FT: Inside the failed green revolutions at BP and Shell that cost billions

Key topics:BP and Shell launched ambitious green energy transitions under new CEOs.Both companies later scaled back clean energy, refocusing on oil profits.Leadership changes and market pressures doomed their early green plans..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Malcolm Moore and Tom Wilson in London.The green revolution at BP began on February 12 2020, in Bernard Looney’s second week as chief executive.Looney, a charismatic BP lifer who had run the company’s oil and gas operations, embraced the energy transition with the zeal of a convert.“We have got to change, and change profoundly,” he declared in a speech in London, just weeks before Covid lockdowns swept much of the world, leading to an oil price crash that seemed to underline his message.As well as accelerating its clean energy businesses, Looney said, BP would also cut spending on oil and gas, and slash not just its own emissions by 2050, but also the hundreds of millions of tonnes of CO₂ produced when its oil and gas was burned by its customers each year. In total, he said, “that is not far off the emissions of the UK”..Read more:.South Africa buys Shell-BP refinery for 1 rand, faces massive clean-up costs.He also sent a warning shot to any doubters within the company. “If anyone sees BP acting counter to what I say today, then I want to hear about it.”The speech stunned BP’s own senior staff.Two former executives claim Looney had been working with consultants from McKinsey for months but had not shared the plan with the other 11 members of BP’s executive team before unveiling it. “It was a big bang approach,” one of them says. “[He was saying:] ‘I will actually destroy my current business because it is doomed and I am going to build a brand new business on the ashes of that.’”Observing from outside, one rival oil company boss was also shocked that BP had tied its net zero targets to the oil and gas it produced. “You are going to be toast. The only way you are going to get to zero is to get to zero production,” the person recalls thinking. Looney declined to comment for this article.By the time Looney announced BP’s plans, Shell, the UK’s other oil and gas giant, had been working on its own transformation for six years under chief executive Ben van Beurden.Both companies were cheered on by the UK government, the media and by investors, such as BlackRock, which adopted new climate-friendly investment frameworks.There was a powerful mood of optimism in the markets. By 2021, Denmark’s Ørsted, the first oil and gas company to exit fossil fuels and embrace renewable energy, saw its valuation hit $82bn, making it around a third more valuable than BP or Shell in January 2021.Van Beurden says that while Shell began slowly, he believed it was essential for the company to identify what its role would be after the transition to clean energy. “For the long-term survival of the business, you have to think about the future of the energy system, which is not going to be oil and gas, let’s be honest,” he tells the FT.The two UK oil majors spent heavily on their plans, hiring thousands of new staff and promising to be part of the solution to climate change, rather than its cause.But neither effort lasted beyond the tenure of the chief executive who launched it. The two companies have since dramatically scaled back several of their energy transition businesses, writing off billions of dollars of value as they shut down, or sell off underperforming units.The majority of the staff they hired have now moved on and both BP and Shell have promised investors they will cut costs and focus on their core business of finding and selling oil and gas.“Our optimism for a fast transition was misplaced and we went too far, too fast,” Murray Auchincloss, BP’s current chief executive, said in February, as he killed off Looney’s plan. “Oil and gas will be needed for decades to come.” The first and biggest mistake that both companies made was to believe they could jump from oil and gas to becoming major players in electricity.Both Shell and BP had dabbled in wind and solar power since the 1990s, but decided the technology was not yet mature. By 2014 however, Shell had realised that if the world was serious about getting to net zero “you have to have deep electrification”, according to Mark Gainsborough, the first head of the company’s “New Energies” division.At that time, the world appeared to be changing fast. Oil prices were collapsing after Saudi Arabia’s price war against US shale producers, governments were sharpening climate policy and the Paris Agreement on emissions targets was imminent.Even as Shell was betting on gas for its medium-term future, buying BG Group in 2015 for $52bn, van Beurden wanted to prepare for a post-fossil fuel world.After closing the deal, he surprised his executives by telling them that while Shell was now the world’s largest gas company, it was already cheaper to generate electricity from renewables than from gas.There was plenty of external pressure too: van Beurden remembers attending conferences and being told Shell was a dinosaur, waiting to become extinct.Embracing wind and solar power was the quickest way for Shell to reduce its overall carbon footprint, as it offset some of its oil and gas emissions with zero emission electricity.It was also the only option that could be quickly scaled; other clean technologies such as hydrogen, biofuels or carbon capture were all too expensive for consumers.But Shell’s huge bureaucracy moved slowly and cautiously. Executives worried about the profitability of becoming an electricity utility, while the board fretted about the risk to Shell’s reputation if a business selling power to households went awry.After much internal wrangling, the company set out a methodical transformation plan and started building or acquiring businesses along the green energy supply chains to Shell’s vast customer base.But winning over its own oil and gas-focused staff was a huge challenge. “It was the finance guy who would come in and say, ‘I don’t get it. I don’t know why we are investing in this, the returns are low.’ And the lawyers, and the treasury. Everyone had an opinion,” says one former Shell executive.Joe McDonald, one of the founders of Limejump, a virtual power plant start-up acquired by Shell in 2019, remembers the culture shock of joining the giant company. “You moved from one meeting to a hundred meetings. I remember one meeting where we spent the whole 45 minutes introducing everyone, and then we had to reschedule another meeting later.”For Gainsborough, the biggest challenge was that the nascent division was tiny, in an organisation pulled inexorably by the gravity of oil and gas.“At Shell, if it does not move the dial, it gets ignored,” he says. “I’ve done some difficult jobs and by far and away the most difficult one was running New Energies. And that was in an environment where both the CEO and the chair were massive supporters.” In the decade before Looney took charge, BP was simply trying to steady its ship. The 2010 Deepwater Horizon disaster cost it over $70bn and absorbed all the attention of the company’s leadership.There were some small hedges on the future. In 2017, it bought nearly half of UK solar farm company Lightsource for $200mn. In 2018, it bought Chargemaster, the UK’s largest electric vehicle charging network, for £130mn after seeing how quickly electric vehicles were being adopted in China.But everything changed after the arrival of Helge Lund, the former Statoil chief executive, as BP chair at the end of 2018 — and then the appointment of Looney as chief executive at the start of 2020.To consolidate control and prepare BP for disruption, Looney and McKinsey dismantled the company’s traditional “upstream” and “downstream” divisions, which explored and produced oil and gas and then refined, traded and sold it.Instead, there were 11 new business units, some of which left staff baffled. One new team was called “Cities and Regions” and its job was to imagine how urbanisation would change energy use and consult with cities on what opportunities there might be for BP to play a role. “It looked like a consulting job on a piece of paper rather than something that was really going to fly,” admits one former BP executive. Last year, BP reorganised again to get rid of the Cities and Regions unit and “reduce duplication”.“You could see the mis-steps happening live. The degrees of change were just too fast,” says another. “Changing the CEO is one degree of change. Then the CEO changes the strategy overnight. Then he decimates anybody in divisions that he didn’t think were important.”Later in 2020, Looney set out more details. BP went beyond Shell, and any other oil company, in pledging to actually reduce the oil and gas it produced, with an initial target of a 40 per cent cut by 2030. “No other company followed, so either you are a prophet and others did not get it, or you are the lonely guy on top of a mountain,” observes the second executive.With McKinsey teams embedded across the organisation to offer rebuttals, and amid the chaos of the reorganisation, insiders say it was hard to speak out against the plan. “You could not have a dialogue about this being the wrong thing. If the numbers did not work, you would fit them,” the executive adds. Both companies increased their spending on green technology rapidly, to a peak in 2022 of nearly a third of overall investment, or $4.9bn, for BP, and nearly a fifth, or $4.3bn, for Shell. BP promised to spend a further $55bn to $65bn between 2023 and 2030.The reaction from investors was mixed, at best.Gainsborough recalls visiting one major investor who greeted him with five people from the ESG department and five from oil and gas. “The oil and gas side said, ‘We prefer you to do as little as possible of this new energy stuff because you have to focus on the core,’ and the ESG team said, ‘You have to do this much faster.’”.Read more:.SA’s largest oil refinery sold for a few cents: Will BP and Shell be held accountable for environmental damage?.Among investors, the media and the public, the two companies were mainly judged by how quickly they had increased their investment on renewable energy, and how much they were still spending on oil and gas. They found it impossible to satisfy their critics.Van Beurden remembers trying to explain that Shell should be judged by its efforts to reduce the carbon emissions of what it supplied to customers, since the company’s large trading business sold six times as much fuel as Shell produced itself.“How much you invest in renewables is the wrong metric to judge us,” he says. “But nevertheless people looked at it and said, ‘Why can’t you do twice as much?’”But as the external pressure mounted, and companies such as Ørsted soared to heady valuations, Shell began chasing projects for volume rather than value.Internally, some executives got carried away. One proposed that Shell, the largest supplier of jet fuel in the world to a network of 800 airports, should divest the hugely profitable business because it was so carbon intensive, according to two former colleagues. The idea was quickly killed.“There was a lot of Fomo,” remembers Elisabeth Brinton, who succeeded Gainsborough at New Energies in 2020. “I could already see the headwinds in offshore wind, and we all see where it is now,” she says, referring to recent slump in the market.Her regret, in hindsight, is that Shell did not stick to the businesses that would have better suited its core skill of trading, where it often bought and sold energy, including renewable electricity and clean fuels, rather than trying to produce it itself. “The mandate I had was too spread out and it was just too much for the organisation and the shareholders to really digest,” she says.Another former executive says it was never in Shell’s long-term interest to adopt the business model of the utility companies, which compete on capital discipline and thin margins. “In 2019/2020 we embraced the Ørsted model. Both Shell and BP brought in people from utilities. It’s a bit like challenging Usain Bolt to a 100-metre race. You are never going to win so why are you trying to be a utility?”Gainsborough disputes that the lower margins from electricity was a problem. “Oil and gas is a 10 per cent return over the cycle at best,” he says. “People only remember the peaks.”Instead, he says, there was a lack of patience. “How long did it take Shell’s LNG business to get double-digit returns? Between 10 and 15 years,” he says. “Now it is the jewel in the crown. With oil and gas we were prepared to take long-term bets. And there was an expectation that the gestation period for New Energies was going to be very, very short, which is just totally unrealistic.”The music stopped when Russia invaded Ukraine in early 2022. The ability of Shell and BP to spend freely on the energy transition was always constrained by the decision of their US rivals, ExxonMobil and Chevron, to maintain a focus on oil and gas.When the war in Europe created an energy crisis that sent prices, and oil company profits, sky high, some investors started to push Shell and BP to stop diverging from their peers and ditch their unprofitable green plans altogether. Most insiders agree that the decisive blow to the green push at both companies came with leadership change.At Shell, Brinton saw New Energies shift from being considered a possible candidate for a spin-off IPO to a problem that needed fixing.She says the business was performing according to its financial plan at the time of her departure in 2022. “It was very frustrating because all of a sudden the expectations and the game rules and the funding started changing and it became very easy to scapegoat those businesses and blame them and say it’s not working. They starved their children and then say the children failed.”Van Beurden, who stepped down at the end of 2022, says the world changed. Inflation and interest rates rose, he argues, governments moved more slowly, and the global pace of progress on climate change is currently below the bottom end of Shell’s forecasts from 2016.He says the scale of the challenge to reduce emissions became clear during Covid, when global shutdowns only made a roughly 5 per cent dent in the total. “People started realising that this is actually a much bigger challenge. Unless we have big pandemics every year, we are not going to get anywhere on this,” he says.At BP, Looney’s sudden departure at the end of 2023, for misleading the board about his past relationships with BP colleagues, left the company with the dawning realisation that its revolution was out of step with reality.“The problem with BP’s targets was that they ignored the force of the market, so if the market changed, you did not have exit routes,” says one former executive. These days, since new chief executive Auchincloss reset the strategy, there is “radio silence” about the green push, according to one current employee. Today, Shell and BP have retreated to be more in line with their US rivals, though still with targets to have net zero emissions by 2050. The grand narrative of transformation has been discarded for renewed focus on shareholder returns.While the world continues to electrify, and to grow the share of solar and wind power generation, the two companies are now focusing on other parts of the transition, such as moving from heavy fuels with high emissions to gas and eventually biofuels and hydrogen. In the first nine months of this year, BP cut its spending on clean energy by 80 per cent compared with last year, to just $332mn.Shell says it is now “focused on disciplined capital allocation in our areas of competitive strength while driving improved returns”. The company has “clear plans” for “more profitable lower-carbon businesses” which it can scale “as customer demand and government policies evolve.” BP declined to commentYet the failed experiments left a legacy. An entire generation of executives trained at the two companies has fanned out across the energy sector. “None of the people who worked for me at New Energies have struggled to get great jobs,” says Gainsborough. “I had lunch with 10 CEOs in London who had all worked for me in New Energies. The Shell diaspora into the rest of the energy transition is massive.”Van Beurden’s regret is that the industry failed to clearly define a collective plan for the energy transition. “It was impossible to get everybody on the same page,” he says. Climate strategy became a source of competition, with each company seeking to differentiate itself by taking a different approach. “That’s where the industry collectively has made a big mistake.”.© 2025 The Financial Times Ltd.

FT: Inside the failed green revolutions at BP and Shell that cost billions

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