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BP’s Big U-Turn: Why Is the Energy Giant Returning to Oil and Gas? Shell, Equinor, and Exxon Are Making the Same
03/03/2025
Can BP maintain its vision of a low-carbon future while doubling down on oil and gas?
BP has announced a shift in its energy strategy, moving away from aggressive renewables investments and increasing its oil and gas production spending. This decision comes after investor concerns over BP’s lower-than-expected financial returns compared to its industry rivals.
BP's Chief Executive, Murray Auchincloss, acknowledged that the company had gone “too far, too fast” in transitioning away from fossil fuels. He stated that BP’s initial faith in green energy was “misplaced”, leading to a strategic reset prioritizing stronger financial performance and higher shareholder returns.
The energy giant plans to increase its annual investment in oil and gas by 20%, reaching $10 billion per year, while cutting more than $5 billion from its renewable energy budget. To optimize profits, the company will focus on significant oil and gas projects, production expansion, and strategic asset divestments.
Key Changes in BP’s Energy Strategy
BP’s revised energy strategy involves several significant adjustments, including:
- Increased Investment in Oil and Gas
BP will now allocate $10 billion annually to oil and gas projects, up 20% from previous plans.
The company aims to boost daily oil and gas production to between 2.3 million and 2.5 million barrels per day by 2030.
Several new major oil and gas projects are set to launch by the end of 2027.
- Scaling Back Renewable Energy Initiatives
Annual funding for renewables will be cut from previous projections of over $5 billion to between $1.5 billion and $2 billion annually.
Biogas, biofuels, and electric vehicle (EV) charging infrastructure investments will be reduced.
BP will adopt a “capital-light partnership” approach, shifting away from direct solar and wind energy investments.
Once a major focus, offshore wind projects are now part of a joint venture with Japan’s Jera.
BP is seeking a similar partner for its solar division rather than continuing independent investments.
- Asset Divestment for Shareholder Value
BP announced a strategic review of its Castrol lubricants business, signaling a potential sale.
The company plans to raise $20 billion by divesting non-core assets over the next few years.
The freed-up capital will fund shareholder dividends, stock buybacks, and reinvestment in high-return hydrocarbon projects.
Industry-Wide Shift Away from Renewables
BP’s strategic reset is not an isolated move. Other major energy companies are also reassessing their renewable energy commitments in favor of fossil fuels:
- Shell has reduced investments in renewables, citing economic challenges and weak financial returns.
- Equinor, Norway’s state-controlled oil company, recently cut its renewable energy investments by 50%.
- ExxonMobil continues prioritizing oil and gas expansion, increasing their fossil fuel production capacity.
The broader energy industry has struggled with high costs, supply chain disruptions, and regulatory uncertainty in renewable energy projects. Offshore wind, which was once seen as a major growth area for BP, has faced significant challenges in the U.S. market, prompting a strategic retreat from the sector.
Expanding Oil and Gas Operations
BP is doubling down on fossil fuel projects with a focus on:
- Exploration and Drilling
BP will expand operations in key regions, including the Gulf of Mexico, the North Sea, and the Middle East.
New oil fields and deepwater drilling initiatives will contribute to increased production.
- Liquefied Natural Gas (LNG) Expansion
BP is scaling up its LNG production capacity to meet surging global demand for natural gas.
LNG is seen as a transitional fuel, offering a lower-emission alternative to coal while maintaining profitability.
- High-Return Hydrocarbon Investments
The company prioritizes investments that offer more than 15% financial returns, focusing on areas where BP has competitive advantages.
BP’s long-standing expertise in oil refining, distribution, and petrochemicals will continue to play a crucial role in its portfolio.
Economic and Financial Influences on BP’s Strategy
Several key economic factors have driven BP’s decision to pivot back to fossil fuels:
- Rising Oil and Natural Gas Prices
In recent years, increased energy prices have made fossil fuel investments more profitable than renewables. Higher margins from oil and gas sales improve BP’s ability to deliver strong cash flow growth.
- Investor Demands for Stronger Financial Performance
BP has faced pressure from activist investor Elliott Management, which took a $4 billion stake in the company to push for higher returns.
- Challenges in the Renewable Sector
BP’s offshore wind projects have struggled, especially in the U.S. market, where high costs and slow regulatory approvals have made profitability difficult. Large-scale solar investments have also faced supply chain disruptions and declining profit margins.
BP’s Remaining Commitments to Renewables
While BP is cutting back on renewable investments, it is not abandoning green energy entirely:
- Wind and Carbon Capture Projects
BP continues work on three UK-based offshore wind farms and carbon capture initiatives.
- Selective Investments in Hydrogen and Biofuels
Though at a slower investment pace, hydrogen and biofuels remain part of BP’s long-term strategy.
- Shifting to Capital-Light Partnerships
Rather than direct investments, BP will partner with other firms to maintain some involvement in solar and wind energy.
The Future of BP’s Energy Strategy
BP’s decision signals a long-term commitment to hydrocarbons, focusing on profitability and energy security. However, this move raises several key questions:
- What are the long-term risks of stranded fossil fuel assets?
- How will regulatory changes impact BP’s production goals?
- Will green energy investments regain momentum if market conditions shift?
BP’s leadership insists this is a pragmatic decision to ensure financial stability. Chairman Helge Lund stated that the new strategy is designed with “cash flow growth at its heart”, reinforcing BP’s primary focus on maximizing shareholder value.
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