Shutterstock Save for later Print Download Share LinkedIn Twitter Despite forecasts for strong oil and gas prices to continue, the year ahead will be a pivotal point for the low-carbon ambitions of the Western oil majors, which will begin to detail their plans on upcoming quarterly earnings calls. The US and European majors are following different transition paths and have different decarbonization goals, but all are looking to meeting interim targets between 2025 and 2030. To reach those goals, they will need to use some of their record cash flows to bring forward projects today. With a wide variety of pre-sanction projects in the queue, the decisions companies make about what moves ahead over the next 12 months could have an outsized impact on the shape and scope of their future portfolios. Almost 55% of the $105 billion in low-carbon investments by the world's largest oil and gas companies have yet to receive final investment decisions (FIDs), according to data from the Energy Intelligence Low Carbon Investment Tracker. Exxon Mobil has seen two of its three carbon capture and storage (CCS) projects planned for FID in 2022 fall behind, setting up a make-or-break year for its core decarbonization strategy. BP is due to take FID on its Endurance CCS project that underpins the NetZero Teeside development. Companies including BP, Shell and Chevron have all spent significant sums to establish renewable gas businesses and now must rapidly scale them to achieve their green gas goals. Majors like Total, Shell, BP and Equinor have built significant offshore wind portfolios and must be selective about which projects to advance in order to maximize returns.The environment for transition investments has changed dramatically in the past year. Rising interest rates — and the potential for a return to a sustained period of higher capital costs — is creating headwinds for returns. Meanwhile, the rush to move ahead in areas like renewable power, battery storage, carbon capture and hydrogen threatens to create significant shortages of key skilled labor and materials. But for those companies that can tame unruly supply chains, the incentives have never been higher, as the US Inflation Reduction Act (IRA) and talk of competing programs in Europe have the potential to funnel government support into transition industries. And companies have never had more financial space to operate with record low debt, record high cashflows and share prices that have recovered from pandemic lows. Executives like Total’s Patrick Pouyanne and former Shell CEO Ben van Beurden said they are inclined to direct windfall cashflows to transition investments but admit that they struggle to find enough opportunities that meet their internal hurdles. Shell recently pulled out of a pilot floating windfarm offshore France and withdrew from two offshore wind licenses off Ireland as it looks to focus on its most profitable renewable energy options. Chevron has iced a bioenergy with CCS project in California and a green hydrogen proposal in Utah. The IRA will inject around $400 billion in the US clean energy sector, according to an analysis by McKinsey, much of which can flow into areas where the majors are already staking out positions including electric vehicle (EV) charging, CCS and hydrogen.The upcoming slate of annual earnings — and accompanying outlooks for 2023 — will also provide a litmus test for investor support for companies to lean into the transition. All companies have preached continued spending discipline. Recent low-carbon acquisitions have caused angst among investors who are consistently pushing back against anything that might cut into the capital available for shareholder returns. And some are asking whether companies would be better served to take advantage of near-term opportunities to boost oil and gas production while prices remain high. BP’s $4.1 billion buy of renewable gas producer Archaea Energy led to a series of pointed questions from analysts on the impact on UK major’s buyback plans. RBC analysts called investor opinion of Shell’s transition strategy “the elephant in the room” for new CEO Wael Sawan and questioned whether the company should dial back its transition ambitions. “We believe these targets have constrained the company and have driven suboptimal capital allocation decisions in the last couple of years,” Biraj Borkhataria argued in a note to clients. US majors Chevron and Exxon may have to defend the rationale for ramping up low-carbon spend when their short-cycle oil and gas investments could create cashflows now to a set of US investors that would rather see them flex their relative advantage in fossil fuels.