BP’s has long pursued low carbon alternatives and has supported a carbon tax since the late 1990s, said Bob Dudley, BP Group chief executive, speaking at a major industry conference in London today.
But when it attempted to pivot to those alternatives in the early 2000s in response to concerns over climate change—in anticipation governments would adopt policies that would make low carbon energy more competitive—“policy changes didn’t happen at the pace we expected, despite the excitement around the Kyoto Protocol and the Earth Summit in Johannesburg,” he said.
“Then came the financial crash in 2007/8 and a big change of focus for the world—from green energy to cheap energy.”
The world has now refocussed on the climate challenge, as evidenced by the Paris Agreement, and this time “the global commitment to action feels different, and the national pledges are a good start,” Dudley said.
“But frankly we need even stronger and clearer signals to create the confidence to invest in and grow low carbon businesses at scale.”
BP’s commitment to responding to climate change dates back 20 years, Dudley said, when BP caused something of a stir in the industry when former chief executive John Browne used a speech at Stanford University—home to some of the world’s leading research on climate science—to acknowledge the threat of climate change “out loud and in public.”
Browne committed BP to real action to help address the challenge, Dudley said. BP, for a time, even attempted to rebrand as “Beyond Petroleum.” But while the company grew a portfolio of wind farms in the U.S. and biofuels in Brazil, it largely backed out of other renewable ventures over the past decade. Dudley conceded many of BP’s original investments didn’t pan out, but maintained it is still the biggest operator of renewables among the supermajors.
Today, the company is taking a different approach. It will pursue a larger number of smaller venture initiatives rather than “large speculative investments,” Dudley said, giving BP “as much optionality as possible to back winners as they emerge.
“The showcase speeches, advertising campaigns, and billion dollar bets of the past have been replaced by a quieter, but still steadfast commitment to helping address the climate challenge, while pursuing lower carbon more organically,” Dudley told the Oil and Money conference.
For example, BP’s new upstream facilities are among the best in the world at limiting methane emissions and its integrated supply and trading team—the biggest marketer of natural gas in North America—is now getting into renewable natural gas, tapping into landfills and farms to capture biomethane produced from organic waste. And Air BP will soon be supplying biojet fuel made out of household waste.
“Some of our most exciting work is in our venturing space,” Dudley added. “We’ve invested in a company that can produce concrete with between 30 and 70 per cent less CO2. We think that has enormous potential when you think of concrete as the single most-used substance on the planet, apart from water.”
The new strategy doesn’t generate the headlines that bigger acquisitions do, he said, “but based on our experience and given all the uncertainties that still exist, we know it to be a sound strategy. And, we have handed off a number of these venturing opportunities to our business to scale-up.”
Making more, smarter, often smaller bets across a wider range of technologies and business models is “the way to go given how tough it is to pick winners in this rapidly evolving space.”
BP’s commitment to lower carbon energy also includes advancing the role that carbon capture use and storage, or CCUS, will play in achieving deep emissions reductions in the power and oil and gas industries, he said, noting the Oil and Gas Climate Initiative—of which BP is part—has earmarked around $500 million to accelerate the scale-up of CCUS technologies.
Shift to natural gas
But despite the attraction of ever cheaper and more competitive renewables, the world won’t run on them for some time. Renewables represent about three per cent of all the energy used and might go up anywhere between 10 per cent and 30 per cent or more in two decades’ time, depending on the speed of the transition, BP predicts.
In the meantime, fossil fuels, and in particular relatively cleaner natural gas, will continue to play a meaningful role for decades to come, said Dudley. “Natural gas is another big lever for lowering greenhouse gas emissions - provided that methane is controlled,” he said.
“We are making a strategic shift to more gas ourselves in BP, and six of our seven new major upstream projects coming onstream this year are gas. With a further eight gas projects planned by 2020. In fact, we’re growing our gas production more than any other major.”