BP is understandably keen to show it has the ambition to achieve net zero and a strategy that deals with the future demise of fossil fuels. On their website you’ll find an upbeat video on how it will reimagine its business.
The BP strategy seeks to remove planet-warming emissions from its operations by 2050, grow renewable energy generation and shrink BP’s oil, gas and refining portfolio. The company explains it “will reshape our business within a decade as we pivot from an international oil company focused on producing resources to an integrated energy company focused on delivering solutions for customers.”
A 2050 carbon-zero target may not sound a particularly “rapid transition” but, within BP this will be seen as a bold pace of change.
BP needs profit from its fossil fuel extraction / production model to finance greener energy acquisitions and demand for gas is forecast to grow well beyond the next decade. BP also needs time to prove carbon capture can be commercialised at scale to remove operational emissions.
The early prize for BP is being seen as part of the solution for a global shift to zero-carbon energy. The much longer-term prize is growth beyond fossil fuel. Arguably, BP ultimately has no choice but to pursue a path to self-disruption – but it will be difficult and the timetable is not really in BP’s control.
Certainly investment is now flowing fast into renewable energy projects and will push the pace of technological progress. BP also has expertise in offshore engineering and engaging decision-makers on big infrastructure projects globally. The idea of replacing fossil fuel assets with profitable renewable additions is therefore looking increasingly viable and BP can facilitate the speed of development. Since announcing the strategy BP have made a first move into offshore wind with a partnership with Equinor.
There are plenty of challenges that BP will need to manage in parallel, however:
Will 2050 be too late?
By the time BP plan to fulfil their zero carbon ambition Greta Thunberg will be 47. Given sentiment today and rising temperatures it is conceivable that in only a few years that consumers and governments will dictate faster solutions. Slow progress in delivering on carbon capture will also trigger anxiety with the timetable.
2019 protests against BP’s sponsorship of UK arts venues.
Is an integrated energy company compelling?
Today BP has a vertically integrated business based on fossil fuels. There are efficiencies in connecting and owning most of the value chain. The scope for synergy across fossil and renewable sources is less obvious.
The company’s sustainability credentials are also diluted with the funding of renewable investments with gas profits and the dispersal of oil assets that stay in production. Companies sharply focused on renewables are likely to be more attractive to many investors. Orsted, a Danish wind farm developer, for example, has a market value higher than BP.
Petrol purchases have been the foundation for BP and Aral convenience stores. The company is now piloting a mobility hub in Berlin to retain a role in the move to electric vehicles: Berlin mobility hub
Can BP continue to win in convenience?
BP and other oil & gas companies have advantages when it comes to their convenience store proposition today and will rapidly increase outlet numbers over the next few years. Today about 1 in 2 petrol station visits involve a fuel purchase, but this will not be the case when refuelling becomes recharging. BP has swiftly established their Chargemaster business to build charging infrastructures away from petrol stations and home charging will be a convenient option. Beyond the next decade BP’s convenience store success will increasingly depend on its food and drink offer and proximity for last mile delivery.
It may take a decade to see clear evidence of a successful transition. The earlier big hurdle will be delivering transparent and meaningful progress that shows BP is really part of the solution for our planet.
This post was informed by many recent articles by the FT. BBC and Carbon Tracker analysis was also invaluable: https://www.bbc.co.uk/news/science-environment-52624695 and https://carbontracker.org/many-oil-majors-still-falling-short-on-absolute-emissions-cuts/ The transcript for the recent BP Q3 results presentation also helped: https://www.fool.com/earnings/call-transcripts/2020/10/27/bp-plc-bp-q3-2020-earnings-call-transcript/