Opinion

BP sets an ambition of becoming a “net zero company”

New chief executive Bernard Looney aims to cut the net emissions from the company’s operations and the oil and gas it produces to zero by 2050

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John Browne, the former chief executive of BP, was the first leader of a large international oil company to accept that his business had a responsibility to address the threat of climate change. “We have to look at both the way we use energy, to ensure we are working with maximum efficiency, and at how our products are used,” he told an audience at Stanford University in 1997. “We have a responsibility to act.”

That vision led to the “Beyond Petroleum” strategy launched in 2000, and to BP’s investments in renewable energy, including wind, solar and biofuels. That strategy was widely criticised, but arguably it was mistimed rather than fundamentally mistaken: it was a forerunner for the European IOCs’ moves to cut emissions and diversify beyond oil and gas since the Paris climate agreement of 2015.

So it was appropriate that Browne was in the audience on Wednesday when his successor Bernard Looney, who took over as BP’s chief executive last week, presented his vision for the company’s future. Looney announced what he described as “a bold new ambition” of making BP a “net zero company”, with no net carbon emissions either from its operations or from the oil and gas it produces, by 2050. He also set the objective of cutting by 50% the total emissions intensity of all the products BP sells, by the same date. As Wood Mackenzie’s Luke Parker put it, achieving those ambitions will mean BP’s business being “completely transformed over the coming decades”.

Looney’s justification for his new strategy would have been familiar to Browne, but his language was more urgent. “The big challenge for BP is the one the world faces: climate change,” he said. “Providing the world with clean, reliable, affordable energy will require nothing less than reimagining energy.”

The changes he is planning at BP are more radical, too. The details of how the company will start making progress towards its new ambitions are still sketchy: Looney has promised to say more at a capital markets day in September. However, he was already clear about the vision. “We aim to invest more and more in low carbon businesses over time, and less and less in oil and gas,” he said. As a result, he said, “you can expect oil and gas production to decline gradually over time.” He also announced a reorganisation of the company into four new business groups, doing away with the traditional upstream-downstream split.

This time, BP is not out on its own in terms of adopting climate goals. Royal Dutch Shell, Equinor and other European IOCs have set ambitions for emissions reduction, with Repsol’s the most demanding: it has said it wants to cut the emissions from its total net oil and gas production to zero by 2050.

Looney suggested that BP was being pushed towards action by customers, investors, politicians and even its own staff. One of the most noteworthy contributions at the launch came from one of the company’s junior employees, a carbon management analyst. He explained that he was a member of the One Young World group, a charity backed by businesses and non-governmental organisations that brings together young people from around the world to debate global problems. In that group, he said, “it is not always easy having the BP logo behind you”. Talking about the company’s new ambitions for cutting emissions, he suggested, should start to change that.

If BP and other oil companies are to recruit and retain young talent, particularly people such as software engineers who can make their careers in any industry, it could be important to show that they can be part of the solution to climate change, and not just a problem. As Looney said in his presentation: “I get the huge frustration, the anxiety, the anger. I get that people want cleaner energy… At the end of the day, we all want and need the same thing.”

His vision won some praise from the older generation, too. Lord Browne tweeted in support, describing the plan as “comprehensive, clear and timely”.

The economic impact of the coronavirus deepens

In the first half of the week, some people expressed tentative hopes that the control measures against the new coronavirus were having some success. Those hopes took a knock when Chinese authorities reported a jump in the number of cases and deaths from the virus on Wednesday, after changing their methodology for diagnosing and reporting it. The latest numbers from the World Health Organisation were 46,550 confirmed cases and 1,368 deaths in China, with a further 447 cases and one death outside China.

Michael Ryan of the WHO said Chinese and international teams were working to understand the underlying spread of the virus, and adjusting for the change in reporting. Ryan added: “We’ve seen this spike in the number of cases reported in China, but this does not represent a significant change in the trajectory of the outbreak.”

The economic effects of the virus, meanwhile, have continued to widen, in China and around the world. The ultimate impact is still uncertain, and it will be a long time before the consequences of the outbreak are fully understood, but it already seems clear that it is putting a brake on economic activity. In China, the virus is an additional drag on an economy that was already slowing.

The slowdown is starting to have a noticeable impact on world oil demand. The International Energy Agency this week fell into line with Wood Mackenzie and other forecasters in predicting that global oil consumption would drop in the first quarter of the year, for the first time in more than a decade. Brent crude strengthened a little during the week, and was trading at about $56.50 a barrel on Friday morning.

The impact of the slowdown has been most dramatic in gas markets. Spot prices for liquefied natural gas fell again this week to new record lows around $2.70 per million British thermal units, as surging supply has met flagging demand. China is the world’s most important growth market for LNG, and its demand this year could be cut by 4-10%, according to Robert Sims, Wood Mackenzie’s director of short-term LNG analysis. The growth in China’s gas demand this year is expected to slow to 4-6%, depending on how long the outbreak lasts, compared to 8% growth forecast before the virus emerged.

Although the coronavirus is hoped to be only a short-term problem, weak LNG prices and travel restrictions are already starting to have an impact on negotiations over contracts for future developments. Woodside said this week that it had delayed its Browse project in western Australia, and is now aiming for a final investment decision in late 2021.

In brief

There was some good news on global greenhouse gas emissions from the International Energy Agency. Global energy-related carbon dioxide emissions had been expected to rise last year, but instead they flatlined at about 33 gigatonnes. This does not necessarily mean that emissions have now peaked: the base case in Wood Mackenzie’s Energy Transition Outlook last year predicted at least a few more years of increases. But the coronavirus and the economic slowdown mean there may be no increase in emissions this year, either.

The IEA highlighted how important it is for the US to cut carbon dioxide emissions, largely through the shift from coal to gas for power generation. The US saw the largest decline in energy-related CO2 emissions last year, and has recorded the largest absolute decline by any country since 2000. The fall in US emissions last year was underpinned by a 15% reduction in the use of coal for power generation.

The Trump administration’s plan to roll back increasingly stringent US vehicle emission and fuel economy standards is “nowhere near complete”, the New York Times reported. The administration’s attempt to show that the rollback would save lives was based on “flawed math”, according to Robinson Meyer in The Atlantic.

Construction on what is intended to be Poland’s last new coal-fired power plant has already begun, but the two utilities backing it have suspended their attempt to finance it, as banks have shied away from supporting coal projects. Now construction may have to stop.

Jason Kenney, the premier of Alberta, has urged Canada’s prime minister Justin Trudeau to approve the proposed Teck Frontier oil sands mine, warning that rejection would have a “devastating impact” on the province’s economy and could “raise roiling western [Canadian] alienation to boiling point”. Separately, Kenney said that as the world shifts towards renewable energy: “It is preferable that the last barrel in that transition period comes from a stable, reliable liberal democracy with among the highest environmental, human-rights and labour standards on earth.”

And finally: In a sign of how BP is embracing the future, its chief executive Bernard Looney has started an Instagram account. His posts are getting a range of responses: some supportive of BP and his plans, some strongly critical. Looney himself commented: “I can’t possibly reply to everyone but I want you to know I am reading everything.”

Other views

Simon Flowers — Refining is set for a challenging 2020

Gavin Thompson — The legacy of Australia’s bushfires

Liam Denning — How to bring BP’s climate vision into focus

Jason Bordoff — Big Oil is taking up the mantle of climate change

Nick Butler — The threats to energy security have changed

Anjli Raval — Can the world kick its oil habit?

Alex Trembath — What a Republican climate change agenda might look like

Adam Tooze — How climate change has supercharged the left

Quote of the week

“We don’t want to go away from oil and gas. We have all the financial capacities to be in the driving seat [of the energy transition] and not to be the villains of the story.” — Patrick Pouyanné, chief executive of Total, explained his plan to use some of the profits from the company’s oil and gas operations to build up its renewable energy and storage deployed into renewable energy. Even by 2040, he suggested, Total would still have the great majority of its business in fossil fuels, with approximately 50% in gas, 30% in oil and biofuels, and 20% in power.

 Chart of the week

This chart comes from a presentation given this week by Wood Mackenzie’s North America coal research team. When President Donald Trump was on the campaign trail in 2016, one of his most eye-catching pledges was his promise to revive the US coal industry and “put miners back to work”. There has not been much net job creation in the industry under his administration — employment in coal mining today is almost exactly what it was when he came to office — and the outlook does not seem any better. This forecast for coal from the Appalachian region shows that over the next two decades demand for metallurgical coal used for making steel is expected to hold up well. But coal for power generation is expected to dwindle away to very little.

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