Big Oil Doubles Down on LNG as Renewables Falter
ANY EXCUSE WILL DO
- Big Oil prioritizes growing its LNG business, seeing strong demand for natural gas in the medium to long term.
- Renewables commitments falter as European oil and gas firms focus on energy security amid the energy crisis and skyrocketing prices.
The supermajors continue to bet on LNG while scaling back renewables projects and investments as oil and gas returns continue to trump the poor profits from renewables.
The world’s top international oil and natural gas firms are sanctioning new LNG projects and buying stakes in new developments as they see demand for natural gas growing in the medium to long term.
Bound by the pledges to return more cash to shareholders, Big Oil is betting on growing its much more lucrative LNG business than on wind, solar, or biofuels, where returns have been poor for years and haven’t really taken off despite soaring global capacity additions.
In recent years, LNG trading has reaped a lot of profits for the European majors, while nearly all of them have had to take impairment hits on renewables projects in Europe and the U.S.
The LNG market is set to see a wave of new supply from 2026 and could be oversupplied from 2026-2027 until the end of the decade. Yet, Big Oil is confident that demand will be there and that their trading strategies and the moves to lock in customers from LNG projects will pay off.
Renewables Commitment Falters
At the same time, Europe’s top oil and gas firms haven’t seen improved market and business conditions to warrant the major push into renewables they had pledged before the energy crisis and skyrocketing prices in 2022 upended plans and shifted the focus onto energy security.
BP, for example, booked a pre-tax impairment charge of $540 million in the third quarter last year related to U.S. offshore wind projects. BP and Equinor’s filing to renegotiate the power purchase agreements associated with the Empire Wind 1 and 2 and Beacon Wind 1 wind farms off the coast of New York was rejected.
BP said in June that it was scaling back this year’s plans for the development of new sustainable aviation fuel (SAF) and renewable diesel biofuels projects at its existing sites, pausing planning for two potential projects while continuing to assess three for progression.
“This is aligned with bp’s drive to simplify its portfolio, focusing on value and returns,” the UK-based supermajor said.
Weeks later, the other UK-based giant, Shell, said it was pausing on-site construction work at a biofuels plant in Rotterdam amid weak market conditions, taking a $780-million impairment charge for the second quarter for this.
The pause at the 820,000 tons-a-year biofuels facility at the Shell Energy and Chemicals Park Rotterdam in the Netherlands was needed “to address project delivery and ensure future competitiveness given current market conditions,” the company said.
LNG Bet
At the same time, both Shell and BP, as well as France’s TotalEnergies, are looking to further grow their LNG portfolios by raising their own liquefaction volumes and gaining access to additional third-party volumes.
“In our Integrated Gas business, we said we would continue to grow our LNG portfolio by increasing both our liquefaction and access to third-party volumes,” Shell’s CEO Wael Sawan said last week when the company reported better-than-expected earnings for the second quarter.
Shell has extended existing partnerships in Oman, invested in backfills in Manatee in Trinidad and Tobago, and agreed to acquire Pavilion Energy in Singapore to increase portfolio length, the executive of the world’s top LNG trader added.
Shell also leads the LNG Canada joint venture project in Kitimat, British Columbia, where it is “working hard to achieve first production” by the middle of 2025, Sawan said.
In addition, Shell, BP, TotalEnergies, and Japan’s Mitsui have just signed a deal with Abu Dhabi’s ADNOC to take 10% each in the Ruwais LNG project in the UAE as international partners.
BP works towards building an LNG portfolio of 30 million tons by 2030, up from 23 million tons of long-term LNG portfolio last year. The company is looking at long-term contracts and at short-term market opportunities, Carol Howle, EVP, trading and shipping at BP, said on the earnings call last week.
TotalEnergies has also been busy sanctioning LNG projects in recent months. The French group gave the green light to the Marsa plant in Oman, Marsa LNG, as well as the Ubeta gas project in Nigeria, which will supply Nigeria LNG.
“These projects will not only contribute to the objective to grow our upstream by 2% to 3% per year in the next five years, but they will also boost the underlying free cash flow generation and ultimately shareholder distributions,” CEO Patrick Pouyanné said on TotalEnergies’ earnings call.
“I think there is a fundamental structural demand coming from India, and we are convinced that the Indian market will take the relay I would say, for the traditional, Korea, Japan, and even China,” Pouyanné added.
LNG demand in China is becoming more seasonal as Beijing is “moving very quickly on these renewables, continuing to increase its coal production,” the executive noted.
Big Oil is positioning for a major boost in global LNG demand as a way to earn more money from their core business amid low or negative returns in the renewable energy industry.
By Tsvetana Paraskova for Oilprice.com
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