This newsletter follows-on from Tuesday's newsletter about the write-downs BP and other fossil fuel companies have made recently due to lower anticipated future oil prices and the likelihood they will be unable to extract all of the oil they currently report as reserves. This second article about BP, in the url below, looks at how the company is reacting to this new reality. Specifically, it details the beginnings of a shift away from a reliance on fossil fuel driving revenues toward a business model that gives significantly more weight to renewable energy:
"On a webcast with analysts [BP CEO, Bernard] Looney described a transformation plan that Stuart Joyner, an analyst at the market research firm Redburn, said in a note to clients was 'major, positive, thoughtful and largely unexpected.'"
More specifically, the CEO was rationalizing the new competitive environment he perceives BP faces in light of the firm's commitments on future carbon emissions:
"Mr. Looney, though, was more specific in his investment goals, saying that he intended for BP in a decade to be investing around $5 billion a year in renewable energy like wind, solar and hydrogen, a clean-burning gas, about 10 times the current amount. BP's capital spending is likely to be about $12 billion this year."
Further:
"He said that he wanted to reduce oil and gas production by about 40 percent in that time frame. As part of the shift, BP, whose origins date back to the discovery of oil in Iran in the early 20th century, would not enter any new countries to explore for oil and would also pare back its refining by about one-third, Mr. Looney said."
It is the commitment to cutting oil and gas exploration and extraction that is so notable, and something that might create pressure on other energy firms to match. BP's history of commitments in this area, however, has not been forgotten. The concern is twofold – first, that the firm intends to sound more serious than it actually is and, second, that any deception will lay the foundation for future disasters, as was the case with Deepwater Horizon in 2010:
"BP has aspired to be a different kind of energy company before. In 2000 it adopted the slogan Beyond Petroleum, though early forays into renewable energy lost momentum after the 2010 Deepwater Horizon accident in the Gulf of Mexico."
In order to achieve its goals, Looney is committing BP to focus on electricity generation and invest heavily in renewable energy:
"By 2030 BP plans to have about 50 gigawatts of renewable generating capacity, roughly equivalent to fifteen large modern nuclear power stations."
Given that BP under Looney has committed to achieve "net zero" emissions only by 2050 and that "cash from oil and gas will fund investment," this shift is going to be insufficient in itself. But, it is a beginning, and BP is the first of the fossil fuel companies to even contemplate what this new reality looks like.
Take care
David
David Chandler
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After Loss, BP Vows to Diversify Beyond Oil
By Stanley Reed
August 5, 2020
The New York Times
Late Edition – Final
B4
