European super-majors were faster out of the blocks on the energy transition than their U.S. counterparts — but were they too fast?

A tight gas market has triggered a renewed focus from European firms on exploration and developing new gas and LNG supply, while investment in technologies to reach emissions targets is stalling.

U.S. multi-nationals are maintaining oil and gas production while increasing shareholder returns and are taking a slower approach to reducing emissions. Their slower pace of development has created opportunity for independent gas producers to meet growing demand.

Racing to net zero

BP plc, Eni, Shell plc and Total (now TotalEnergies SE) all set Scope 1, 2 and 3 emissions reduction targets in 2020. U.S. multinationals were slower out the block. Chevron Corporation, ConocoPhillips and Exxon Mobil Corporation set Scope 1 and 2 targets — meaning their carbon reduction goals extended only to their own operations — during the same timeframe.

Fast forward two years to 2022. Eni, Total and BP set absolute 2030 reduction targets for Scope 1, 2 and 3 emissions. Shell has a Scope 3 carbon intensity target. Chevron and Occidental have set targets covering Scope 3 emissions, but no 2030 targets. ExxonMobil still has neither — a clear divide in strategy remains between North America and the EU.

Evaluate Energy data shows European multi-nationals have seen significant production declines in both oil and gas as they have chased their net zero ambitions. Comparing the third quarter of 2019 to the same quarter of 2022 (not all have reported year-end numbers) average oil production for the group is down by almost 1.6 million bbls/d and gas production has declined by around 5.4 bcf/d. However, at least on the gas side these numbers seem ready to shift upwards.

Backsliding begins

BP took an aggressive approach to emissions reductions, setting the strongest targets. When chief executive officer Bernard Looney took the helm in 2020, he pledged to reduce oil and gas production by 40 per cent by 2030. Last week the company readjusted its target down to 25 per cent.

“We plan to invest up to $8 billion more this decade — on average $1 billion more each year — in today’s energy system, which depends on oil and gas,” he said.

The firm is targeting “short-cycle, fast-payback opportunities,” said Looney, in a comment designed to head off warnings of stranded assets after 2030.

TotalEnergies’ 2022 year-end financial report also suggests a renewed focus on fossil fuel exploration spending. TotalEnergies adjusted its 2023 spending forecast to $16–$18 billion, up from the $14–$18 billion forecast in September and the $13–$15 billion forecast earlier last year, while saying it will maintain spending on low-carbon technologies at $5 billion until 2025.

"We like LNG,” said TotalEnergies CEO Patrick Pouyanne on the company’s 2022 year-end conference call. “We want to continue to grow in that growing business.”

Meanwhile, Shell will maintain both its low-carbon and fossil fuel spending at similar levels to 2023. The firm spent a third of its $25-billion capex budget on the transition in 2022 and expects to spend the same portion again in 2023. But it had previously stated energy transition spending would reach 50 per cent of its budget by 2025, meaning analysts expected an increase in 2023.

Shell invested about $3.5 billion on its Renewables and Energy Solutions division in 2022 — just one part of its overall transition spending — and that level will remain steady in 2023. The past two years have both seen funding increases of at least $1 billion on the division.

“Yes, we are looking at growing our production in gas,” incoming chief executive officer Wael Sawan confirmed to analysts on the firm’s year-end results call.

Clear reasoning

Both TotalEnergies and Shell booked bumper profits on gas sales in 2022 and are looking ahead to another tight winter in the LNG market. The EU caught a break during its first winter without Russian gas as temperatures were mild and LNG cargoes were rerouted from a static Chinese economy still in the grips of pandemic lockdowns.

Should either (or both) of those things change next winter, it will be a different story. Shell expects only 20 million tonnes of LNG production will come on market over the next two years. TotalEnergies expects EU LNG imports will rise by 15–25 million tonnes in 2023. Meanwhile, Chinese re-exports have begun drying up as its economy picks up steam.

If BP, Shell and TotalEnergies are quietly shifting the focus back to natural gas, what does this mean for the U.S. super-majors?

Business as usual

The three U.S. super-majors — Chevron, ExxonMobil and ConocoPhillips — have maintained oil and gas production over the last three years. Evaluate Energy data shows combined oil production for 2022 was 5.29 million bbls/d, up slightly from year-end 2019 production of 5.13 million bbls/d. Natural gas production for the group declined 1.3 per cent in the same period, averaging 19.1 bcf/d in 2022.

ExxonMobil will continue to invest more if its European competitors fail to do so, chief executive officer Darren Woods confirmed on the firm’s year-end results call.

“As some of our competitors have stepped back from investment … we have found that our continued commitment to strengthening capabilities that will allow us to bring on oil and gas … has been recognized by resources owners around the world,” he said.

Independents fill the void

More nimble North American independents active in short-cycle resource plays filled the natural gas supply gap in 2022 and captured the benefits of higher gas prices resulting from the conflict in Ukraine. Evaluate Energy data on 81 North American independent producers with over 5,000 boe/d of production shows production has climbed 31 per cent in the last three years.

U.S. LNG exports climbed to over 11 bcf/d in 2022 to help fill the void left by sanctions against Russian supply. Post-pandemic, U.S. independents have lifted production by 7.9 bcf/d or 27 per cent in the last three years.

Canadian gas producers in the study group have seen production climb by 50 per cent or 3.5 bcf/d as exports to the U.S. have picked up pace.