- European oil majors are slowing their energy transition efforts to refocus on core oil and gas
- Aiming to close the valuation gap with US peers
- Companies like Shell are capitalising on strong global demand for LNG, especially from Asia
- European oil majors offer relative value with healthy dividend yields and share buyback potential
Related Insights
Rethinking strategy amid divergence with US majors. Over the past few years, Europe’s oil giants — like Shell, BP, and TotalEnergies — were seen as leaders in the global energy transition. They pledged aggressive moves into renewables and cleaner energy, aligning with European climate targets. In contrast, US majors like ExxonMobil and Chevron doubled down on oil and gas, benefiting from a clear strategy during times of elevated energy prices. As a result, US oil companies have delivered stronger share price performance and commanded higher valuations while European peers have lagged. Now, European majors appear to be recalibrating. With the energy transition proving more costly and less profitable than hoped in the short term, they are easing their green push to refocus on core oil and gas businesses and shareholder payouts. In our view, this shift may not be able to immediately close the valuation gap with US peers but will help narrow it over time.
LNG remains a strategic growth pillar. One of the most promising areas for European oil majors lies in liquefied natural gas (LNG), which provides stability and diversification. Companies like Shell and TotalEnergies have built global LNG operations that are now central to their strategy. After Russia’s invasion of Ukraine, Europe’s pivot away from pipeline gas sent prices surging. While LNG prices have since moderated, they are still hovering way above pre-Covid levels, a stark contrast to the oil market where demand is being capped by the rise of electric vehicles in China and OPEC+ supplies are returning faster than expected. Asian countries are also increasingly turning to LNG as a cleaner transition fuel. This rising demand, coupled with delays in new supply, supports a bullish long-term case for LNG producers. Shell, with its scale as the largest global LNG player, is well-positioned to benefit.
Capital discipline and returns will be watched. Oil prices are likely to hover in the USD60-70 per barrel range in the near term, a level that is neither a windfall nor a crisis for the industry. We expect continued discipline from European oil majors to persist, keeping capex lean and flexible, avoiding expensive bets, while continuing to reward shareholders through dividends and share buybacks. Shell is aiming for total shareholder distributions of 40-50% of cash flow from operations through the cycle and has maintained buybacks of at least USD3bn for 14 consecutive quarters. TotalEnergies has also decided to continue its share buyback program for up to USD2bn in 2Q25. Dividend yield across European names varies from 4-7%. This stable return profile could add appeal during uncertain market conditions. Broad European stock indices and European oil majors have outperformed their US counterparts slightly YTD in 2025 and we believe this trend could continue, especially if Eurozone assets begin to act as a relative safe haven amid global trade war related uncertainty and a weakening US dollar environment.
Figure 1: European oil majors will look to close the valuation gap
Source: Bloomberg, DBS
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