Value Column von Hans Peter Schupp

10. NOVEMBER 2023

Big Oil turns green(er)

Oil multinationals are currently under fire. Not for the first time, but this time because of the high results they are raking in during the energy crisis. Profits are bubbling up for the corporations. But they are also criticized by many for extracting fossil fuels and – according to critics – exploiting the earth and polluting the environment. In principle, this is true. But what is often forgotten: Big Oil is also investing huge sums in renewable energy. They are becoming greener.

To begin with, the figures are remarkable: in 2021, for example, BP even achieved its best results in eight years. Net, the company earned $7.56 billion. Its rival Shell made a profit of around $20 billion. So the corporations are earning splendidly again. But pressure to rebuild with climate change in mind has grown. Activists, governments, courts and investors are forcing oil companies to become more sustainable. And they are going to great lengths to meet these demands.

Shell to invest two to three billion dollars a year in renewables

Take our two portfolio companies, Shell and Italy’s ENI. Shell, for example, recently acquired Savion, a U.S. solar farm developer. This is part of the group’s plan to further strengthen its renewable energy business. Shell announced last year that it would invest two to three billion dollars a year in renewable energies. The Savion takeover is just the continuation of a whole series of investments, because Shell has an ambitious goal: By 2050, the group wants to be climate-neutral, and by 2030, carbon dioxide emissions are to be halved compared to 2016. As one of the fastest-growing and most cost-effective renewable energy sources, solar energy is a crucial element of the strategy, Shell had justified the acquisition at the time.

But that’s not all: Shell is planning to build the largest green hydrogen plant in Europe. This is to go into operation in Rotterdam as early as 2025. The new hydrogen plant, called Holland Hydrogen I, will then be able to produce up to 60,000 kilograms of green hydrogen per day from renewable energies. The energy for this will come from an offshore wind farm in Hollandse Kust, which is also partly owned by Shell. The hydrogen produced from this will supply the Shell Energy and Chemicals Park Rotterdam and replace some of the gray hydrogen consumed in the plants. So Shell is getting greener.

ENI partners with MIT to develop new power plant concept

Around the world, oil companies have announced plans to significantly increase their investments in wind, solar and bioenergy. So has the Italian oil company ENI, a company known mainly for being very successful in developing new oil fields without partners. Less well known is that ENI is the largest shareholder in Commonwealth Fusion Systems, a company that has achieved nuclear fusion, at least under laboratory conditions. The company was founded in 2018 as a spin-off from the Massachusetts Institute of Technology (MIT) and aims to build a compact fusion power plant based on the ARC tokamak power plant concept.

To explain it simply: The fusion of two hydrogen atoms is a physical reaction that releases an enormous amount of energy without producing greenhouse gases, pollutants or highly radioactive substances. It has been taking place in the Sun and every other star for billions of years. Ongoing research programs, including that of Commonwealth Fusion Systems, aim to successfully reproduce it on an industrial scale in magnetic confinement reactors. This would provide a safe, carbon-free and potentially unlimited source of energy. ENI is pioneering this field together with MIT.

Good ESG ratings for Shell and ENI.

These are just two examples of how Big Oil is investing in alternative and renewable energy. As a result, their ESG ratings are also improving. Shell, for example, now has an AA rating on MSCI’s ESG score. And ENI has been affirmed with an „A“ ESG rating by MSCI, ranking it as a leader in health and safety and carbon emissions.

It’s not enough yet for Big Oil to produce and invest in sustainability. But it is making great efforts, as can be seen from its already decent ESG ratings today.

Translation for convenience only!

The author: Hans Peter Schupp is a board member of FIDECUM AG and portfolio manager of the Contrarian Value Euroland fund.