As consumers grapple with high fuel prices and politicians scramble to knock them down, oil companies are not making any sudden moves. That’s because, after years of low fuel prices, they are now enjoying a financial upswing, as demonstrated by lucrative first quarter earnings reports released in late April and early May.
Oil prices started to creep up in late 2021 due to supply constraints, but then turbocharged after Russia invaded Ukraine in February. For Chevron, the upshot was $6.3 billion in profits last quarter, up from $1.4 billion a year ago. For Exxon Mobil, profits more than doubled in the same period, to $5.5 billion. The numbers were also rosy for European firms—even among those that took a hit from severing ties with their Russian investments. TotalEnergies, a French company, netted nearly $5 billion, a 48% boost from last year, while U.K. companies Shell (at $9 billion) and BP (at $6.2 billion) are hitting profit levels that they haven’t seen in about a decade.
For the most part, major oil companies aren’t going to pour these billions of dollars into climate-mitigation investments like carbon capture technologies. Nor have they signaled any immediate intention to bolster oil production, despite calls from heads of state to do so. Their inaction has spurred U.S. and European countries, which are under pressure to keep fuel affordable, to release oil reserves and replace Russian crude oil and liquid natural gas from other sources. Despite those government efforts, oil prices have stayed above $100 per barrel, sustaining an influx of money to fossil fuel companies that are passing it on to stockholders and investors in the form of increased dividends and share buyback initiatives that drive up companies’ share values.
One analysis from the Wall Street Journal found that the nine largest U.S. oil producers spent 54% more in share repurchases and dividends in the first quarter than they invested in new oil developments. Similarly, a recent report covering the 20 largest U.S. oil companies published by the environmentalist organization Friends Of The Earth and consumer watchdog organizations Public Citizen and Bailout Watch, tallied $56 billion in new share buyback authorizations in the roughly seven months since last October, compared with $11 billion announced in the nine months before that.
“The industry is effectively transforming a humanitarian disaster and pain at the pump into Wall Street returns,” says Lukas Ross, a program manager at Friends Of The Earth, and co-author of the report. “Exploiting the war in Ukraine is a desperate play on the part of these companies to salvage their reputation with investors.”
Mark Finley, a fellow in energy and global oil at Rice University’s Baker Institute for Public Policy, who was formerly an economist at BP, characterizes the situation differently. He says that it wouldn’t make good business sense for oil companies to immediately invest their quarterly profits given the current geopolitical instability. Because crude oil is a global commodity and individual oil companies do not set the price, executives have to make business decisions based on what they can control and hedge against what they can’t. Investments could take years to pay off and there’s no incentive to change course in flush times.
“These companies are thinking in decades,” Finley says. “None of these companies are going to jump in with both feet on one or two quarters of data and say, we’re completely changing everything.”
Indeed, the industry executives have fresh memories of how things can go very bad very quickly. A glut of supply from a fracking boom during the Obama and Trump administrations pushed down prices. When the pandemic hit and demand came to a standstill, companies posted record losses and felt enormous pressure to pay down debt, scale back investments, and ensure that stockholders would get dividends. The result was limited expansion in both petroleum and clean energy initiatives; a report from the International Energy Agency last summer estimated that about 1% of capital investment by the oil and gas industry went to clean energy investments in 2020, and that figure was on track to hit just 4% in 2021.
Even in light of recent earnings, oil companies are still largely practicing the so-called “capital discipline” strategies that they implemented during their leanest times, but Ross expects that the industry is positioning itself to capitalize on the political environment to ensure its long-term relevance. In particular, he points to the American Petroleum Institute’s appeal for expedited fossil fuel infrastructure permits and more natural gas exports, which President Biden then agreed to.
“The oil and gas industry, in addition to trying to seize this moment for all the profits it can squeeze, is trying to lock in another generation of extraction emissions,” he says.
Finley also thinks that companies will benefit as politicians look for ways to stabilize the energy market—though he doesn’t think that it will necessarily come at the expense of a broader shift to green energy.
“We used the words ‘energy transition,’ and in our minds we jumped to the end state. We figured that if we’re not using fossil fuels in a future world, then we don’t need to invest in fossil fuels,” he says. “But you need a functioning energy system that delivers secure, affordable, reliable energy at each discrete point in time between now and that end state. And the reality is, today, that means fossil fuels. We could actually come out of this crisis with more investment in oil and gas, and more of a focus on a transition.”
That may seem paradoxical, but it’s clear that politicians feel both ire at the industry’s blockbuster quarterly profits even as they acknowledge the world’s dependence on the products it sells. Consider that in recent weeks, U.S. Congress members grilled oil executives about gas-pump prices while President Joe Biden has supported more drilling leases on federal land, reversing a 2020 campaign promise. At the same time across the Atlantic, European leaders considered imposing a “windfall tax” on oil companies for their recent fortunes while U.K. Prime Minister Boris Johnson has called for more drilling in the North Sea.
Dieter Helm, professor of economic policy at the University of Oxford who has written several books on the world’s addiction to fossil fuels, says that policy shifts tied to the industry’s short-term wartime profits aren’t likely to make or break 2050 net-zero climate targets. What’s more, fixating on them loses sight of the much bigger picture.
He points out that western oil companies are only one part of the industry; national oil companies like Saudi Aramco control more than half of global oil and gas production—but they haven’t been under the same pressure to decarbonize as their free-market counterparts. Also, the trends that will take place among advanced economies may be eclipsed by developing nations leaning into fossil fuels as their economies and populations grow. And finally, he says, there hasn’t been a concerted effort to stop the destruction of the soils, forests, and water sources that naturally sequester carbon dioxide.
“This is a tragedy, but this is the reality of what’s actually happening, as opposed to this story—which I wish was true but isn’t—that we’re all in this together on a net-zero transition and we’re going to crack climate change within 28 years,” he says. “There’s no path that we’re currently on which looks anything like that.”