Oil and gas companies are navigating the energy transition by hedging their bets: investing selectively in low-carbon technologies like carbon capture and hydrogen while pulling back from broader renewable energy commitments that haven’t delivered the returns shareholders expect. The industry’s approach has shifted significantly since 2020, when several major producers announced ambitious climate pledges. Today, the strategy looks less like a wholesale pivot and more like a calculated repositioning, with companies protecting their core fossil fuel business while placing targeted bets on adjacent technologies.
How Much Companies Are Actually Spending
The clearest measure of how seriously the industry is taking the transition is where capital goes. According to Wood Mackenzie, most large international oil companies and national oil companies are converging on allocating 10% to 20% of their overall budgets to low-carbon initiatives. Leading European majors will cap renewable and low-carbon investments at 30% of total budgets, pulling back from projects that haven’t generated competitive returns.
That 10% to 20% range tells the real story. It’s enough money to build meaningful positions in emerging technologies, but it leaves the vast majority of capital flowing toward traditional oil and gas production. Companies are treating low-carbon spending as a portfolio diversification play rather than a core business transformation. And even those allocations face pressure: Wood Mackenzie projects that capital budgets overall will fall further, with low-carbon spending facing additional cuts as companies tighten their belts.
The Retreat From Renewable Pledges
Several of the biggest names in oil and gas have publicly walked back climate targets they set just a few years ago. The pattern is consistent across companies and continents.
BP announced in August 2020 that it would cut fossil fuel production by 40% by 2030 while transitioning rapidly to renewables. By February 2025, new CEO Murray Auchincloss had ditched that goal entirely, saying the company had gone “too far, too fast.” BP now plans to increase spending on oil and gas while investing far less in clean energy.
Shell followed a similar arc. In February 2021, it vowed to cut the carbon intensity of the energy it sells by 45% by 2035. Three years later, it canceled that target, citing “uncertainty in the pace of change in the energy transition.” Equinor, the Norwegian state-backed producer, pledged in 2021 to invest more in clean energy than fossil fuels by the end of the decade. It dropped that goal in February 2025 and lowered its renewables investment plans.
Even smaller, more targeted bets have been abandoned. Exxon Mobil announced in 2018 it would develop the ability to produce 10,000 barrels per day of algae-based biofuels by 2025. By 2023, the company had quietly pulled funding from its algae research programs. Japan’s Eneos Holdings walked away from a hydrogen supply target in May 2025, with its CEO noting that the shift toward a carbon-neutral society “appears to be slowing.”
The common thread in these reversals is financial. Renewable energy projects, particularly offshore wind and green hydrogen, have faced rising costs, permitting delays, and returns that look modest compared to what a barrel of oil generates. When forced to choose between shareholder returns today and a speculative transition payoff years away, executives have consistently chosen the former.
Where the Money Is Going Instead
Rather than broad renewables portfolios, oil and gas companies are concentrating low-carbon spending on technologies that leverage their existing infrastructure, engineering expertise, and geological knowledge. Two areas stand out: carbon capture and storage (CCS) and hydrogen production from natural gas.
ExxonMobil’s Baytown project in Texas illustrates the approach. The company is building what it says will be the largest low-carbon hydrogen facility in the world, capable of producing up to 1 billion cubic feet per day of hydrogen made from natural gas. The key selling point is that over 98% of the CO2 generated in the process would be captured and stored underground, up to 7 million metric tons per year. The broader carbon storage infrastructure at the site could handle up to 10 million metric tons annually. Planned startup is 2027 to 2028.
This type of project plays to the industry’s strengths. Oil and gas companies already understand subsurface geology from decades of drilling. They know how to build and operate massive processing facilities. Carbon capture paired with hydrogen production lets them monetize natural gas in a lower-emission way without abandoning the commodity altogether. Honeywell is providing the capture technology for the Baytown project, and Technip is handling the front-end engineering design.
The catch is that these projects depend heavily on government support. ExxonMobil has noted that its final investment decision is subject to “supportive government policy, necessary regulatory permits and market conditions.” Tax credits for carbon capture and clean hydrogen production (created through recent U.S. legislation) are a major factor in making the economics work. If those incentives shrink or disappear, project timelines could slip or investments could be redirected back to conventional production.
Cleaning Up Existing Operations
Beyond investing in new technologies, oil and gas companies face growing pressure to reduce emissions from their current operations. Methane, the primary component of natural gas, is a potent greenhouse gas, and leaks from wells, pipelines, and processing equipment are a significant source of industry emissions.
The EPA finalized a rule in March 2024 that sharply reduces allowable methane emissions from oil and natural gas operations. For the first time, the rule covers existing sources nationwide, not just new facilities. It updates performance standards for new, modified, and reconstructed sources while setting emissions guidelines that states must follow when developing plans to limit methane from existing infrastructure. The rule also established a “Super Emitter Program” targeting the worst-offending sites.
For operators, compliance means upgrading or replacing equipment that leaks methane: pneumatic controllers, storage tanks, compressor stations, and wellhead components. Many larger companies had already begun voluntarily reducing methane emissions because the gas itself has market value. Capturing methane that would otherwise leak means more product to sell. But the new regulations extend requirements to smaller operators and older facilities that may not have made those investments yet, raising costs across the sector.
Operational decarbonization also includes electrifying drilling rigs and production equipment (replacing diesel generators with grid power or on-site renewables), reducing routine flaring of associated gas, and improving the energy efficiency of refineries. These are less headline-grabbing than a billion-dollar hydrogen plant, but they represent a significant portion of the industry’s near-term emissions reduction.
The American and European Divide
A clear strategic split has emerged between U.S. and European oil majors. American companies like ExxonMobil and Chevron never embraced the broad renewables push that their European counterparts did. They maintained heavier investment in upstream oil and gas production throughout, positioning low-carbon spending around CCS and hydrogen rather than wind farms and solar projects.
European majors took a different path early on, with BP, Shell, and Equinor making high-profile commitments to renewable energy. As those investments underperformed, the Europeans have been converging back toward the American approach: prioritizing core oil and gas production while narrowing low-carbon spending to technologies closer to their traditional competencies. BP’s reversal is the most dramatic example, but Shell’s retreat from its carbon intensity target and Equinor’s revised investment plans follow the same logic.
The result is an industry that looks more unified in its strategy than it did three or four years ago. Nearly every major producer is now placing its transition bets on CCS, hydrogen from natural gas, and operational emissions reduction rather than building out wind and solar capacity. The question is whether those bets are large enough and fast enough to keep pace with shifting energy demand, tightening regulations, and the falling costs of renewable electricity that continue to reshape the broader energy market.