In 2008 oil prices rocketed up again making oil production extremely lucrative once more . So , sceptics say when crude and natural gas prices rise back up after the pandemic , it ’ s possible the firm might go back to its roots , regardless of growing shareholder pressure to go green . Yet over a decade on , things are different , so I don ’ t believe we would see a direct u-turn in business strategy .
“ There is a huge sense of urgency now and pressure from governments , investors , campaigners and consumers to drive change from the status quo . Environmental groups worry that companies may be “ greenwashing ,” or giving a false impression of their oil and gas business . Energy companies like BP will have to demonstrate that their green plan is credible , clear and comprehensive with actions at a scale that can live up to its green commitments . Clear benchmarks and evidence of their emissions reductions will have to be provided . It all comes down to consumer sentiment , since the shift to electrical transportation is real this time and sales at the pump may suffer directly .”
What can BP do to accomplish these reforms ? Where are the pitfalls ? “ A major pitfall , in my opinion , would be to only go after solar and wind energy , which are the areas that are familiar to them , rather than the truly innovative solutions which we see emerging in the present day . The major challenge of giving up oil is that neither of the alternatives taken alone substitute all chemical fuel needs and applications . Green hydrogen , renewable natural gas and geothermal energy are all areas which could be advanced through BPs expertise and knowledge . And we all know that BP has massive research and development capabilities , which it can harness for the task .
Having the right kind of leadership to make such dramatic reforms is also crucial for such large organizations . With a new CEO at the helm , BP is likely better placed than most .”
Taking all this into account , do you think BP has a chance of succeeding ? “ There is always a chance of success in every available course of action . The real question is how high the probability of success is . If we look at some analogies in other sectors – the hundred-year-old car industry has a noticeable problem switching to making electric cars . And it is not just the technology itself , many business processes , procedures , activities and professional personnel crucial to producing internal combustion vehicles are simply redundant for an electric car maker . Oil companies , including BP , transitioning to other areas of business are guaranteed to face similar challenges . BP declared a goal to be ‘ net zero ’ in carbon emissions by 2050 and to drop its daily oil and gas output by over 1 million barrels by 2030 . It is hugely ambitious and represents a 40 per cent drop in the company ’ s upstream oil and gas production over the next decade . The question is whether renewables will be able to fill the hole left by the million missing barrels .
“ BP said it expects returns of about 8 % to 10 % from its low-carbon investments , whilst traditional oil and gas projects typically yield a return of around 15 %, so , until clean resources become more profitable , BP may need to take on more debt to improve this imbalance . In terms of investors , critics say oil majors will likely lose out to established players in the renewables sector . However , companies like BP have some huge advantages over these smaller players , namely , their big balance sheets , which allow them to invest more , and faster , than their smaller competitors . This , in addition to their decades of experience , leaves them well placed to work towards these ambitious targets . Again , the success of significant strategic changes will largely come down to motivation , commitment and purposeful long-term thinking . This isn ’ t about just adding a few windmills here and there ! BP has the tools and , with a detailed roadmap outlined by their CEO , this marks a big step in a company transforming itself in the face of the energy transition . It is a calculated move designed to address the different energy demands of the future .”
Will other oil majors follow ? “ Yes – it ’ s a pattern which has already started . In the weeks following BP ’ s announcement , competitors in Europe rushed to do the same – Royal Dutch Shell , Italy ’ s ENI , and France ’ s Total all announced goals for net-zero carbon emissions by 2050 . The Spanish oil company Repsol and Norway ’ s Equinor had made similar pronouncements earlier , promising to boost investments in renewables and increase energy efficiency in oil production . By contrast , U . S . energy companies such as Exxon Mobil and Chevron have resisted efforts to set emissions targets . No oil major wants to be seen as being blasé about climate change so , with BP taking the lead , others will be watching closely to see whether their actions are ones worth following .
“ There is more than one strategy option for established players in the oil industry . They include the ‘ last man standing ’ choice , since someone would still need to produce and sell oil products and derivatives 50 years from now . Once most majors switch out of the market ( successfully or not ) it will be a lucrative , if disappearing , area of business . The comparison is coal – no longer the prime source of energy in the developed world since it stopped being one at least 60-100 years ago – yet if you look at countries like India or even the US , the role of coal in the energy mix is not negligible and still offers business opportunities .”
Whether BP and other oil majors can be as profitable in renewables and investors comfortable with lower dividends and potentially higher debts , remains to be seen .
Fuel Oil News | November 2020 21