European Oil Major Cuts Costs, Protects Renewables, as Stranded Fossil Assets Begin Looking ‘Inevitable’
Like most of their counterparts around the world, colossal fossils in Europe are slashing spending in response to an oil price crash triggered by the pandemic and a pitched price war between Saudi Arabia and Russia. But so far, at least, three of the biggest and one in particular seem to be protecting their renewable energy businesses from the economic carnage, Greentech Media reports.
“Total, Shell, and Equinor, three of Europe’s largest oil companies, all announced cost-cutting measures in response to the collapse in oil prices and the impact of the COVID-19 pandemic,” Greentech writes. “The impact on their clean-energy investment plans remains muted, however, at least for now.”
That’s in spite of daunting challenges for all. Total had based its budget for this year on oil prices at US$60 per barrel, CEO Patrick Pouyanné said in a video message to employees, and a drop to $35 would lose the company $9 billion. (The European price benchmark, Brent crude, stood at $26.87 Thursday evening.) Shell has cut its investment plans from €25 to €20 billion, Norway’s Equinor is saving money by suspending a share buyback program, and across the ocean, ExxonMobil CEO Darren Woods said his company is finalizing plans to “significantly reduce capital and operating expenses”.
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But Pouyanné is also acknowledging that Total faces three crises simultaneously—the pandemic, the price crash, and climate change—adding that the company is “being taken to task” in the media to play a more positive role in the energy transition, Greentech says. The company is cutting spending 20%, but “while granular details on cost reductions are not yet available, there are positive signs that Total’s commitment to the energy transition will not be immediately affected.”
On the contrary—citing Pouyanné, Greentech says Total’s “new energies” businesses will be exempted from a company-wide hiring freeze, a major energy storage manufacturing expansion will still open later this year, and the company is cutting its 2025 target for in-house emissions from 40 to 20 megatonnes. More broadly, “the messaging from Total thus far is in line with the theory that the slump in oil prices will not dampen the appetite of the majors to reduce emissions and segue into the power sector.”
Shell had previously increased its widely-touted but still fractional new energies spending, though Greentech says that target was already “a guide, rather than a target”. The company is still deciding how to spread its cost cuts across its various divisions, though CEO Ben van Beurden has famously claimed the British/Dutch fossil has “no choice” but to invest in new, long-lasting fossil projects.
“As well as protecting our staff and customers in this difficult time, we are also taking immediate steps to ensure the financial strength and resilience of our business,” he said in a more recent media statement responding to the price crash. “The combination of steeply falling oil demand and rapidly increasing supply may be unique, but Shell has weathered market volatility many times in the past.”
Elsewhere, the wind energy association in Spain says the pandemic will slow down but not stop new projects, Rystad Energy projects new fossil exploration around the world falling by $131 billion, or 68%, and a Wood Mackenzie analyst says North Sea Oil production may never recover from the crash.
“Most final investment decisions for 2020 are off the table. At current prices, nearly two-thirds of development spend could be wiped from our forecast over the next five years,” said Neivan Boroujerdi, a principal analyst with the company’s North Sea upstream team. That means “the threat of stranded assets is real—we estimate nearly six billion barrels of economically viable resources could be left in the ground, not to mention a further 11 billion of contingent resources.”
If fossils in the North Sea go into “harvest mode”, WoodMac added, an early end to North Sea production is “inevitable”.