Well, well, well… Big Oil is putting off going green.
Three years ago, large oil and gas companies like BP and Shell made headlines when they announced that they were transitioning their businesses to renewable energy.
And now they’re changing their tune.
It seemed like a good idea at the time. Oil prices were low and interest rates were close to zero.
But a lot has changed since then, and now those same companies are quietly modifying their promises.
BP had previously aimed to cut its carbon emissions by 35-40% in 2030. Now, it has changed its goal to a 20-30% reduction.
Shell had aimed to become the world’s largest producer of electricity. Now, it is putting its focus back on oil and gas and looking to sell off part of its renewable power business.
Here at the Intelligent Income Daily, we’re focused on finding the safest income investments on the market. When industry leaders are betting big on a trend, we pay attention… and look for ways to profit.
Today I want to explain why oil and gas companies are pivoting away from renewable energy and increasing their bets on the fossil fuel industry. I’ll also share one free way to profit from this recent shift in the market.
Follow the Money
It all comes down to money. Investing in renewable energy just isn’t as profitable as oil and gas.
Higher interest rates and inflation have made it more expensive to build renewable energy.
And last month, I showed you why our country’s electrical grid doesn’t have the infrastructure to handle the massive increase in electricity production that renewable energy projects are bringing. That’s leading to delays and reducing profits for the owners of those projects.
According to BP, the company makes a 6% to 8% return on renewable energy projects.
In comparison, a traditional fossil fuel project can produce returns ranging from 15% to 50%, depending on the price of oil and gas.
As Shell’s CEO Wael Sawan explained, the company “cannot justify going for a low return” when oil and gas are bringing in massive profits. And “the reality is, the energy system of today continues to desperately need oil and gas.”
So instead of focusing on renewable energy like wind and solar, oil companies are putting more investments into “lower carbon” fuels like natural gas, biodiesel, and hydrogen.
Demand for natural gas is expected to grow rapidly in the coming decade as countries look for cleaner alternatives to coal. U.S. exports of liquefied natural gas (“LNG”) is expected to more than double by 2030. LNG is natural gas that has been cooled to -260° F and turned into a liquid for easier shipping.
Another technology that is gaining interest is carbon capture and storage. Oil and gas companies already inject carbon dioxide into old wells to increase the amount of oil they produce.
The Inflation Reduction Act increased the tax credits that companies could earn for carbon capture. So the technology is becoming more profitable with government subsidies.
Just a few weeks ago Exxon Mobil decided to buy Denbury to get control of the nation’s largest network of carbon dioxide pipelines. It claimed that developing its carbon capture and storage business with these assets could reduce emissions by 100 million tons per year – while generating a nice profit.
It’s clear that oil and gas companies think that fossil fuels will still be used for quite some time. Instead of focusing on renewable energy projects that have low returns, they’re turning to investments in lower carbon energy that play to their strengths and create strong profits.
How to Profit from the Pivot
One way to profit from the continuing demand for oil and gas is by investing in the pipelines that transport fuel from the oilfield to the refinery and finally to customers that use it.
Pipelines are long-lasting infrastructure assets that collect a steady fee for every gallon of gas that goes through their network. That means that they have reliable earnings no matter what the price of oil is.
You can easily add pipeline companies to your portfolio through the Global X MLP & Energy Infrastructure ETF (MLPX).
This ETF holds a basket of the top pipeline companies on the market and yields 5.2%.
Over the past 3 years, MLPX has returned 165% compared to 48.5% for the S&P 500.
Now that’s a great way to play this shift in the market.
And if you want my best pipeline company pick, join the Intelligent Income Investor service. I recently covered this company in my #1 Energy Play for 2023 and Beyond special report for members.
It owns 94,300 miles of pipeline infrastructure. That lets it collect a steady profit for every gallon of oil and gas that travels through its network – regardless of what the price of oil is.
It’s also heavily invested in several LNG export facilities and has a double-digit market share of North American LNG exports right now.
And it has a growing portfolio of carbon capture, hydrogen, and renewable natural gas projects.
Best of all, it is a reliable dividend grower that has increased its payout every year for 28 years and yields 7.2%. Click here to become a member.
As I mentioned earlier this month, LNG demand is expected to quadruple by 2030.
So no matter how you decide to play it, don’t miss out on profiting from this major trend.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily