BP and Shell’s strategy counterpoint
Lacking natural advantages and national support of other energy majors, the companies need to be more nimble
When oil companies are riding high on elevated energy prices as they are now, there can be a tendency to overlook just how different majors are.
Underneath record profits are extremely varied strategies, political relationships and long-term prospects. But BP and Shell in particular stand out. Lacking the natural advantages and national support that other majors enjoy, the companies are having to take a different tack.
Compare BP and Shell with the national oil companies: Saudi Aramco, Adnoc, Petrobras, the Chinese state giants, Petróleos de Venezuela (PDVSA), Malaysia’s Petronas, among many others.
These companies have a straightforward mission: extract oil and gas, sell it, and serve the state by paying dividends into the treasury and supplying the domestic market. They do not usually have to take on significant risks, such as drilling for oil in unexplored basins, and they do not have to worry as much about politics. Even when governments committed to faster climate action are voted in, such as in Brazil and Mexico, the importance of oil and gas revenues to the public finances is usually enough to protect their interests and overcome social opposition.
Then there are what we might call national champions; companies that are independent, or which have a minority state share, but which are part of their country’s energy and industrial strategy. Some of the biggest ones are France’s TotalEnergies, Norway’s Equinor and Italy’s Eni. They can count on governments that regard their success as a national interest, paving the way for everything from an education system designed to produce sufficient numbers of engineers and geologists, to diplomatic support overseas, to a president or prime minister helping to open the door to a prospective concession.
In a world that is retreating from globalisation, being able to lean on government support to navigate sanctions or open up routes to resources is a competitive advantage. Of course, the same governments may charge a price: obliging companies to fix domestic fuel prices or shield domestic jobs.
The US supergiants, ExxonMobil and Chevron, occupy a category of their own. Their relationship with Washington changes with each new administration, but they can also depend on the structural advantages of having huge domestic oil and gas resources, access to the world’s deepest and most risk-tolerant capital markets, and the US brand overseas.
In contrast, the national support for BP and Shell is far less clear. Once, BP was an arm of British foreign policy and Shell was the pride of both the Netherlands and the UK. Today, they are political orphans; Britain has no settled idea of what role it wants them to play. The government barely acknowledges them, despite their status as two of the country’s largest companies.
It is perhaps no coincidence that, without a clear sense of national support and purpose, the strategies of BP and Shell have been the most volatile among their peers in recent years. Both have spent countless hours ruminating about what role they should play in society. Amid huge public support for climate change action, Shell and BP went down a rabbit hole of green investments that destroyed shareholder value. Having spent billions with too little to show for it, both companies have now swung hard in the other direction, to focus on oil and gas. This may also be a miscalculation. Electricity is growing faster than the energy system as a whole, and public support for politicians to force more action on climate change is likely to strengthen, rather than soften.
But there are positives too. The two companies have the flexibility to pursue the projects they want to, living by their commercial wits without doing the bidding of any domestic political master. This sense of commerciality is most obviously on show in their trading divisions, the units that buy and sell oil and gas produced by themselves and others. Shell and BP are widely acknowledged in the industry to have the top trading teams, helping the companies navigate market swings.
Neither company is willing to reveal how much money its traders make, but analysts say the returns are vast. Most other oil companies are now trying to emulate their success.
This trading mindset may also give Shell and BP flexibility in the energy transition. When countries eventually slow down their oil consumption, and energy systems become fragmented, national companies will still have their singular mission, US majors will have their enormous resource base, but Shell and BP may be nimble enough to keep trading.