DAVID BLACKMON: Is BP Getting Cold Feet On Green Energy?
David Blackmon on February 6, 2023
With BP’s fourth quarter and annual 2022 earnings call set for Tuesday, CEO Bernard Looney couldn’t have been pleased by the Feb. 1 Wall Street Journal report quoting unnamed sources who say he is having a change of heart about his plans to guide the company headlong into green energy while simultaneously cutting its oil production around the globe. It was just a year ago, during the company’s earnings announcement for 2021, that Looney promised BP would be dedicating 40% of its capital budget to energy transition-related projects by 2025, and raising that to 50% by the end of the decade.
So, what has changed over the last 12 months? It certainly seems no coincidence that Looney’s reported second thoughts would come as fellow oil majors like Chevron and ExxonMobil have announced record profits and stock price growth for 2022. Indeed, BP’s stock has risen by just 7% since January 2021, while Exxon’s has almost tripled and Chevron’s has jumped by 80%.
It’s the sort of competitive imbalance that would cause any chief executive to rethink strategy.
If the Wall Street Journal’s story is accurate, that’s exactly what Mr. Looney is doing. Quoting “people familiar with recent discussions,” the Journal’s story says Looney has been telling his senior management team he plans to pursue a “narrower green-energy strategy,” and place less emphasis on the company’s ESG goals.
In the same conversations, Mr. Looney has complained that his company’s plans to shift from oil to green energy has been “mischaracterized,” though it is hard to see much validity there given the company’s own projections of significant de-growth aspirations in its fossil fuels production.
Citing disappointment in returns from investments in some of his company’s recent green energy investments, the Journal’s sources say Looney is now planning to pursue a “narrower” path to meet BP’s “net-zero by 2050” goals. Looney has been characterizing his new plans to re-emphasize BP’s status as an actual oil company again as a “course correction” rather than a full-blown strategic shift, but the implications are clear: BP must perform better in its core business to compete with its fellow majors and satisfy investors.
ExxonMobil and Chevron, of course, have taken an entirely different course from that of BP in meeting their own “net-zero” pledges, focusing on green-energy pursuits that match their already-present internal skillsets — like hydrogen production and CCS projects — while also planning to grow their oil and gas production in the coming years to help meet what they believe will be rising global demand for both.
In a panel discussion at last week’s NAPE conference in Houston, my fellow panelists and I discussed the fascinating contrast in oil demand outlooks published recently by BP and Exxon. Where BP sees global crude demand falling into a rapid decline by 2030 and dropping to just 75 million barrels of oil per day (bopd) by 2050, ExxonMobil analysts see robust demand rising from its current 101 million bopd to 105 million by 2040 before embarking on a very slight decline.
Not surprisingly, the strategies for achieving net-zero being pursued by each company are reflective of their respective outlooks. If you’re BP, and you really believe that global demand for crude is going to begin a steep decline in just 7 years, then a de-growth strategy makes perfect sense. But if you’re ExxonMobil, and you really believe global demand will remain robust through 2050 and for decades beyond, then the continuing growth strategy becomes the only logical path to pursue.
The biggest problem that has become obvious for BP and Looney is that the investor community is increasingly realizing that ExxonMobil’s outlook is more likely to ultimately come about and has been rewarding the U.S. major and other oil companies that share it.
Bottom Line: It is apparent now that Looney and his immediate predecessors in the CEO job at BP made an error in buying into the narrative that a rapid energy transition heavy on renewable energy can be subsidized into being by the liberal governments of the western world.
The real world is far more complex and stubborn than the central planners at the EU and Trudeau and Biden administrations obviously believe, and the developing nations in Asia, Africa and much of South America are more interested in building their economies using abundant and affordable energy than in checking off boxes on a climate change scorecard by adopting renewables that cannot fill the needs of their populations.
In his earnings announcement scheduled for Feb. 7, the BP CEO should just begin by saying “Oops.”
David Blackmon is an energy writer and consultant based in Texas. He spent 40 years in the oil and gas business, where he specialized in public policy and communications.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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