New BP Chief Executive Bernard Looney defended Thursday his plans for the UK's second-largest oil and natural gas producer to decarbonize large parts of its business by 2050, saying this could be achieved while meeting commitments to shareholders.
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"We should see a rapid energy transition not as a threat, not a risk to be managed, but as an opportunity to create value and to do the right thing," Looney said at an industry dinner in London.
Looney took over as head of BP on February 5. His remarks made at the IP Week Gala dinner come after the company earlier this month set out a number of goals, including getting to "net zero" across its operations by 2050, or sooner. In addition, the company aims to achieve net zero on the carbon content of its oil and gas production used by consumers – known as Scope 3 emissions – over the same time period.
A week of industry gatherings in London has been overshadowed by the need for oil and gas producers to increasingly focus on addressing energy transition and climate change issues instead of meeting fossil fuel demand. Earlier in the week, BP announced it was withdrawing from some energy associations because they were no longer aligned with its overarching policies.
Despite the push by some governments to reduce the dependence of the global economy on fossil fuels, oil demand is expected to continue to grow beyond its current level of around 100 million b/d. According to the International Energy Agency, to meet growing consumption, oil producers could have to pump an additional 6.4 million b/d of crude at least by 2040.
"Oil majors are coming under increased pressure from shareholders to take greater ownership not only of the carbon emission of their operations, but also of those that consume their products," said Chris Midgley, global head of analytics at S&P Global Platts. "This has led to a flurry of new announcements and commitments but it will be time before we can really weigh up whether these are material."
Europe's international oil majors are under pressure to re-gear their business models as governments and investors push for more climate change action. For example, Shell has said it will reduce emissions from its products by 50% by 2050.
"We should want to change not just because it is the right thing to do, but because it is a tremendous business opportunity," said Looney, who built his reputation at BP leading some of the company's biggest upstream oil projects, including Thunder Horse in the US Gulf of Mexico.
BP, however, remains one of the world's most important fossil fuel producers. Excluding its stake in Russia's Rosneft, the company pumped on average close to 2.6 million b/d last year. In 2018, BP invested over $10 billion to buy BHP Billiton's US shale business, making it one of North America's largest shale oil drillers.
It is investing annually about $15 billion on its upstream oil and gas output, as well as downstream marketing and refining assets. However, $500 million of its annual capital expenditure is targeted at renewable energy such as solar and biofuels. Looney plans to install methane measurement at all BP's major oil and gas processing sites by 2023 and then reduce the methane intensity of its operations by 50%.
"We are reinventing BP with probably the most wide-ranging reorganization in our history," he said, noting the company's plans to retire its model of separate upstream and downstream divisions, replacing them with one business unit known as production and operations. But he also underlined the commitment to meeting shareholders' expectations.
"As we go about this program of change, we are equally committed to performing while transforming, to honoring the promises we have made to our shareholders," Looney said.
His remarks also come at a moment of stress for the oil industry. Brent front-month crude futures have tumbled 25% since coronavirus outbreak started in early January, to below $52/b ahead of Looney's speech, as fears have grown over the economic impact of it spreading beyond China.
"Some say we have gone too far, that we are caving-in to the critics," Looney said. "We are not. Others say we have not gone far enough. Maybe so. Others say what we are attempting is not possible. We respectfully believe it is."