BAKU, Azerbaijan, May 10. Higher hydrocarbon prices may put a downward pressure on the volume of investments in decarbonization, Trend reports via Fitch Ratings.
“The Russia-Ukraine war has pushed hydrocarbon prices higher, particularly those for natural gas, and increased concerns about the security of supply. The European oil majors are generating record-high earnings in the current oil and gas pricing environment, which may partly discourage them from investments in the energy transition, putting their long-term decarbonisation commitments to the test,” reads a report released by the rating agency.
Fitch analysts remind that even before February 24, 2022 Russia decreased gas transportation to Europe, which once again showed the risks of depending on one supplier. In the long term, energy generation may be localized by boosting the deliveries of alternative energy, which is often produced and supplied locally, and reduce dependence on imports.
“However, measures taken by Western countries are designed to curb Russian hydrocarbon revenues and require maximising oil and gas production elsewhere in the short term, which may slow global decarbonisation efforts,” the report says.
Fitch experts believe that higher prices for fossil fuels and lack of alternative energy incentives might increase the oil majors’ scepticism about re-focusing towards low-carbon energy, particularly given lower returns in many renewable energy segments compared to oil and gas companies’ traditional businesses.
“This has already been reflected in the most recent strategy updates from some global oil and gas producers. BP’s new target is still fairly ambitious relative to its peers, but it highlights that oil majors’ decarbonisation goals are not set in stone and may be adjusted. Similarly, when discussing the 2022 results, Shell’s CEO pointed out that the longevity of the upstream portfolio is a key focus for the company. This contrasts with Shell’s earlier guidance that its hydrocarbon production should have peaked in 2019 and will then decline by 1%-2% a year, implying that its hydrocarbon production should shrink by 12%-24% by 2030. Shell is likely to announce its updated strategy in June 2023,” the report says.