To achieve the Paris Agreement’s target to limit global temperature increase to 1.5°C, oil consumption must drop 34 per cent this decade and production must decline four per cent year-on-year.

Not only is this is very ambitious, but ‘transition risks’ are also becoming apparent due to the financial implications of the transition process towards a low-carbon economy for a wide range of stakeholders, including beyond the global oil industry itself.

Oil giants such as BP, Shell and ExxonMobil, are far more vulnerable to these transition risks than their state-owned rivals, such as Russia’s Rosneft and Brazil’s Petrobras, especially as they sit on the largest reserves and have kept the ‘easy oil’ to themselves. They also don’t face such a high risk of losing their ‘social licence to operate’ or mounting  shareholder pressure as the likes of BP and Shell do.

Long before the COVID-19 pandemic, the industry was already in distress, with the oil firms suffering chronic cash shortfalls and resorting to stopgap asset sales and long-term debt to bridge their deficits. Some suggest that the fossil fuel industry is now sitting on a ‘carbon bubble’, with $30 trillion in fixed assets at risk of becoming ‘stranded’. Events in 2020 only increased transition risk exposure as the S&P 500’s listed energy companies lost more than a third of their combined value. 

The crisis has led to drastic cuts in dividends, layoffs, reduced capital investments and operational expenditure, with the oil industry increasingly threatened by the fossil fuel divestment campaign, as well as growing net-zero commitments by financiers and asset owners. As climate policy gains greater traction, finance streams dry up, social preferences change, and transition risks pile up, Big Oil must act, whether they want to or not.

In the face of these challenges, what are Big Oil’s coping strategies, and how credible are they? One way of analysing this, is through our novel prism of the ‘transition strategy continuum’.

To determine the position of an oil firm, we analyse three criteria:

  1. Current and future investments in renewables and low-carbon technologies (compared to oil and gas)
  2. Emissions and production reduction targets
  3. Discrete oil demand outlooks

Strategies range from ‘business-as-usual’ where a company addresses its own emissions, to one of ‘radical transformation,’ which entails a complete overhaul of the business model.

Radical Transformation

This is the most far-reaching strategy and the Danish majority state-owned energy company Ørsted, formerly known as Dong Energy, is the clearest example. In just over a decade, it has transformed from a conventional fossil energy company to the world’s largest producer of offshore-wind energy, selling off its last oil and gas upstream assets in 2017.

Now it has one long-term goal: to become the world’s first ‘green energy supermajor.’ But Dong was a relatively small company compared to veritable majors, such as ExxonMobil, Shell, BP, Total, and Chevron. None of these has (yet) followed suit.

Integrated Energy Companies

The second strategy has a foot in both fossil fuels and renewables. Since 2015, Total, has allocated more than 10 per cent of its investments to renewables and electricity, more than any other publically-traded oil firm.

That share is expected to increase to more than 20 per cent by 2030 at the latest. Early 2021, it has proposed to change its name to TotalEnergies to better capture its “strategic transformation into a broad energy company.”

It was also the first major to leave the powerful oil lobby, the American Petroleum Institute, citing differences over climate policy. This move exposes the growing discord over climate policy, particularly between the European and American companies. Another European major, BP, aims to increase its annual low carbon investment 10-fold to around $5 billion a year by 2030, while Shell will increase its investments to a more modest $2-3 billion in the near future.

These oil majors have committed to becoming ‘net-zero’ by 2050 at the latest, even though this remains a contested concept. Repsol and Eni have both announced that they will eliminate all emissions from their own operations and those of their customers by 2050, including their scope three emissions, which account for up to 90 per cent of their emissions and includes evyerhting from employee commuting and business travel to what their oil is used for.

Total announced that its scope three emissions would reach net zero by 2050 as well, albeit only in Europe. Shell and BP’s scope three ambitions are more modest and relate to emissions intensity. But both have been working on integrating emissions reduction targets into the bonus packages of part of its workforce.

BP is also taking the most meaningful steps in production targets. By 2030, its oil and gas production are expected to reduce by 40 per cent from 2019 levels. It will also stop exploration in new countries. Importantly, this does not apply to the operations of Rosneft, where BP holds a significant minority stake. Eni expects its oil and gas production to plateau in 2025, while Shell refers to a peak in oil production alone; which already occurred in 2019.

Importantly, forecasting and scenario analyses give a good indication of the internal thought processes within these companies. In 2018, Shell was the first to outline a Paris-compliant scenario; which it updated in 2021 to be 1.5°C-compatible despite several executives quitting amid a split over the strategy. Other oil companies have scenarios that use the Paris Agreement as a benchmark and forecast a peak in global oil demand relatively soon.


This basically entails doubling down on the core business of oil production, even if it does involve making some, often cosmetic, changes related to investment and emissions reduction strategies.

ExxonMobil perhaps best exemplifies this as CEO Darren Woods said that “today’s alternatives [to oil] don’t consistently offer the energy density, scale, transportability, availability and, most importantly, the affordability required to be widely accepted”.

Consequently, it has shown very little investment interest in renewable energy. Instead ExxonMobil has a more persistent focus on emissions reduction technologies, most notably carbon capture and storage and hydrogen.  

It has also long held out against investor pressure over climate change. Although recently, it accepted to cut scope one and two emissions - that is emissions from production and the energy it uses to extract oil - by 2025 and to start publishing annual data on its scope three pollution. Internal documents have revealed, however, that it expects annual emissions from its operations to increase from 122 million metric tons of CO2 in 2017 to 143 million metric tonnes in 2025.

Despite total reserves dropping by a third and writing off up to $20 billion in assets in 2020, in the short term, ExxonMobil plans to boost oil and gas production because it expects oil demand and prices to rise while the world recovers from the pandemic and global oil supply growth slows because of current under-investments.

Some analysts now project oil prices going above and beyond $100 a barrel as we have supposedly entered a new ‘commodities supercycle.’ In the long term, ExxonMobil expects that the equivalent to Saudi Arabia’s daily production will be needed to meet projected demand growth by 2040.

Other American majors, like Chevron and ConocoPhillips, follow a similar strategy.


There is a clear divergence in strategy among oil companies, based on the three criteria. But even for those aiming to transform into an integrated energy company, the emphasis will continue to rest on their core oil and gas business a while yet.

In the short term, a difficult balancing act lies ahead, which will require ambidexterity (ie the ability to both explore new avenues and exploit existing ones) as those listed oil firms must maintain a positive cash flow to reward investors and also finance a re-positioning strategy.

The history of capitalism is one of the ‘creative destruction’ of corporations and industries that failed to adapt to new realities. If it does not act, Big Oil faces a similar fate to Kodak in the 1990s or Nokia and BlackBerry in the 2000s.

But it still has a few tricks up its sleeve. Current upstream under-investment will likely lead to supply shortages and prices have gone up now that the pandemic’s end is possibly in sight. Moreover, the fossil fuel industry has also enjoyed (in)direct financial support as governments around the world disproportionately advantaged carbon-intensive sectors through their COVID-19 rescue packages. Signs that the world is not yet done with oil.

But we are at the start of a crucial decade in the fight against climate change. To maintain a reasonable chance of keeping global warming within the Paris Agreement’s limits, both oil use and production must peak soon and come down very swiftly. In this context, the only climate-viable strategy in the longer-run is that of radical transformation.

It is vital to manage a rapid transition in such a way that it happens in as orderly a manner as possible. Given the centrality of oil to the current global financial system, the stakes could not be higher. The fundamental question these companies face is whether they can (or care to) reinvent their business models within planetary boundaries or whether they want to risk continuing down a path that has already cost them so much in the past decade.

This article is based on a book chapter from the forthcoming 'Handbook of Oil and International Relations'. See the original version at the University of Warwick.

Mathieu Blondeel is a postdoctoral Research Fellow working on UK Energy in a Global Context funded by the UK Energy Research Centre.

Michael Bradshaw is Professor of Global Energy and is a Fellow of the Royal Geographical Society. He teaches Managing in a New World and Managing Sustainable Energy Transitions on the Full-time MBA and Forecasting for Decision Makers on the suite of MSc Business courses.

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