The oil and gas industry has never been more profitable than it was in 2022. ExxonMobil, BP, Chevron, Shell, and ConocoPhillips reported combined hauls totaling more than $177 billion.

Interpreting these huge sums gets more complicated. Environmentalists say they show an industry price-gouging during wartime, profiteering from Russia’s invasion of Ukraine a year ago. Oil executives say they show the fundamental strategy of the business is working: “performing while transforming,” as CEO Bernard Looney put it in BP’s earnings call.

The profits have managed to erase the recent memory of the oil industry’s 2020 pandemic reckoning when, after nearly a decade of lower prices from the fracking boom, oil and gas prices crashed as much of global and domestic travel came to a standstill. Suddenly, banks heavily scrutinized loans for new drilling projects. And the oil industry leaned heavily on the Trump administration for taxpayer bailouts and Covid relief.

The industry learned a few lessons. Companies are more focused today on paying down debt and returning value to shareholders than in the past decade, translating into $109 billion in stock buybacks that benefit the largest investors. And overall, the industry is less focused on expanding and exploring new drilling, preferring to keep costs down.

But while the industry hasn’t forgotten every lesson from the past few years, the largest companies have neglected the most important ones. Large profits also give a company the opportunity to signal where it sees its growth by reinvesting in the business. And for over a century, future growth has always meant more drilling — not a transition to renewable energy.

That’s not possible anymore, at least not if the world makes any effort to address climate change. The International Energy Agency said starkly in May 2020 that the world now has all the proven and probable oil reserves it needs if it has any hope of meeting the global climate goals of limiting warming to under 2 degrees Celsius. If this were actually implemented as policy, the industry wouldn’t be investing any of its massive profits in scaling new fossil fuels.

But the industry is doing the exact opposite, backing away from so-called climate spending in order to boost their core business: greenhouse gases.

Big Oil’s record profits mask the real trouble ahead

The energy industry used to be inseparable from economic growth, commanding 28 percent of the total stock market in the 1980s. It fell to a new low of 2 percent in 2020, as travel came to a standstill. Even today, it’s only a marginally higher share of the total market.

The numbers tell the longer story of oil’s shrinking footprint in the economy. It’s a fundamental part of climate policy to separate economic growth from fossil fuels. More than 30 countries have figured out how to do this, lowering carbon emissions while continuing to grow the economy. That’s included the US, where overall carbon dioxide output is still below 2019 levels. Renewables now comprise a larger share of power generation than coal. And transportation — planes, trains, and automobiles — was again the largest climate-polluting sector.

Looking forward, the oil industry faces competition like it’s never before seen in all of its major profit sectors. Electric vehicles are a small but fast-growing source of competition for the sector, and more households are transitioning off of oil and gas in favor of energy-efficient electric heat pumps. And gas in the power sector is facing viable competition from cheaper wind and solar.

The oil industry, however, isn’t really acknowledging the reality that the world is going to need less of its products sooner or later. “Their normal plans are confronted with competition they’ve never seen before,” said Tom Sanzillo, director of financial analysis for the Institute for Energy Economics and Financial Analysis (IEEFA). “They don’t have a rationale going forward.”

The party won’t last forever

Some experts think the party is already over. “They needed very high prices to get out of trouble, and very high prices are unsustainable,” Sanzillo said. “Nobody expects those profits to continue.”

Sanzillo points to some recent signs that the market is already cooling again for Big Oil. Based on the past few months, prices have stabilized and come down slightly, and oil is back to underperforming the overall market.

In Europe, countries have also sought to recoup some of these profits for taxpayers hurting under higher prices. The EU added a new levy on top of profits that are above the 20 percent average of the previous three years. While the Biden administration has floated adopting its own version of a windfall profits tax, the idea is a nonstarter in the split Congress, which would need to approve any changes to the tax code. Another idea the Biden administration has floated includes increasing taxes on stock buybacks.

These policies aren’t going to really hurt oil and gas in the long run. What will hurt it is increased competition from renewables and a renewed focus on energy efficiency to cut down on energy costs.

Companies could be preparing for this future. They’re doing a lot to advertise it — Chevron’s homepage as of writing promotes “renewable natural gas.” But in practice, they’ve put little investment into renewables that can seriously compete with fossil fuels, because it hurts their core business. The industry has typically spent just 1 percent of its capital expenditure on low-carbon investments, a broad category that includes carbon capture and storage meant to benefit fossil fuel growth. It rose to 5 percent in 2022, before corporations publicly backed away from their renewable commitments.

ExxonMobil stands out as an extreme example after the company netted its biggest year ever of $56 billion in profits. Asked about competition on the company’s recent shareholders call, CEO Darren Woods said Exxon has “been very focused on leaning in when others lean out.” In what ways are they leaning in? More of the same. “Continuing to make the products that society needs today and doing that across a very diversified slate of products, so think chemicals, fuels products, and lubricants. And then, at the same time, investing to produce low-emissions fuels to address the low-carbon demand.”

Other companies are scaling back their limited climate commitments in order to double down on fossil fuels. BP officially reduced its emissions pledges, originally set to reach 35 to 40 percent lower emissions by the end of the decade, to just 20 to 30 percent. Shell plans to keep its investments in renewables, carbon offsets, carbon capture, and biofuels to $3.5 billion, less than half of what the company invests in oil and gas exploration and extraction. CEO Wael Sawan says the company’s gas business “continues to grow in a world that is desperately in need of natural gas at the moment, and I think for a long time to come.”

What little investments the oil industry does commit to climate change “aren’t what people think they are,” said Jamie Henn, director of the advocacy group Fossil Fuel Free Media. The “low-carbon investments” Exxon, BP, and others hail usually mean making oil operations more efficient, like tweaking existing processes to burn less fossil fuels or using carbon capture and storage for “enhanced oil recovery.” The goal of both approaches is to lower emissions only to burn more fossil fuels.

Even the marketing budgets for Big Oil’s climate campaigns can be bigger than the projects themselves. Working with a PR firm, Shell paid $57,000 for a company to make biofuels out of coffee waste, and received more than 1,100 pieces of media coverage, all to power a single London bus for one year. Environmentalists accuse Shell of spending just over 1 percent of its capital expenditures on low-carbon energy sources like wind and solar.

Henn said the recent reversals on climate change serve as more proof that “these companies aren’t serious about a clean energy transition. It’s mostly marketing and greenwashing, strategies that have gotten a tiny commitment here and then an empty promise there. They’re not adding up.”