Two decades ago, British oil giant BP spent millions to rebrand itself in an environmentally friendly light, with a sunflower logo and a “Beyond Petroleum” slogan, symbolizing a commitment to cleaner energy.
Still looking to make good on its vision and under pressure from environmental activists and investors, the company this year announced plans to become a net-zero emitter by 2050. The company’s plan calls for reducing greenhouse gas emissions and offsetting the rest. In doing so, BP became the first energy major to acknowledge that it must produce less oil and gas over time to meet its net-zero goal.
It took a step toward that goal Tuesday, announcing it will cut oil and gas production by more than 1 million barrels a day, about 40 percent, to 1.5 million barrels from 2.6 million by 2030. It also said it would cut emissions from operations by 30 to 35 percent by 2030. BP also said it will accelerate its investment in renewables and biofuels by 10-fold to around $5 billion per year by 2030.
The transformation will create challenges for many of BP’s 70,100 workers around the globe, including 4,000 in the Houston area. But CEO Bernard Looney, who succeeded Bob Dudley in February, says a diminishing supply of carbon fuels makes it necessary.
“The world’s carbon budget is finite and running out fast; we need a rapid transition to net zero,” Looney said shortly after taking the helm of BP. “We all want energy that is reliable and affordable — but that is no longer enough. It must also be cleaner. To deliver that, trillions of dollars will need to be invested in replumbing and rewiring the world’s energy system. It will require nothing short of reimagining energy as we know it.”
BP under Looney’s leadership has moved aggressively toward achieving its net-zero ambitions, shifting its influence and spending away from its traditional oil and gas business to renewable energy sources.
In February, it pulled out of three trade groups, American Fuel and Petrochemical Manufacturers, Western Energy Alliance and the Western States Petroleum Association, because the company said their policies no longer align with its views on climate change.
In June, the company announced plans to sell its petrochemicals business to Ineos for $5 billion in a move that strengthens its balance sheet during the coronavirus-driven oil downturn, but also transitions the company away from oil and gas.
In July, BP said it will acquire full ownership of Fowler Ridge 1, a wind farm in central Indiana with 162 wind turbines and a generation capacity that could power as many as 60,000 Texas homes on a summer day. BP Wind Energy operates wind farms in six states that generate enough electricity to power 450,000 homes annually. BP also donated $2 million to the city of Houston and will serve as a strategic partner to help the Houston city government become a net-zero carbon emitter by 2050.
“BP is moving beyond petroleum,” said Karr Ingham, petroleum economist with the Texas Alliance of Energy Producers. “It’s something of a bet that they’re placing. Their assessment of the marketplace is one that is a changing energy scenario.”
Crude is still king
To be sure, BP doesn’t plan to get out of the oil and gas business entirely. The company made a $4.9 billion profit off its upstream business and a $6.5 billion profit off its downstream business in 2019. By contrast, the company lost $2.8 billion in its alternative energy and other corporate businesses last year.
Still, BP aims to cut the rate of carbon dioxide emissions of its products by 50 percent, halve the rate of its methane emissions of its operations, and shift its energy portfolio away from oil and gas. The company said it plans to outline its plans to get to net-zero in September.
BP has already made moves in recent years to increase its investment in renewable energy. The company owns 50 percent of Lightsource BP, Europe’s largest solar developer, in a joint venture started in 2017. Last year, BP partnered with China’s Didi Chuxing to build an electric vehicle charging network in China, the world’s largest market for EVs. The company also owns Charge Master, the largest EV charging provider in the U.K.
The company’s shift toward becoming a more sustainable company comes as the oil and gas industry is struggling to weather the economic fallout from the coronavirus pandemic. The company earlier said it plans to lay off nearly 10,000 workers, 14 percent of its workforce, by the end of the year, and cut $2.5 billion from its operating budget by the end of 2021.
Despite the current economic challenges, Looney has said that BP is a believer in a low-carbon future and plans to maintain its $500 million investment in low-carbon businesses.
The company’s own review of global energy data found that electricity generation from renewable energy sources, led by wind and solar power, grew by a record 40 percent last year while oil consumption grew by 0.9 percent and natural gas consumption grew by 2 percent. A little more than 10 percent of the world’s power plants use renewable energy, surpassing nuclear for the first time in 2019.
BP scientists last year predicted that global energy demand will grow by a third through 2040, largely driven by natural gas and renewables. The company expects oil demand to peak around 108 million barrels per day in the 2030s.
“As you look out into the future, is oil demand going to grow at 3, 4, 5 percent per annum for the next 20 or 30 years?” Looney said in an interview with IHS Markit vice chairman Daniel Yergin published last month. “No. Oil demand growth is probably slowing.”
Looney, who joined BP as a graduate engineer 28 years ago, has said the company’s net-zero ambitions also were guided by his meetings with investors, non-governmental organizations or NGOs, academics, the United Nations and environmental activists. BP declined to comment for this story, citing a Securities and Exchange Commission-mandated embargo on promotional publicity by publicly traded companies in the so-called “quiet period” running up to its second-quarter earnings release this month.
“Investors of course want a financial return, but they also want to invest in companies that are having a positive impact on our world,” Looney said in the IHS Markit interview. “I believe that we can satisfy our carbon expectations and satisfy our investors expectations around value better this way.”
Industry trend — or not
Analysts say BP’s pivot from fossil fuels opens up investment opportunities from potential environmentally conscious investors as well as current investors under public pressure to divest from oil and gas companies. It is also putting pressure on the rest of the industry to reduce greenhouse emissions and transition away from fossil fuels. European oil and gas companies including Royal Dutch Shell, French major Total and Spain’s Repsol have set similar net-zero targets, following BP’s lead.
By contrast, U.S. energy companies such as Exxon Mobil and Chevron have resisted efforts to set emissions targets, as they expect demand for oil and gas to rise with the world’s growing middle class. The companies are members of the Oil and Gas Climate Initiative, an international consortium of some of the largest energy companies, which recently announced plans to reduce the emissions rate of their oil and gas production to address climate change. Exxon and Chevron have not set net-zero targets as their European counterparts have.
“It’s clear the oil and gas business is not sustainable environmentally or financially. Companies that aren’t seriously looking to diversify their business model aren’t doing any favors to shareholders,” said Ben Ratner, senior director of the Environmental Defense Fund’s business and energy transition group. “The energy transition creates challenges but also creates a lot of opportunities. We’re hopeful companies like BP will be successful and bring along other players in the industry.”
Although there is societal pressure on oil and gas companies to shift from petroleum, Ingham, the petroleum economist, said the market and the world’s growing middle class suggest increasing demand for fossil fuels, which are in abundant supply and relatively affordable. Pivoting from petroleum could lead to higher energy costs, he says, which would pose hurdles for low-income households.
“I think we underestimate what our economy will look like if we force a move away from petroleum-related products,” Ingham said. “This shift should be entirely market-driven. The market will tell us how and when to do it.”
Skeptical view
Environmental groups welcome BP’s goals but are skeptical that the company will live up to its goal set 20 years ago. They said they are eager to know how oil and gas companies intend to meet their net-zero targets, and worry that companies may be “greenwashing,” or giving a false impression of their oil and gas business. Energy companies will have to set clear benchmarks and provide evidence of their emissions reductions, Ratner said.
“No doubt, net-zero is the right North Star, but now the question is what is BP’s credible road map to get there?” Ratner said. “The onus is on BP to develop a clear and comprehensive plan with actions at a scale that demonstrably lives up to its net-zero commitments. It’s going to take more than a few million dollars here and a few windmills there.”
Some environmental groups are skeptical of oil and gas companies leading the energy transition, but Looney said the energy industry is uniquely qualified to move the world toward renewables. BP has about 6,000 engineers and 2,500 scientists, and operates in 78 countries. Oil and gas companies have the resources to help make the transition, Looney said.
“I’m sure there are a lot of people who would prefer if you couldn’t transition without oil and gas companies,” Looney said. “I understand that point, but I obviously don’t agree with it. … I do believe we have something to add.”
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