Around the world, oil and gas shortages have caused some serious headaches. Oil and gas companies are struggling to meet demand after the resumption of the Western economy. This has pushed the share prices of both Royal Dutch Shell (LSE: RDSA) and BP (LSE: BP) In recent months and as a result of massive inflows of capital for both companies. But I fear that this share price increase will be short-lived. Here’s why I think shares would be a bad addition to my portfolio.
Shell has made more than 200 200 billion in the last 12 months despite declining demand. The Anglo-Dutch company recently announced a বায় 2 billion share buyback and promised more investment in the production of hydrogen fuel and carbon capture technology.
Personally, I am a big believer in the future of hydrogen. But the shell is making blue hydrogen, which is made by extracting hydrogen from natural gas. It is a carbon heavy process that requires the costly carbon capture facility to make it effective.
Share buyback also worries me. This is good for shareholders in the short term, but not good for the future. As oil and gas shortages end, prices will fall. Carbon taxes are certainly going to be implemented at some point in the future. To me, Shell doesn’t seem to feel the need to change his business seriously enough.
Last year, BP announced a 40% reduction in its oil and gas production. It plans to do this by investing directly in wind and solar energy. Meanwhile, BP is committed to further producing blue hydrogen and developing carbon capture technology. Blue hydrogen is understandable for BP. It has already invested billions of dollars in infrastructure to explore, extract and refine natural gas from its wells worldwide. But this deficit still requires carbon capture technology to be effective. BP has also benefited greatly from oil and gas shortages, which grossed more than b b billion in the first half of 2021. Unfortunately, it went into his head. It has announced a stock buyback in the 1.4bn region.
Oil and gas shortages will eventually subside and the COP26 climate conference is less than a month away. U.S. Climate Ambassador John Kerry believes the world is ready to tackle climate change and we can expect some sweeping changes.
Both BP and Shell have been able to build investor confidence by promising to develop low-carbon technology. But none of them are willing to use the cash they have brought because of the lack of gas. I think it will hurt both companies in the long run and I will not add to my portfolio.
James Reynolds has no position on any of the shares mentioned. Motley Flower UK has no position on any of the shares mentioned. The opinions expressed in the companies mentioned in this article may differ from those of the authors and therefore the official recommendations we make on our subscription services such as Share Advisors, Hidden Winners and Pro. Here at The Motley Flower we believe that considering a variety of insights makes us a better investor.