As Profits Plummet, Big Oil Tries its Hand at Renewables

The year hasn’t gone well for oil companies. First, an economic war fought between two of the biggest countries in oil production, Saudi Arabia and Russia, led to massive declines in oil prices. Then coronavirus hit, and the demand fell so steeply that U.S. oil prices became negative for the first time.

Normally, cheap oil dampens enthusiasm for renewables, but there is ample evidence that this time will be different.

Regulations, government incentives, and falling prices from technological innovation have put renewables in a strong position. Investors have latched on to renewables as a steady, low-risk opportunity when oil can no longer be counted on.

“Renewable-power generation is largely uncorrelated to oil and natural-gas markets, which further strengthen their overall appeal, and may well be one of the first assets classes to unfreeze,” said Keith Derman of Ares Management Corp.

Even with many projects delayed and spending on direct-to-consumer products like rooftop solar panels down markedly, renewable energy is poised to make up 21 percent of American electricity usage this year, up from 18 percent in 2019.

Several oil companies, especially those specializing in shale, have gone bankrupt during the pandemic. Whiting Petroleum, Chesapeake Energy, and Diamond Offshore Drilling have all sought bankruptcy protection, despite fossil fuels receiving far more government assistance than renewables since COVID-19 appeared.

What will happen to the oil companies that remain?

BP made a surprising announcement after reporting a $16.8 billion loss in Q2. They will attempt to cut their oil and gas production by 40 percent over a decade, and increase their investment in wind, solar, and hydrogen by 10 times in the same period.

On August 12, Philips 66 became the latest oil company to announce a significant change. It will convert a crude oil refinery in California into the largest renewable fuels plant in the world, cutting carbon emissions by 50 percent and sulfur dioxide by 75 percent. The plant will make renewable diesel, gasoline, and jet fuel out of used cooking oil, grease, and other byproducts.

According to Jennifer C. Rowland, an analyst at Edward Jones, although there are significant risks to this decarbonization strategy for BP and others, “the risk of inaction is just as significant, as the value of their traditional oil and gas assets, as well as their relevance in the energy world, could be diminished over time.”

According to the New York Times, both financial and public relations pressure may start to build on oil companies who don’t follow suit.

Most fossil fuel companies have yet to decide how they will move forward and have not made major commitments to cutting output or making renewable investments.

Halliburton laid off 8 percent of its North American employees in the middle of last year to cut costs and has not reported a quarterly profit since then. It has signaled plans to move away from U.S. shale, but no specific renewable projects.

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