There’s No Going Back Now — British Petroleum

About 20 years ago, British Petroleum decided to rebrand.

They shortened their name to BP and started using the tagline ‘Beyond Petroleum’.

BP changed their logo from a shield to ‘Helios’. Named after the Greek sun god, the green and yellow sunflower shape meant to represent all forms of energy.

They then ran ads with ‘the first oil company to publicly recognize the risks of global climate change’ and BP ‘believes in alternative energy. Like solar, and cappuccino.’

BP wanted to change their ‘big oil’ image and go greener. As the then chairman of the company said:

We are not an oil company. 40% of our hydrocarbon production comes from natural gas. We are aware the world wants less carbon-intensive fuels. What we want to do is create options.

BP had been dabbling into solar, and pledged to keep emissions from increasing.

Not surprisingly, there was plenty of scepticism. Greenpeace criticised the move, pointing out that BP had spent more on the new logo than on renewable energy the year before.

And it wasn’t too long before it all crumbled.

In 2006, a BP oil pipeline spilled around 6,400 barrels of crude oil in Alaska.

And four years later, an explosion on its Deepwater Horizon oil rig in the US Gulf of Mexico caused the largest marine oil spill ever.

In 2011, BP closed up their solar business and the whole Beyond Petroleum premise faded away.

The last year has been brutal for the oil industry. The pandemic caused an oil crash as demand collapsed and there was too much oil around, forcing oil giants like BP and Royal Dutch Shell to write-down assets this year.

But the pandemic has expedited trends we were already seeing, like the energy transition.

After last year’s oil crash, BP famously declared we may have already passed ‘peak oil’ demand in 2019. And said in their Energy Outlook 2020:

The structure of energy demand is likely to change over time: declining role of fossil fuels, offset ‎by an increasing share of renewable energy and a growing role for electricity. These changes ‎underpin core beliefs about how the structure of energy demand may change.

Remember, this is big oil talking. That they’re already saying this should give some pause for thought.

BP has also set some ambitious targets for themselves since.

Their goal is to reduce their oil and gas production by 40%, while developing their net renewable energy generation capacity to 50 GW all by 2030. Just to put that in perspective, the company had only 2.5 GW in 2018.

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They’re also getting into retail electricity. BP has recently bought a bunch of US solar farms with the capacity of powering 1.7 million homes, boosting BP’s renewable pipeline from 14GW to 23GW. All part of the plan to diminish reliance on fossil fuels.

This is a fossil fuel company shifting their business.

But, so what?

We saw a similar shift with BP 20 years ago.

At the risk of falling into the ‘this time is different’ trap, let me tell you: lots has changed since.

First, renewables are getting cheaper…fast.

Costs of solar has dropped by 89% and onshore wind by 70% in the last 10 years.

In fact, last year the International Energy Agency crowned solar as the cheapest electricity…ever.

Renewable energy also has the advantage that it’s everywhere, and unlike fossil fuels, it doesn’t get more expensive the deeper you need to go to extract it.

Costs could keep falling in the next years as technology gets better.

According to Carbon Tracker:

The economic potential of solar has been unleashed by a huge fall in costs, down by an average 18% every year since 2010. It is growing faster than any previous energy technology at this size with an average annual increase of 39% in the last decade nearly doubling capacity every two years. Wind is on a similar trajectory: over the last decade prices have fallen by an average 9% year while capacity has grown 17% a year. This is driving efficiencies and advances such as better panels and higher turbines which reduce costs further.

All this should show how potentially disruptive renewables are…and how it’s already affecting big oil.

The other thing that’s changed is that fossil fuel companies are facing a lot more pressure coming from all sides.

Carbon-intensive businesses could struggle to get insurance and funding, or funding could get more expensive. All this could affect fossil fuel companies’ bottom lines, even if oil prices keep going up.

To give you an example, the Bank of Japan said this week they’re looking at a new scheme where they will give funds to financial institutions to fund ‘climate-friendly’ businesses.

As I mentioned last week, central banks have found so far that they can print money without worrying about rising interest rates…and some of that money could flow into the energy transition.

It’s true that oil still makes a major part of our economy, and the change won’t happen overnight.

But wherever you stand on the climate change debate, there’s no denying the trend is changing.

Best,

Selva Freigedo Signature

Selva Freigedo,
For The Rum Rebellion

Selva is also the Editor of New Energy Investor, a newsletter that looks for opportunities in the energy transition. For information on how to subscribe, click here.


Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.


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