As they retreat from their push into renewable energy and downgrade their ambitions to build major exposures to electricity generation, the British and European oil companies are refocusing on their traditional oil and gas businesses.

Where previously they planned to cap or reduce their production, now they are planning and investing to increase it.

Last year, BP raised its forecast of oil equivalent production from 1.5 billion barrels a day by 2030 to 2 billion barrels a day, planning to invest $US8 billion ($12.6 billion) more than previously budgeted on new oil and gas investments. Since Auchincloss became chief executive, that focus on lifting hydrocarbon production has intensified.

The commercial logic in what they are doing is clear. BP generates returns of 15 to 20 per cent on its fossil fuel investments but only 6 to 8 per cent from its renewable assets, with wind’s returns inferior to solar’s.

Ploughing billions each year into wind, solar, and hydrogen dilutes the overall returns on capital and reduces the returns to shareholders, making them most unhappy. Having invested about $US18 billion over the past five years in lower-returning renewables between them, BP and Shell investors have become increasingly unhappy.

Moreover, the British and European energy majors are always compared with their US counterparts.

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Exxon and Chevron haven’t been anywhere near as committed to lowering the carbon intensity of their portfolios as their transatlantic rivals. The US majors were committed to the “drill, baby, drill” mantra before Donald Trump and saw that reflected in their share prices relative to their UK and European counterparts.

Where over the past five years, Exxon’s share price has risen 54 per cent, and Chevron’s 23 per cent, BP’s has fallen 22 per cent and Shell’s more than 6 per cent. That kind of disparity in performance tends to galvanise shareholders, along with executives motivated by their remuneration.

By moving its offshore wind assets into a joint venture vehicle and off its own balance sheet, BP will keep an exposure to wind but significantly reduce the amounts of capital devoted to it and the levels of debt supporting it.

Between them, BP and JERA plan to spend up to $US5.8 billion on their combined portfolios (which includes the proposed Blue Mackerel offshore wind farm in Bass Strait) by the end of 2030. With shared investment and non-recourse funding, BP’s capital commitment will be modest relative to what it would otherwise have been.

Both BP and Shell still seem committed to solar, which is less capital-intensive than wind, but that won’t help them escape the criticism from climate activist groups and ESG (environmental, social and governance) investors, who are particularly vocal and litigious in Europe and the UK.

The problem, of course, is that the companies can’t satisfy both constituencies, and a contest between emissions and returns is one that, ultimately, shareholders will always win.

With Donald Trump about to return to the White House and open up US federal lands to more drilling for oil and gas, and incoming Treasury Secretary Scott Bessent having a “3-3-3” plan that includes lifting US energy production by 3 million barrels of oil equivalent a day, the contrast between the environment for the US producers and their competitors elsewhere will only become starker, and the pressure from shareholders on companies like BP and Shell will only intensify.

Trump also plans to remove the generous 10-year tax credits for renewables within Joe Biden’s Inflation Reduction Act, which, if he is successful, would make the returns from investment in US renewables even less competitive with those from fossil fuels.

Any increase in US oil production would add to the existing glut in the oil market and depress prices that are already under pressure despite the withdrawal of about 6 million barrels a day of supply by the OPEC+ cartel.

The lower prices being experienced now and likely to continue into at least the first half of next year, however, aren’t an argument for the oil majors to invest in renewables.

Returns from oil and gas will still be superior to those from renewables, and if oil and gas prices and profits are under pressure, there will be even more of an incentive to invest only in the highest-returning assets.

Those who invest purely in renewables appear unconcerned about the gradual withdrawal of the oil majors who gatecrashed their sector and, seeking to gain scale rapidly, drove up the costs of developing greenfield projects.

Ploughing billions each year into wind, solar and hydrogen dilutes the overall returns on capital and reduces the returns to shareholders, making them most unhappy.

There are a lot of environmentally sensitive and patient investment funds available from sources other than the oil majors, which are willing to trade off returns for their convictions and/or consistent long-term returns, so losing some investment from the oil companies shouldn’t retard renewables developments.

It was always going to be difficult for BP and Shell to try to produce a balance of their traditional oil and gas businesses and renewable energy portfolios while satisfying both financially motivated and ESG-driven investors.

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It has been particularly difficult for the UK and Europeans, with their lower returns but better environmental credentials, to attract investors in the US. There’s been a backlash against ESG investing in the US, where because there is no significant stigma associated with the oil and gas industry, valuation metrics tend to be higher.

If BP and Shell want better access to those more attractive metrics, improved share price performances and access to cheaper capital, they have no realistic option but to shed and invest less in low-returning assets. That’s what they are now doing.

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