BP's approach to transition encountering opposition
BP, the multinational oil and gas company, is making a strategic pivot towards oil and gas production, marking a partial U-turn from its earlier emphasis on renewables and net zero goals. This move, which includes scaling back renewable investments and ramping up traditional oil and gas projects, could see the company producing 84% more oil and gas in 2030 than it had aimed for in 2020.
The restructuring, announced earlier this year, involves cutting about 6,200 corporate jobs and over 4,000 contractor roles by the end of 2025. This will reduce around 15% of BP's global workforce, aiming to achieve $2 billion in savings this year and $4-5 billion in structural cost reductions by 2027.
This strategic shift is evident in BP's recent discovery of a major oil and gas deposit in Brazil's Santos Basin and its decision to maintain oil production levels broadly flat as part of its upstream business. However, this focus on oil and gas production raises questions about BP's alignment with its net zero ambitions, as increasing oil and gas development can conflict with commitments to reduce carbon emissions.
While BP continues to pursue some low carbon and gas initiatives, the current emphasis on oil and gas production signals a recalibration of its net zero transition timeline and priorities towards more immediate financial returns rather than aggressive decarbonization. This shift reflects broader industry tensions between delivering shareholder value and meeting climate goals amid volatile energy markets.
The change in strategy could potentially impact BP's Q4 results, as declining oil and gas revenues and lower refining margins could be a concern. BP's share price has already decreased more than 14% compared to 2020 levels following the announcement of a drastic target to reduce oil and gas production.
The move away from renewables and towards oil and gas production has been met with criticism from shareholder campaign groups like Follow This. Mark van Baal, the founder of Follow This, argues that BP's backtracking on emissions reduction reflects decreased shareholder pressure.
BP's CAPEX decisions are based on scenario modelling that assumes oil prices will remain at $60 per barrel and gas prices above $4.50 per million British thermal units (MMBtu) by 2030. These assumptions are significantly more optimistic than those of BP's peers and well above the International Energy Agency's (IEA) net zero emissions scenario.
In a review of BP's Financial Investment Decisions (FIDs), the Australasian Centre for Corporate Responsibility (ACCR) found that none of the decisions made in 2023 aligned with the IEA's Net Zero Emissions (NZE) pathways for oil and gas. Over 80% of BP's 2023 investment decisions were not included in its so-called Paris-consistent CAPEX evaluation framework.
As BP's new CEO Murray Auchincloss oversees potential changes to the company's net zero strategy, the group has not yet decided whether to file a resolution at this year's AGM. However, van Baal emphasizes that investor action is critical in tackling the climate crisis.
The "valley of death" is a term used to describe the interim period that BP and other oil companies are facing, which is becoming increasingly difficult to navigate as they struggle to balance short-term profit margins with long-term net zero targets. This period underscores the need for companies like BP to find a balance between financial performance and their commitment to reducing carbon emissions.
References: 1. Bloomberg 2. Reuters 3. BBC News 4. The Guardian 5. The New York Times
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