The chief financial officer of the oil and gas company BP, Murray Auchincloss, told investors this week: “It’s possible that we’re getting more cash than we know what to do with.”
Oil and gas companies have reported bumper profits, as the gas crisis raises the price at which they can sell their fossil fuels, without raising the cost of their extraction.
While they are being showered with cash, households in the UK are suffering the biggest fall in income in three decades, with one in 10 households not having enough money for food and food bank use soaring.
This week, BP reported a profit of $12.8bn (£9.4bn) for last year, following Shell’s announcement last week of $19.3bn in profits. Little of the money is going to taxpayers: Channel 4 revealed that BP has paid no tax on its North Sea oil and gas for five years.
Bernard Looney, the chief executive of BP, told analysts he was “not seeing increased pressure” for the company to pay more tax, despite calls in the UK for a windfall tax on fossil fuel profits, to ease the burden of energy bills on the vulnerable.
Instead, Looney and other senior managers in the fossil fuel industry have sought to justify their bonanza on the grounds that the billions of extra cash is needed to pour into their transition to low carbon companies.
The facts of oil and gas company investment do not bear out the claim that the massive returns are being poured into green projects and the race to net zero greenhouse gas emissions.
Chris Venables, of the Green Alliance thinktank, said: “The time for oil and gas companies to have invested in the clean energy transition was two decades ago – when they were peddling climate change denialism. If they were serious about renewable energy, they would be doing it right now, but instead their investments are largely going to new oil and gas. So this is a disingenuous argument.”
Investment in clean energy by oil and gas companies was about 1% of their capital expenditure in 2020, according to the International Energy Agency (IEA), a proportion likely to have reached little more than 4% for the whole of last year.
Meanwhile, the companies are continuing to invest vast sums in exploration and new fields, which the IEA said last year could not be brought to fruition if the world was to limit global heating to 1.5C.
BP plans to invest about £2bn-£3bn in renewable energy by 2025, but its overall capital investment will be £60bn, most of which is likely to go into new production that will raise greenhouse gas emissions. The company is estimated to have spent about $3.2bn on clean energy since 2016, and $84bn on oil and as exploration and development over the same period.
Looney claimed the “vast majority” of investment in the UK would be in “the energy transition”, but then admitted that this amounted to 40% of its spending budget by 2025, rising to 50% of the budget by the end of the decade. The “green” spending is likely also to include projects such as “blue hydrogen”, derived from fossil fuels, that critics say produces substantially higher carbon emissions than natural gas.
Shell’s plans involve an estimated near-term investment of about $2bn-$3bn in low-carbon activities, which is about 10% of its investments, while spending at least $8bn on upstream fossil fuel production.
Richard Black, senior associate at the Energy and Climate Intelligence Unit thinktank, said: “The key point about oil and gas majors arguing that higher profits are needed to invest in greening their operations is: prove it. If they argue that is why high profits are justified, they should pledge publicly that a sizable proportion will be invested in proven technologies like wind, solar and storage, rather than blue hydrogen or carbon capture and storage, which are either of unproven potential or several years off.”
He was sceptical of whether oil and gas companies would do so. “Past experience suggests that the oil and gas industry is strong on rhetoric when it comes to cleaning up their act, but investment is still inadequate. If they were to make these commitments, with a timeframe for spending, and set up an independent panel of arbiters to verify their commitments, then maybe it would have some credibility.”
Labour has called for a windfall tax to ease pressure on energy bills, but oil and gas companies have claimed it would discourage them from investing in low-carbon technologies. Green campaigners doubted these claims.
Charlie Kronick, senior climate adviser at Greenpeace, said: “Shell certainly doesn’t need the threat of a windfall tax to discourage them from properly investing in renewables – they’re already failing to do so. ‘Funding the transition’ is a convenient excuse to protect their bloated profits. There’s no guarantee that any oil company will use the extra cash [from this year’s bumper profits] for the green transition unless they’re forced to do so, yet the UK government continues to talk up new production of oil and gas, which will only make the climate emergency worse.”
Part of the problem was government failure to shift the balance of economic incentives away from fossil fuels, according to Connor Schwartz, climate lead at Friends of the Earth. “It’s clear that oil and gas companies don’t intend to divert their eye-wateringly excessive profits to fund the green transition we need. They have no profit-based reason to do this, because drilling for oil and gas is more lucrative than investing in cheap, green energy,” he said. “This is partly due to government handouts in the form of subsidies and tax breaks, which reward huge multinationals for exacerbating climate breakdown instead of penalising them.”
He added: “It’s wrong that they are making billions while so many are struggling to eat and heat their homes. People know injustice when they see it. Any government that genuinely wants to help people out of a national crisis would introduce a windfall tax on these profiteering, damaging companies.”