Exxon poised to overhaul Shell and BP on low carbon spending | USAEMALL.com

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

ExxonMobil, which once derided European rivals’ clean energy investments as a “beauty contest” that would do little to halt climate change, is poised to leapfrog Shell and BP in low carbon spending.

Investment guidance issued by six of the largest western oil majors shows that Exxon plans to spend $30bn on “low emissions opportunities” between now and 2030 — far higher than its $3bn spending plan announced in 2021.

The US oil major defines low carbon spending as investment aimed at reducing greenhouse gas emissions, and has focused on technologies such as carbon capture, biofuels, hydrogen and lithium extraction. Unlike its European rivals it has not built a large renewable energy business.

The stepped-up investment plan from Exxon comes just as European rivals that ploughed cash into clean energy in recent years begin scaling back their investments under pressure from investors.

Data compiled by Wood Mackenzie, an energy research group, shows that Shell, BP and Equinor have slashed their guidance for low carbon spending to focus on more profitable fossil fuel production.

It marks a surprising turn for Exxon, which has drawn much criticism from climate activists for continuing to increase fossil fuel output — and lobbying against restrictions — despite knowing they were causing global warming.

In February, BP — which proclaimed itself a green energy leader in 2020 — cut its annual guidance on low carbon spending to $1.75bn, down from $6.45bn, and far below Exxon’s $5bn a year. Shell has cut its proposed low carbon investments to $3.5bn a year, from $5.58bn.

Norway’s Equinor has reduced its annual guidance from $3.9bn to $2.3bn, according to Wood Mackenzie, which has analysed company data issued between 2023 to 2025.

TotalEnergies remains a leader in low carbon investment with $5bn annual spending guidance in 2025, although the company disclosed in January it would spend $4.5bn in 2025. The French group plans to spend 29 per cent of its total budget on low carbon projects, compared with 17 per cent for Exxon and Shell. BP plans to spend 12 per cent following its recent cuts.

“ExxonMobil’s low carbon strategy is gaining momentum at a time when some peers are scaling back ambitions,” said Tom Ellacott, senior vice-president at Wood Mackenzie’s corporate research division.

“The company is focusing on technologies in which it believes it has a competitive advantage and has built an attractive pipeline of opportunities in low-carbon hydrogen, carbon capture and lithium.”

But Ellacott said there was uncertainty over whether Exxon would deliver on its spending guidance, which relies on US government subsidies and customer demand.

Exxon has said investment in some of its low carbon projects, including a multibillion-dollar hydrogen plant at its Baytown refinery in Texas, depends on tax breaks in the Biden administration’s Inflation Reduction Act — the flagship climate law President Donald Trump has vowed to rescind.

“It’s important for these nascent businesses and industries to get some initial support,” Kathy Mikells, Exxon’s chief financial officer, told the Financial Times in January.

Analysts and climate groups said comparing oil producers’ low carbon spending was complex as definitions can differ between companies.

“There are two aspects of low carbon spending. The first is spend to decarbonise the existing asset base, so-called scope 1 and 2. The European majors typically include this spend in their divisional budgets, upstream and downstream, whereas Exxon and Chevron include this in their low carbon spending,” said Biraj Borkhataria, global head of energy transition research at RBC.

This could account for about half of Exxon’s spending and 20 per cent of Chevron’s, he said.

Exxon told the FT that almost 65 per cent of its low carbon investment would be spent on reducing emissions for its customers. Chevron, which plans to trim its low carbon budget this year by $500mn to $1.5bn, did not reply to a request for comment.

Follow This, a shareholder activist group that clashed with Exxon last year over climate policy, said the oil producer could not be considered a leader because it was not including the pollution from its customers burning its oil and gas — so-called scope 3 emissions.

Even so, analysts say there has been a step change in Exxon’s strategy since chief executive Darren Woods told analysts in 2020 that he sought to avoid a “beauty competition” with rivals on carbon emissions.

“Exxon is leaning into these areas not because of environmental social governance or sustainability initiatives but rather genuine business opportunities where XOM has a competitive advantage and the ability to scale,” said Betty Jiang, analyst at Barclays.

Shell said Wood Mackenzie’s data overlooked the “scale of our historical investments in the low carbon space”.

Environmental Defense Fund, a climate group, said Exxon had increased its low carbon spending — but not enough.

“It’s still woefully short of the kind of capital that needs to deploy if we’re going to make major progress in decarbonising our collective economies in the next 30 years,” said EDF’s Mark Brownstein.