Saudi Aramco is tightening its belt. In a March 21 earnings call, the world’s largest state-owned oil company reported a 44% decline in net profits in 2020 thanks to the pandemic. With global oil demand unlikely to bounce fully back until at least 2022, the company said it will shave up to $10 billion off its capital spending plans this year.
It’s not alone. ExxonMobil announced a similarly-sized spending cut earlier this month. Globally, fossil fuel companies’ spending on “upstream” activities (finding and producing oil and gas) fell by nearly one-third in 2020, according to a new analysis from Rystad Energy, a research firm.
Meanwhile, spending on solar and wind farms is setting new records and catching up fast. In 2019, global renewables spending was nearly 60% below upstream oil and gas; in 2021, the gap is projected to be just 22%, Rystad reported.
Oil and gas spending will likely rise a bit with the post-pandemic economic recovery, but the gap to renewables will continue to narrow as oil companies contend with the long-term contraction of their market. Since the beginning of 2020, leading oil majors have written down the value of their fossil-producing assets by more than $100 billion, according to a March report from the International Energy Agency. Companies like Exxon or Aramco that aren’t working to diversify into other forms of energy are focusing on their lowest-cost sources of production and not hunting for new sources.
Renewables, however, are in a period of rapid growth as costs fall and demand surges for zero-carbon electricity. A separate forecast in January from the firm IHS Markit projected that the global capacity of wind and solar power could exceed natural gas by 2023. If the age of fossil fuel exploration is ending, the age of Big Renewables is just beginning.