Fossil Energy Stakeholders Quit Russia, But Other Windows Could Open

BP caught the attention of energy observers earlier this week when the company walked away from its fossil energy operations in Russia, citing the country’s unprovoked, murderous attack on Ukraine. Shell followed shortly after, and ExxonMobil announced it would make no new investments in Russia while ending its involvement in a project on Sakhalin Island. Whether these moves result in any benefit for global climate action remains to be seen, but it does indicate that forward-looking fossil energy stakeholders foresee more secure pastures elsewhere as the global economy decarbonizes.

BP issues a strong statement on Russia

BP announced its decision in a press release dated Feb. 27. The company dropped its 19.75 percent share of the Russian company Rosneft. In addition, both of the BP-nominated Rosneft board members abruptly resigned their positions.

“Russia’s attack on Ukraine is an act of aggression which is having tragic consequences across the region,” BP Chair Helge Lund said. While taking note of a close 30-year relationship with “brilliant Russian colleagues” in the fossil energy business, Lund made it clear that Russia’s new status as a reviled nation is not a good fit for the company’s recently revived “beyond petroleum” slogan.

BP CEO Bernard Looney seconded that thought. “Like so many, I have been deeply shocked and saddened by the situation unfolding in Ukraine and my heart goes out to everyone affected. It has caused us to fundamentally rethink BP’s position with Rosneft,” Looney said in a public statement.

Shell lays the groundwork for next steps

Shell followed suit just one day later. On Feb. 28, the company announced it will drop its joint ventures with Russia’s Gazprom and related entities. That includes a 27.5 percent stake in a liquified natural gas (LNG) facility and a 50 percent stake in the Salym oil fields and the Gydan exploration project. In addition, Shell announced plans to end its role in the notorious Nord Stream 2 pipeline project.

“We are shocked by the loss of life in Ukraine, which we deplore, resulting from a senseless act of military aggression which threatens European security,” said Shell CEO Ben van Beurden in a company press release.

Van Beurden also laid the groundwork for next steps, for both BP and its own operations. “In discussion with governments around the world, we will also work through the detailed business implications, including the importance of secure energy supplies to Europe and other markets, in compliance with relevant sanctions,” he added.

A big opening for liquid natural gas

The actions taken by BP and Shell should not be interpreted as a significant step toward decarbonization. It is unclear to what extent, if any, Rosneft or Gazprom will suffer operational impact from the loss of those investors.

In addition, as indicated by van Beurden, the Russian invasion of Ukraine has finally forced Europe to deal with the consequences of its dependence on natural gas from Russia. In the near term, the response will most likely involve an increased reliance on liquid natural gas and petroleum from the U.S. and other allies.

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BP and Shell both have positions in U.S. oil and natural gas production, giving rise to the possibility of ramping up their U.S. operations.

U.S. fossil energy stakeholders have been casting an eye on the LNG market in Europe for many years, and federal restrictions on exporting such fuel from the U.S. began to loosen during the Barack Obama administration.

Opposition to new LNG export terminals and new gas pipelines has been fierce, and the U.S. Federal Energy Regulatory Commission has just issued new rules that would make new permits difficult to justify. However, Russia’s murderous rampage through Ukraine could put those efforts on the back burner, at least temporarily.

A bigger window for renewable energy

Nevertheless, from a renewable energy angle, it is no coincidence that BP and Shell are the first two fossil energy stakeholders to drop their operations in Russia.

Significant opportunities to invest in wind or solar resources in Russia have been slim to none, but there is an abundance of openings elsewhere, which both Shell and BP are exploring to great advantage.

After its initial “beyond petroleum” campaign fizzled out, BP launched a new iteration in 2017 alongside a $200 million solar stake in the developer Lightsource. The company’s foothold in renewable energy has surged since then, including a 50 percent stake in Equinor’s offshore wind business and a 9-gigawatt solar deal in Texas announced last summer.

Shell is also known for its leadership role in offshore wind energy, and both companies have been eyeing massive new offshore wind opportunities in the U.S.

All eyes on ExxonMobil

It is also no coincidence that both Shell and BP are exposed politically, due to the location of their global headquarters in the U.K. (Shell relocated from the Netherlands last year.)

The U.K. has a longstanding security agreement with Ukraine through the 1994 Budapest Memorandum. Ukraine denuclearized in exchange for security agreements with the U.S., Russia and the U.K., as outlined in the memorandum.

Russia has steamrolled over its end of the bargain, but the U.S. and the U.K. are still obligated to hold up their end. As of this writing, much of the public pressure is falling on the U.K., partly due to Prime Minister Boris Johnson’s reportedly cozy relationships with former U.S. President Donald Trump and various Russian oligarchs. The result adds to the layers of additional brand reputation risks on BP and Shell.

U.S. President Joe Biden has taken the lead on rallying Western allies against Russia, and that may have helped insulate ExxonMobil from criticism, at first. However, now that BP and Shell have taken action, the media spotlight has turned on ExxonMobil, which in turn issued the aforementioned press release yesterday.

Earlier this week, Reuters noted how ExxonMobil had owned a 30 percent stake in the Sakhalin Island project, along with Rosneft, SODECO (Sakhalin Oil and Gas Development Co.) of Japan and India's ONGC Videsh. “The group with Exxon as operator has exported more than 1 billion barrels of oil and 1.03 billion cubic feet of natural gas since production began in 2005,” Reuters reporter Gary Mcwilliams added.

A rock and a hard place for ExxonMobil

Unfortunately for its shareholders, ExxonMobil has failed to make any meaningful attempt to diversify its energy business.

In sharp contrast to Shell, BP and several other leading global energy firms, ExxonMobil has focused its renewable energy activity almost exclusively on research and development in the area of algae biofuel, a field that is many years away from making any significant impact on climate management.

The carnage in Ukraine could finally convince ExxonMobil CEO Darren Woods that the time for action is now. If the human catastrophe won’t change his mind, the bottom-line impact of additional sanctions should do the job.

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