CERAWeek by IHS Market, an annual global energy conference based in Texas, convened on March 1st, 2021 with a renewed focus on the ongoing green energy transition. The decarbonisation trend has, in recent years, largely eluded the oil and gas industry, leading to a decline in share prices for traditional multinationals such as Royal Dutch Shell and Chevron. In contrast, British Petroleum (BP) have been lauded by critics and activists for their efforts in leading the industry towards renewable energy investments.
With renewables projected to comprise 50% of all generated power by 2035, oil and gas companies have been attempting to rebalance their portfolio of assets in favour of wind, solar and hydrogen energy. BP have stated that their holistic aim is to become a diversified business operating in renewable power, biofuels and green energy without completely divesting their operations in the hydrocarbons industry. Activist investors first began to take note of the publicly owned company following the sale of its global petrochemical business for 5 billion USD in June 2020.
Figure 1: Graphic showing BPs ESG aims for the next ten years. BP
Among the recent measures announced by BP is the planned 5 billion USD investment in renewables with a target of a 20-fold increase in generation capacity, a pledge to hit net zero carbon emissions by 2050 and the construction of a 50GW renewable portfolio within the next 10 years, highlighted by Figure 1. BP have been quietly bracing for the energy transition, contrasting rivals Exxon Mobil and Shell who are facing increasingly intense activist pressure. Jennifer Warren, journalist at Seeking Alpha said that “BP has been a leader in embracing the energy transition”.
A collaborative partnership with Rosneft, a Russian integrated oil company, is likely to allow BP to accelerate their decarbonisation plans. The two companies recently signed a Strategic Collaboration Agreement focused on supporting carbon management and cooperation around identifying low carbon solutions globally. The publicly owned British company are also looking for Rosneft to bankroll its planned 5 billion USD investment programme, allowing them to focus on achieving their portfolio aims, such as reducing their hydrocarbons business by 40% by 2030. Regardless, activist investors have rebuked BP’s relationship with a Moscow based oil company, suggesting that Rosneft themselves have little ambition when it comes to renewable energy solutions.
Figure 2: Graph showing how BP has outperformed its peers in the past month. Seeking Alpha
BPs stock price has beaten peers in the preceding month, rivalled only by Exxon Mobil’s recent surge, as shown in Figure 2. The state-owned company boasts a dividend yield of 4.93% at 1.26 USD per share, possibly in response to the intensification of the company’s ESG ambitions. However, despite BPs decarbonisation plans, they continually fall behind Total, another major energy player, in leading the renewable energy transition. In 2019, for example, BPs 2.5 GW capacity was beaten almost three-fold by Total at 7GW. There are additional question marks raised by the extent to which BP will contribute to global warming even after they have implemented their ESG commitments. While BPs aim to divest 40% of its hydrocarbons business is celebrated by investors as a step forward for the industry, a reduction of this magnitude still ensures over 1 million barrels of oil per day is produced by the company.
It is undoubtable that BP are one of the green front-runners in the oil and gas industry. By avoiding the temptation for greenwashing, the company have pledged a raft of tangible and realistic measures to be implemented over the next ten years. However, customers still demand petroleum as part of day-to-day living, preventing the industry, including BP, from fulling embracing renewable energy. Despite a fall in demand, largely due to the COVID-19 pandemic, recent reports have hinted at an undersupply of oil. While this remains the case, don’t expect BP to invest entirely in sustainable solutions.
By Jack Walsh
Sector Head: Sohpia Li