s change in approach. According to The Times, Elliott Management believes that the changes have not gone far enough and wants the company to completely divest, rather than scale back, its wind and solar businesses. BP’s chairman Helge Lund is facing a tough AGM where he faces re-election by investors, with both investors in favour of a focus on oil and gas, and those vehemently opposed to BP’s recent shift away from renewables, seeking to oust him.

Equinor ‘failed to align with Paris Agreement’

In an all-too-rare example of corporate failure on climate action leading to divestment, one of the asset managers co-leading climate talks with Equinor on behalf of investors has sold its shares in the company. Sarasin & Partners led talks with the firm on behalf of more than 600 investors in the Climate Action 100+ initiative. The asset manager said that Equinor had failed to align its strategy with the Paris Agreement by lobbying to expand oil and gas production and cutting its renewable energy target. Sarasin had been one of the top 20 investors in Equinor prior to its decision to divest.

Clean energy investments

BP is putting half of its solar business, Lightsource bp, up for sale as part of an effort to reduce debt and make the company more attractive to investors. The move comes less than six months after BP took full ownership of the company in October 2024, buying just over half the remaining shares for GBP 400 million and taking on GBP 2.2 billion in debt. The bidding is expected to take place in the second quarter.

Hydrogen and ammonia

German utility RWE and French energy company TotalEnergies have signed what is reported to be the largest contract for green hydrogen from an electrolyser in Germany. The 15-year agreement will see TotalEnergies buy 30,000 tonnes of green hydrogen for use in its refinery in Germany. Oil refining is one of the most significant uses of hydrogen – which is currently made from natural gas and has a substantial carbon footprint. TotalEnergies aims to replace the 500,000 tonnes of hydrogen it uses in its refining processes in Europe, which is currently produced from fossil fuels, with green hydrogen by 2030. This plan includes shipping green ammonia from Saudi Arabia, and the company is reportedly considering importing hydrogen from a project under development in Brazil.

Carbon Capture and Storage (CCS)

Shell, Equinor and TotalEnergies will invest USD 714 million in expanding the Northern Lights CCS facility in Western Norway. The deal will expand the CCS project from its current capacity of 1.5 million tonnes of carbon dioxide per year to 5 million tonnes. The investment includes a grant of about USD 141 million from the European Commission.

In a sign of some of the challenges the industry faces, a USD 8.9 billion carbon capture pipeline proposed for the US Midwest has been cancelled after a new law in South Dakota banned the use of eminent domain for carbon capture projects. Eminent domain allows the government to seize private property with compensation. The pipeline would have carried carbon dioxide from bioethanal plants across five states to be permanently stored in North Dakota.

We can, however, rest easy knowing that Saudi Aramco has launched a test Direct Air Capture (DAC) facility which can capture 12 tons of carbon dioxide per year from the atmosphere. It is intended to pave the way for a larger project that would capture 1,250 tons of carbon dioxide per year. Given that the test facility captures a whopping 0.000001% of Saudi Aramco’s estimated 1.6 billion tonnes of carbon dioxide emissions from the oil and gas it sells, calling it a drop in the ocean may be too kind.

From Zero Carbon Analytics

• To date, 68 lawsuits have been filed seeking financial redress for the impacts of climate change, of which 43 are still ongoing. The fossil fuel industry has been the target of 54% of these cases – according to our latest analysis of court cases.
• Carbon offsets are frequently used by fossil fuel companies to claim emissions reductions. Our briefing shows that offsets do not deliver net emissions reductions and their use is not aligned with achieving the temperature goals of the Paris Agreement.

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Hello readers,

I promise that this newsletter won’t forever be focused on the US, but for now I’m afraid Trump’s policies are still dominating news coverage of the oil and gas industry. This month, we’re looking at his latest moves, including the potential repeal of the lynchpin of US climate regulation, as well as whether steel tariffs will hurt the sector.

The other big news this month has been that BP and Equinor have joined Shell in reversing their shift to renewables and are refocusing on their core oil and gas businesses. Given their relatively small renewable investments, the shift won’t make a huge difference to the overall roll out of renewables. Interestingly, the fossil fuel industry’s favoured emissions reduction technologies – carbon capture and storage (CCS) and hydrogen – seem to be falling out of favour with investors. While overall investment in the energy transition rose by 11% last year, according to BloombergNEF, investment in CCS dropped by 50%, and investment in hydrogen fell by 42%.

Please share this newsletter with your colleagues and contacts who can subscribe here.

Thanks,

Murray

Oil and gas in the transition

US domestic climate regulation rollback

The Environmental Protection Agency (EPA)’s new administrator Lee Zeldin reportedly urged the White House to remove the centrepiece of US domestic climate regulation. The so-called “endangerment finding” ruled that greenhouse gases pose a threat to public health and welfare, allowing the federal government to regulate emissions – including from cars and power plants. A repeal of that finding would open the door to removing federal regulation of those emissions, with potentially huge consequences. 

The new Republican-controlled Congress also swung into action to remove climate regulations, with the House and Senate voting to repeal a landmark Biden policy requiring oil and gas companies to pay a fine for their methane emissions. Expect the bonfire of regulations to continue.

Trump’s investment pitch to East Asia

President Trump has been heavily promoting the proposed Alaska LNG project to governments in Asia, with Japan, South Korea, Taiwan and others reportedly expressing interest in investing. The US’ agenda towards Asia is clear: “If the Trump administration were to have its way, U.S. LNG would flow in massive quantities […] so that Southeast Asia would become economically dependent on the United States. It’s redrawing the map of energy dependence,” Kenneth Weinstein, Japan chair at conservative think tank Hudson Institute, told Reuters.

However, it remains to be seen whether Asian countries’ pledges of interest in the Alaska project are genuine investment plans or simply a diplomatic gesture to warm relations with the US. The project is not without its challenges, including the construction of an 800-mile pipeline across harsh Arctic terrain, expected high operating costs and the risk of regulatory changes if the Democrats were to return to the White House. If it goes ahead, the Alaska LNG project would be one of the largest energy investments in US history.

US steel tariffs hit oil and gas industry

Steel import tariffs of 25% are set to significantly increase costs for the oil and gas industry, with the potential to undermine Trump’s goal to increase domestic production. According to Rystad Energy, US shale and offshore oil and gas projects are most likely to see cost rises in the region of 5-10%, a significant increase in the context of relatively low oil prices and tight margins. Tariffs would also hit the planned expansion of LNG export facilities; “the biggest worry that keeps LNG developers awake at night, especially in the US, is the price of steel” according to an LNG lead specialist at Calypso Commodities. Unsurprisingly, the American Petroleum Industry (API) is pushing back on the tariffs: “Unleashing American energy requires access to materials not readily available in the US,” said Dustin Meyer, API’s senior vice-president of policy, economics and regulatory affairs. “We are committed to working with the Trump administration on approaches that avoid unintended consequences.”

Trump’s international reach

The Trump administration’s decisions are having direct impacts on the industry beyond US borders. The US’ threat on tariffs on Canadian oil exports has led to calls in Canada for the construction of new oil pipelines to the coast, to allow it to shift its reliance on exporting to the US. One major problem with this plan is that no companies have come forward with an interest in taking the hugely risky, costly project that could take a decade to complete. 

The US has also cancelled Chevron’s oil licence in Venezuela, which was granted by the Biden administration to allow the company to operate in the otherwise sanctioned country. The cancellation is aimed at pressuring Venezuelan President Maduro into holding democratic elections and could nearly halve the country’s oil output, according to Rystad Energy.

China’s peak oil?

China may have already passed its peak demand for oil, driven by the huge uptake in electric vehicles (EVs) and the expansion of public transport – particularly high speed rail. The International Energy Agency said “For China’s fuel growth trajectory to be leveling off at this early stage of development is without historical precedent.” EVs now make up half of all car sales in China.

Energy transition strategies

BP

BP has announced a fundamental reset of its corporate strategy, announcing a 20% increase in oil and gas spending, while cutting expenditure on renewables by 70%. The move came after the activist investor Elliot Management built up a 5% stake in the company, making it the third largest shareholder, with the intention of pushing for significant changes in the company. BP’s share price has fallen relative to other oil and gas companies, raising speculation that it could be at risk of a corporate takeover. 

BP’s CEO Murray Auchincloss announced the company was ditching the strategy set by the previous CEO Bernard Looney, including the commitment to increase renewable generation 20 fold by 2030. He said that he believed that “our optimism for a fast transition was misplaced and we went too far, too fast” and that he forecast that there would be “tremendous amounts of demand” for oil and gas beyond 2050.

The immediate response was not what Auchincloss would have hoped for. Shares fell by 2.3% after BP published the announcement and Elliot Management was reported to believe the changes didn’t go far enough. The company has also been criticised for planning to cut share buybacks by 60%, which will hurt investors, while basing its financial assumptions on unrealistically high oil and gas prices.

BP’s management is now setting off on a series of meetings in the UK and US to sell the new strategy to investors, as well as likely facing down calls from some investors for a vote on the change in strategy at this year’s AGM.

Two great quotes sum up the response:

• The FT’s editorial board: “If all the big international oil and gas producers, and national oil companies such as Saudi Aramco, concentrate mainly on fossil fuels and demand declines, only some will survive. Higher-cost producers, such as BP, may not be among them.”
• Reuters’ Energy Columnist Ron Bousso: “While BP and its rivals may be able to temporarily walk back from their green goals, they will not be able to sidestep the energy transition for long. Investors will expect these companies to offer viable long-term strategies, because while BP is facing an existential crisis, the energy transition is not.”

Equinor

Equinor is heading in a similar direction to BP, having committed earlier in February to halve investment in renewable energy and increase oil and gas production by 10% above its previous target. As is now standard across the industry, CEO Anders Opedal said that reducing clean investment and increasing fossil fuel production does not affect Equinor’s commitment to net zero by 2050, although he acknowledged that drilling more now would make it harder in later years.

Eni

Eni however is sticking with its energy transition strategy, pledging to increase its renewables capacity four-fold by 2030 and create new businesses focused on carbon capture and storage as well as “carbon neutral data centre capacity”. The data centre capacity will likely be based on selling the spare capacity of its giant EUR 100 million supercomputer, the fifth most powerful in the world, which primarily analyses data on oil and gas reserves. Eni’s CEO Claudio Descalzi summed it up in a remarkably sensible quote on the energy transition “at the end of the day, the returns on capital is comparable, but you have to consider the transition businesses are less risky than upstream investment”.

Shell

Friends of the Earth will appeal a 2024 ruling that overturned the court-imposed emissions reduction requirement for Shell. The legal saga, which in 2021 saw Shell ordered to reduce emissions by 45% by 2030, is now set to head to the Dutch Supreme Court. The NGO wants the top court to impose a specific emissions reduction target on the company. The court ruling is expected in 2026.

While its legal battles continue, Shell has been talking up the prospects for the future of its products, claiming in its annual LNG outlook that demand for the fuel will rise by 60% by 2040. Its analysis is questionable. Shell claims that European LNG demand will rise up to 2030, when European energy regulators say this would only happen if the EU fails to meet its REPowerEU goals – and a far more likely scenario is for LNG demand to slowly and consistently decline from 2025 onwards.

Shell also proposed developing synthetic LNG, made by combining green hydrogen (made from renewables) with carbon dioxide captured from the atmosphere – which would in theory create a ‘net zero’ form of natural gas. The plans were described by analysts as “wishful thinking” with “absurd levels of expense” that aim to “prolong the life of LNG infrastructure when demand for fossil LNG has gone down”.

ADNOC

The UAE’s ADNOC is continuing its push into petrochemicals, eyeing a deal that would make it the joint owner of a USD 30 billion chemicals and plastics company. The deal comes after shareholders approved ADNOC’s USD 15 billion takeover of Germany chemicals company Covestro in December 2024.

Clean energy investments

A decision by the EU on fines for airlines’ failure to meet emissions targets could be crucial to the future development of Sustainable Aviation Fuel (SAF). SAF is a broad range of air fuels not made from fossil fuels, the vast majority of which are made from organic material, including crops or used cooking oil. SAF currently costs at least two to three times more than oil-based jet fuel and airlines are unwilling to commit to long-term contracts to buy the fuel. Without those long term contracts, oil and gas companies and refiners are unwilling to invest in expanding production – which currently produces below 1% of total aviation fuel demand. The EU fines will dictate the economic viability of airlines purchasing SAF, given the potential penalties for failing to meet the EU’s emissions reduction goals.

Hydrogen and ammonia

In yet another blow to the development of green hydrogen (made from renewable electricity), the Spanish oil and gas company Repsol has cut its 2030 target for production of the fuel by up to 63%. The company cited the lack of development of the market and government regulations for the decision.

Germany’s state-owned energy company Securing Energy For Europe (SEFE) is accelerating its efforts to build an international supply chain for the import of green hydrogen, through an agreement with Saudi Arabia’s ACWA power for the delivery of 200,000 tonnes a year by 2030. The company, formerly Gazprom Germania before its nationalisation, also recently signed a deal for a similar level of imports of green hydrogen from Brazil. Additionally, it is investing in converting gas grids and infrastructure in Germany to enable the transport and storage of hydrogen. However, the technology for large scale shipping of hydrogen is unproven, and the fundamental physics involved make it prohibitively inefficient and costly.

Carbon Capture and Storage (CCS)

The future of further UK government funding for CCS projects is in doubt as the Treasury looks to find savings in government spending, sources briefed on the process told the Financial Times. Last October the UK announced more than GBP 20 billion in funding over 25 years for CCS projects in two regions of the UK. This was expected to be the first phase of support for CCS projects, with further projects in development elsewhere in the country, though funding is now in doubt. A committee of UK MPs found that the government’s support for an “unproven, first-of-a-kind technology to reach net zero is high risk” and “have a very significant effect on consumers and industry’s electricity bills”.

The CCS project backed by Canada’s largest tar sands oil producers, the Pathways Alliance, is not viable without ongoing subsidies from the government, according to an analysis by the Institute for Energy Economics and Financial Analysis (IEEFA). Its analysis found that the project is reliant on emissions credits, the value of which are at risk due to a forecast oversupply. While revenue from the project could be “stagnant”, operating costs will likely increase, meaning that “the cost per tonne of CO2 captured is likely to exceed the revenue that the project can generate for each tonne captured.”

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Hello readers,

Once again, the US is dominating the news agenda on oil and gas, with President Trump wasting no time in implementing his sweeping shift away from Biden’s energy policies towards support for oil and gas. There may be some connection between this set of policies and the nearly half billion dollars spent by the oil and gas industry in the last election cycle, according to an analysis by Climate Power. Oil and gas companies could still find themselves with major problems in the US after the latest Supreme Court decision allowed state cases seeking to hold them accountable for their role in contributing to climate change to progress.

Beyond America, the latest data raises the prospect of peak oil demand in China, while Saudi Aramco is looking to diversify into lithium production. This year could also see major milestones in carbon capture and storage (CCS), with a record number of projects aiming to reach an investment decision in 2025, record growth forecast for operating capacity and the first seaborne shipments of captured carbon dioxide.

Please share this newsletter with your colleagues and contacts who can subscribe here. It’s always great to hear from you, so do email me any feedback or suggestions.

Thanks,

Murray

Oil and gas in the transition

White House policies on oil and gas

In his final week as President, Joe Biden banned new oil and gas drilling along most of the US coastline. The order does not affect areas in the Gulf of Mexico that are the mainstay of current US offshore production, but does cover huge swathes of the East and West coasts, as well as parts of the coast of Alaska and the Gulf of Mexico. The measure is seen as largely symbolic as there are few active prospects for production in the region. Legal experts state that the action cannot be undone directly by Trump, instead requiring an act of Congress. That hasn’t stopped Trump signing an executive order, reversing Biden’s decision.

Trump wasted no time in implementing his dramatic shift in energy policy. His executive orders included withdrawing from the Paris Agreement, declaring a national energy emergency, lifting the freeze on LNG export approvals and repealing restrictions on drilling in the Alaskan Arctic wildlife refuge. Internationally, he has called on the EU to buy more US oil and gas to avoid tariffs and on Opec to lower global oil prices. His officials have also swung into action, with the acting head of the Environmental Protection Agency dismissing all outside advisers on science and clean air from its advisory board.

Trump can’t make the industry drill

Despite all this, it is far from certain that Trump’s actions will lead to significantly more, or much cheaper, oil. US producers are under pressure from investors to turn a profit, not just produce more oil. Increasing production only makes sense if prices are higher. If Trump succeeds in lowering prices, the incentive to “drill, baby, drill” disappears. To lead to a significant increase in drilling, oil prices would need to reach USD 84 a barrel. They are currently USD 74 today, and are forecast to fall to USD 64 this year. Half of major producers operating in the Permian Basin are planning to cut their investments this year. The industry is also not rushing into Alaska, fearing that Trump’s decision could be reversed again in four years’ time.

One area where the industry doesn’t agree with Trump’s agenda is on leaving the Paris Agreement. US energy companies would “prefer that the U.S. government remain engaged in the UN climate process”, according to a representative from the Global Energy Institute at the US Chamber of Commerce. A cynical take might be that they will miss having a close ally and powerful representative of their interests taking a seat at the world’s climate talks.

Cases against fossil fuel companies progress through the US courts

In a major development, climate litigation in the US seeking to hold fossil fuel companies accountable, the US Supreme Court has stated that it will not hear an appeal from oil and gas companies about a case in Hawaii. The ruling is significant as it means the case in question,  and other similar cases, can now progress at the state level. The oil and gas companies had sought to have the case heard in Federal court, where they hoped to get a more favourable outcome. As well as solving the jurisdictional dispute, the decision also removes a legal question that had been preventing the cases from progressing.

Despite this progress at the Federal level, a New York judge dismissed the City’s case against oil and gas companies. The judge ruled that the city could not argue that its residents were sensitive to the causes of climate change and were also misled by oil and gas companies about the impact of their products. The judge also stated that the industry’s adverts were too vague to constitute greenwashing. New York City’s lawyers are considering their options after the ruling. New York state passed a law in December through which it will fine fossil fuel companies USD 75 billion over the next 25 years to pay for damages caused by climate change. This too is set to head to the courts.

In the wake of the Palisades Fires in Los Angeles, new legislation has been proposed in California that would allow victims of climate-driven fires, and insurance companies, to sue the oil industry for their losses. The proposal is based on the principle of an existing law that makes utility companies liable for damages if their equipment starts a wildfire. The law could also be critical in ensuring the viability of the state-backed insurer of last resort, which could become insolvent due to the scale of damage. A major oil and industry lobby has already pledged to oppose the proposed bill becoming law.

New UK oil and gas fields unlawful

A court in the UK has found that the government’s decisions to permit two new oil and gas fields in the North Sea – Rosebank and Jackdaw – were unlawful as they did not consider the emissions that would be created from the use of the oil and gas extracted. Crucially, the court ruled that the projects cannot go ahead without new consent from the government.Shell and Equinor argued that while the permissions were unlawful, the projects should nonetheless proceed due to their investments to date. The UK government has consulted on new project assessment criteria, which include emissions from the fuels extracted, but the new rules have not yet been introduced. It is still potentially possible that the projects could be approved by  the government once the new rules are in place. Shell’s CEO stated that they would be willing to appeal the case all the way to the UK Supreme Court to secure permission to continue the project.

Peak oil in China?

The prospect of peak oil demand in China could be a game changer for the entire global oil and gas industry. In 2024, Chinese oil imports fell by 2%, the first decline in two decades. Sinopec, China’s biggest refiner, revised its forecast for crude oil consumption to peak in 2027, up to three years earlier than previous expectations. Even the growth in gas demand is slowing, expected to rise by some 6%, compared to 9% last year. The size of China’s impact on global markets is hard to overstate: over the past three decades, China has accounted for half of all growth in the world’s oil demand.

The huge growth in electric vehicle sales, and more switching from diesel to gas for lorries, has played a massive role in curbing demand growth. In the future, the IEA told news sources it expects “essentially all” of China’s oil demand growth to come from petrochemicals. In an interesting twist, the IEA notes that about a quarter of China’s increase in petrochemical demand over the past five years has come from wind turbines and solar panels.

More political battles over the IEA’s forecasts

The IEA has, once again, come under fire for its focus on the energy transition, with a report from the agency’s former lead oil market analyst. The report claims that the IEA’s forecasts for peaking oil demand are flawed, underestimating demand growth in emerging economies and petrochemicals, and overstating the expansion of electric vehicles. However, I would question the impartiality of an analysis launched at an event with a US Republican Congressmember who has been critical of the IEA and the CEO of an oil and gas lobby group. The IEA said the report was “full of rudimentary errors” and “fundamental misrepresentations about both energy systems in general and IEA modelling in particular”.

Energy transition strategies

Saudi Aramco is set to expand its investments in lithium production as Saudi Arabia seeks to diversify its economy away from its overwhelming reliance on oil and gas. Lithium demand is set to increase significantly due to its use in batteries and electric vehicles, though prices have slumped in recent years due to huge growth in production capacity in China. Aramco is researching the possibility of producing lithium from oilfield wastes, though the state acknowledges that the project is “promising, but not yet commercially viable”.

New analysis has revealed the overwhelming extent of Shell’s reliance on carbon credits as part of its energy transition and emission reduction strategies. In 2024, Shell used nearly 15 million tonnes worth of carbon credits, more than double Eni, the next-biggest user. The fossil fuel sector accounted for over 40% of carbon credits used last year, three times more than any other sector.

TotalEnergies LNG expansion plans face significant challenges after further delays to its much troubled USD 20 billion proposed LNG terminal in Mozambique. The project was launched in 2020, but paused in 2021 after an insurgency in the region. The company had repeatedly set a goal of restarting the project before the end of 2024, a deadline it has now missed. The project’s financing is also now in doubt, as promised US support was put on hold when the project was frozen, and the UK has ended its international financing for fossil fuels. Attempts by TotalEnergies to convince the Biden administration to unblock close to USD 5 billion in loans that had previously been committed, a quarter of the total project cost, were not successful.

Hydrogen and ammonia

Analysts at Wood Mackenzie have set out their top things to watch for hydrogen and ammonia this year, which include:

• Blue hydrogen – made from gas with CCS –  capacity reaching final investment decisions in the US this year is forecast to be 10x greater than that for green hydrogen – made from renewable energy.
• At least one gigawatt-scale green hydrogen project is expected to be approved in 2025. Likely projects are in Asia, the Middle East or Latin America, with no gigawatt-scale green hydrogen projects in Europe, the US or Australia expecting to get the go-ahead this year.
• 45% of the hydrogen to be produced in projects now in development don’t yet have a buyer – indicating that supply may be exceeding demand.

Carbon Capture and Storage (CCS)

Wood Mackenzie also has a useful set of forecasts for CCS this year, which includes:

• A record number of CCS projects are expected to reach final investment decisions this year, including in Canada, the US, Timor Leste, Australia and the UK.
• Operational CCS capacity could increase by more than a quarter, the largest annual increase to date.
• The world’s largest Direct Air Capture (DAC) project is due to start operating in the US.
• 2025 is expected to see the first shipping of CO2 by sea and the first cross-boarder shipment, both in projects for carbon storage in Norway.
• New rounds of government subsidies will be coming, including USD 3.5 billion for Bioenergy with Carbon Capture and Storage (BECCS) projects from the Swedish government and USD 4.2 billion from the Danish government for CCS projects.

In other CCS news, Equinor has retracted a claim that its flagship Sleipner project captures around 1 million tonnes of CO2 a year. Analysis of official figures shows its actual capture rate was around a tenth of that level in 2023 when it captured just 106,000 tonnes of CO2 Since its launch in 1996, the project has only captured 1 million tonnes a year once, in 2001.

From Zero Carbon Analytics

At the start of the year, the Guardian ran an exclusive story on our findings that ports handling 98% of Saudi Arabia’s oil exports are at risk from 1 metre of sea level rise. According to scientists at the International Cryosphere Climate Initiative, 1 metre of sea level rise is now inevitable within around a century, and could come as early as 2070 if ice sheets collapse and emissions are not curbed.

Ahead of Trump’s inauguration – and his promise to unleash US gas exports – we published a pair of briefings on LNG, showing:

• US LNG capacity already under construction is over four times greater than the amount the EU imported from Russia in 2024. No additional LNG capacity would be needed for the EU to replace Russian LNG.
• Rising imports of LNG have coincided with higher gas price volatility in Europe. In the last five years, the changes in European gas prices have been double the historical average.

Hello readers,

Happy New Year and welcome to our first newsletter of 2025, rounding up the biggest stories from December.

2025 looks set to be an interesting year for the oil and gas industry – on the one hand Trump’s promise to ‘drill, baby, drill’ and Exxon’s plan to increase production – on the other flatlining demand and huge spare OPEC capacity. With Wall Street analysts expecting oil prices to be lower this year than last, it seems unlikely we’ll see a huge surge in new production – beyond what is already coming. Meanwhile, BP and Shell are retreating from their energy transition plans back to their core focus on oil and gas – which may please shareholders in the short term, but can’t last forever as the energy transition continues.

Please share this newsletter with your colleagues and contacts who can subscribe here.

Thanks,

Murray

Oil and gas in the transition

At the start of December, countries failed to reach an agreement in negotiations over a plastics treaty, with a proposed cap on total plastic production turning out to be a crucial sticking point in the talks. The talks were hugely important to the oil and gas industry, with plastics accounting for 15% of global oil demand and as an expected area of growth – in comparison to road transport where demand is set to fall. Given its importance to the industry, it was unsurprising to see Saudi Arabia leading a coalition of petrostates in opposing a cap on plastics production or much beyond voluntary measures. 

As if to reiterate just how much the world can’t rely on voluntary measures, days after the summit ended Coca-Cola announced it was abandoning its previous goals to collect and recycle a bottle or can for each one sold, and instead only aims to “help ensure the collection” of 70-75% of the bottles and cans it sells. For more details on last year’s plastics talks, and to sign up for updates on the next round of negotiations taking place this year, see the excellent GSCC plastics newsletter.

The US Department of Energy released its long-awaited report on the impacts of LNG exports, finding that increased LNG exports could raise domestic gas costs, increase global greenhouse gas emissions and benefit China. The report found that unconstrained LNG exports could push up wholesale gas prices by nearly a third by 2050, but that consumer bills would only rise by around 3%. Additional US LNG exports would displace more renewables than coal globally, according to the study, contradicting industry claims that LNG reduces global emissions by replacing coal. Decisions about the future permitting of LNG export terminals will be taken by the incoming Trump administration which won’t be bound by the findings of the report. However, the report is likely to be used as the basis for legal challenges against the approval of any new LNG terminals. 

While the future of US LNG remains uncertain, one of Biden’s major oil and gas policies – tackling methane leakage – appears to be working. The administration introduced new rules requiring drillers to find and fix leaks, and introduced new fees for excessive releases of methane. According to a study by S&P, methane emissions in the Permian basin dropped by 26% in 2023. While that’s progress, research found that methane emissions from US oil and gas facilities were four times the levels officially reported to the government, so there’s still a long way to go.

Energy transition strategies

The Financial Times has a persuasive analysis of the challenge facing BP and Shell – that they are facing a “valley of death” between shareholders that want the companies to be focused on oil and gas, and those that want to invest in a clean energy company. The theory goes that some investors want to put their money into oil and gas, and don’t want more money going into renewables that deliver lower returns. For those shareholders, accelerating the companies’ energy transition makes them less attractive and drives down their share prices. But for other investors who are looking to invest in clean energy, BP and Shell are still too focused on oil and gas to make it into their portfolios. So the companies face a gap between the two groups that’s tough to cross – though TotalEnergies seems to be managing it. In the face of this challenge, BP and Shell are retreating to the former set of investors and doubling down on oil and gas.

Exxon increased its planned capital expenditure and is aiming to increase oil and gas production by nearly a fifth by the end of the decade. The aim to increase production is in stark contrast to other firms in the sector that are reducing their planned investments, such as Chevron. Notably, for a company known for its focus on oil and gas and scepticism about the energy transition, Exxon plans to spend up to USD 30 billion on ‘low carbon’ technologies between 2025 and 2030, largely on CCS, hydrogen and lithium mining.

Exxon’s decision to increase production is all the more remarkable given the state of oil and gas markets, with even the traditionally bullish OPEC once again cutting its forecasts for future oil demand. The group has had to cut its forecasts for 2024 oil demand consecutively five times in the face of weak demand, particularly from China. OPEC has also delayed releasing over 2 million barrels a day of spare production capacity to the market, given ongoing low demand and low prices.

Clean energy investments

BP announced that it will merge its offshore wind business with JERA, Japan’s largest power generation company, to produce a new joint venture that would be the world’s fourth largest player in the industry. The move has been seen as a major retreat by BP, cutting its planned capital expenditure on offshore wind by as much as USD 5 billion and potentially packaging up its wind business for a future sale. Shell has gone even further, stating that it will not undertake any new offshore wind projects, with Shell’s CEO Wael Sawan saying that “we do not see ourselves as being advantaged in renewable generation”. TotalEnergies has continued to buck this trend, and is instead increasing its renewables investments – this time by buying German renewable developer VSB Group for EUR 1.57 billion.

In 2022, Shell started shipping ‘carbon neutral LNG’, with huge purchases of carbon offsets claimed to eliminate the emissions from the LNG. However a new investigation revealed that some of the offsets Shell purchased as part of the scheme have since failed verification, and the emissions reduction projects may have never happened at all.

Hydrogen and ammonia

Green hydrogen – made from renewable energy – is now forecast to be far more expensive than previously expected. BloombergNEF has more than tripled its forecast for green hydrogen costs in 2050, to levels above the USD 1 / kg that US President Joe Biden aimed to achieve by 2030. The higher price forecasts now means that green hydrogen would only be cost competitive with grey hydrogen – made from natural gas with carbon emissions released into the atmosphere – in China and India, and not until 2040. With the underlying economics no longer in its favour, green hydrogen will need even more government support to be able to replace grey hydrogen – never mind take on new roles in the clean energy economy.

Carbon capture and storage (CCS)

Japan has long sought to use CCS to reduce its emissions but has faced the challenge of lacking suitable sites to store carbon, such as old oil and gas fields. The government is now proposing an innovative solution – to drill purpose built underground storage facilities for domestically captured carbon. The scale of the ambition is enormous – with Japan aiming to store 20% of the country’s emissions by 2050. The economics of CCS have always been challenging, so adding in the costs of drilling storage sites could prove to be prohibitive.

The UK government could face paying compensation of up to GBP 6 billion to the developers of a new gas-CCS power station, if the project is blocked by legal challenges. The secret agreement, which appears to have been central to the financial go-ahead for the UK’s first CCS power station, was seen by the Financial Times. The project is facing a legal challenge over its carbon emissions and the government’s decision-making process in assessing its contribution to decarbonisation.

Recent academic research shows the scale of the challenge in ensuring that the storage part of CCS is effective in keeping the global climate stable. The study found that carbon dioxide needs to be effectively stored for at least 1,000 years in order to be effective in neutralising fossil fuel emissions. Given the risks of leakage or failure, the results raise the question of who will be monitoring and repairing these undersea storage facilities for the next millennium.