BP’s new Chief Executive, Bernard Looney, set out his vision to reduce the Company’s carbon footprint to zero by 2050 heralding a new era for the company that pumped 2.7 billion barrels of oil and gas per day last year.
In the Company’s own words BP is aiming to:
“To be a net zero company by 2050 or sooner. And to help the world get to net zero. This will mean tackling around 415 million tonnes of emissions – 55 million from our operations and 360 million tonnes from the carbon content of our upstream oil and gas production.”
So, how was this received?
The world’s media and market commentators had spent much of the weekend and early part of the week speculating on what BP’s new CEO would unveil – would it be revolution or evolution? On Wednesday mid-morning the wait was over, and it was a new look BP management team taking the stage – ties and suits were discarded. Across the media and analyst communities the vision has been commended and is something that is seen as necessary – as David Sheppard of the Financial Times put it “Reimagining energy? It was time for someone to try.” The Telegraph’s Ben Marlow commented, “Mr Looney deserves great credit for tackling the supersized elephant in the room.” Mr Looney may have felt that he had little choice other than to share his vision given the increasing pressures that oil and gas companies are facing from a combination of climate change activists, investors (Blackrock own 6.7% of BP) and let’s not forget Greta!
Notwithstanding the widely held view that Bernard Looney had to be seen to do something, his move has also allowed him to seize the initiative, throwing down the gauntlet to the other oil and gas majors. “No other oil and gas company has come close to such a commitment,” highlighted Ben Marlow.
So, what are his plans, then?
Well, this is where some of the sceptics have voiced concerns. Whilst commending the Company, they have highlighted the lack of detail provided so far about how it is actually going to achieve its ambitious 2050 goal.
BP is going to undergo a huge restructuring process, which will see the Company become a different animal altogether, with much more focus on Green Energy.
So, how is this going to work?
Again, the details are scarce, but the Company’s upstream and downstream units will be dismantled and replaced by a number of integrated teams. Green targets will also be inserted into the executive bonus scheme: 20 per cent for the leadership team.
The questions raised include how BP is going to deliver all this while still delivering the returns and dividends that its investors need. After all, the company has an $8.5 billion dividend burden which investors need to be serviced. To put the size of the challenge in perspective, BP invested around $15 billion in oil and gas last year to pump around 2.7 billion barrels of oil and gas per day compared to an investment of between $500 million – $750 million in renewables / green initiatives.
So, how did the climate change champions react?
Greenpeace attacked the plan, saying it was not “ambitious or anywhere near enough.” The Times newspaper questioned “howl will it reach net zero?” and in the Telegraph, “Greenpeace thinks that the climate change battle will be won or lost this decade and it rightly points out that BP is projected to invest another $71 billion during this time in new drilling – How green is that?”
This raises the next question: How is BP planning to deliver their ambitious plan? On this, the Company has provided very little detail and has been called out by the media for being vague, stalling for time by stating that more details will be provided at the Capital Markets Day, due to be held in September 2020. As Greenpeace put it, “How will they reach net zero? Will it be through offsetting? When will they stop wasting billions on drilling for new oil and gas we can’t burn? What is the scale and schedule for the renewables investment they barely mention? And what are they going to do this decade, when the battle to protect our climate will be won or lost.”
While Mr Looney has championed the cause and the vision, the delivery of this programme, allowing for the scant detail that has been provided to date, will fall on Mr Looney’s successors as by 2050 Mr Looney will be 79 and will have undoubtedly left the building by then!
So, to conclude, the energy industry is undoubtedly in transition. For BP, whether the Company felt pressurised or not, has unveiled its vision for the future. While some will say that it should happen faster and should have happened before now, their statement of intent is welcome and should be commended. What is now essential is that this initiative doesn’t degenerate into “a grand announcement accompanied by fancy slides and meaningless corporate slogans,” as the Telegraph put it. We need detail and sight of a clear roadmap to success. In other words, the industry and world is looking for leadership and a clear path that the rest of the industry can follow.
Energy transition is undoubtedly here to stay, and oil and gas companies need to be aware of this as they look to continue to progress their businesses. BP’s vision is undoubtedly a bold vision for the future, but it is a vision that needs to be delivered by others as well as BP to ensure the future.