The first step to change is admitting you've got a problem.
“BP gets it.” That was one of several mantras to appear during new CEO Bernard Looney’s two-and-a-half-hour flag-planting welcome party on Wednesday.
Looney takes over from veteran Bob Dudley at a time of rapid shifts in the energy sector that many felt BP was failing to navigate. Fixing that failure will be the founding principle of Looney's tenure, and it's a historic opportunity.
BP needs to “reinvent itself” to “change, and change profoundly,” said Looney. The BP lifer described his own company as an “obstacle” to solving the climate crisis.
Crucially, BP's commitment to achieving net-zero status by 2050 at the latest will include Scope 3 emissions, or those from the use of its products. Among oil producers, only Spain's Repsol had matched that pledge thus far. The changes on the table will take decades.
Inevitably, BP has been accused of greenwashing with its latest announcements, even as it explicitly promised to end its greenwashing publicity campaigns, or “reputation advertising.” The lack of detail, which will come in September, has left a void skeptics are happy to fill with criticism.
Following Ørsted's example
There is precedent for the transformation of an oil and gas firm into a “green supermajor.” But it took much longer than the two and a half hours Looney had.
Henrik Poulsen took over as CEO at Ørsted in 2012, when it was still known as Danish Oil and Natural Gas. Dong produced just short of 200,000 barrels a day in 2012. It peaked nearly a decade earlier at around 390,000 barrels per day. By 2025, Ørsted will be carbon-neutral.
In 2017 Dong sold its last oil and gas assets to U.K. firm Ineos and promptly assumed the name of the Danish scientist who discovered electromagnetism — Hans Christian Ørsted.
"I'm delighted that the shareholders clearly supported changing the company's name to Ørsted," said Chairman Thomas Thune Andersen as the vote on the change was passed. "The reason for the name change is that after the comprehensive strategic transformation from black to green energy, our old name no longer matched the company."
Eight years into McKinsey and Lego veteran Poulsen’s reign, Ørsted has been rebuilt brick by brick.
As the oil and gas operations gradually wound down, its offshore wind business ramped up. It is now the largest offshore wind developer in the world, with 6.8 gigawatts under its belt and another 1 gigawatt of onshore wind. In 2019 those 7.8 gigawatts amounted to $1.3 billion of profit.
BP made $12.7 billion of profit in 2018. It's not the only company posting renewables profits either.
The analogy is not perfect, of course.
In 2018 BP produced 1.4 million barrels per day. So yes, BP is bigger but Dong was hardly a minnow.
BP has a long road ahead if it is to follow Orsted's transformation. (Credit: BP)
BP’s final destination
Ørsted is currently delivering a far simpler model than the “destination” that BP is aiming for.
Looney expects it to remain in the oil and gas business for some time with it "likely" they'll still be producing hydrocarbons in 2050. Alongside petrochemicals and supplying the tail end of demand with those hard-to-replace fossil fuels, BP also wants to underpin freshly electrified sectors.
That means delivering energy to end customers on a huge scale. An energy-as-a-service model that goes beyond deploying EV chargers at gas stations could have a big role to play.
BP's transformation is also likely to require driving the delivery of carbon capture, utilization and storage (CCUS) at large scale. The company's Teeside project in the U.K., slated to start up before 2030, will be crucial first test. Shell and Total are also partners.
BP has been developing a biofuels partnership in Brazil for the best part of a decade. The company still owns around 1.7 gigawatts of onshore wind in the U.S. With Lightsource BP, it is adding even more of the early gigawatts of renewable capacity that Ørsted did when it became an entrant in the nascent offshore wind sector. It’s been able to press on and lead from the front ever since.
Stiff competition from the utilities
BP and its oil-producing peers have some catching up to do, as major utilities have already amassed double-digit gigawatts of renewables capacity — and a great deal of experience. But they're certainly showing an appetite for closing the gap, including Total's recent slate of solar acquisitions.
In solar, at least, BP already has a head start. Lightsource, which BP bought a 43 percent stake in for $200 million back in December 2017, was already one of the largest European solar developers; it provides BP with the expertise it needs to build out a significant portfolio in solar, the renewable technology likely to dominate global installations in the decades ahead. It recently upped its stake to 50 percent.
More quietly, BP also harbors ambitions to follow Shell, Equinor and Ørsted into the offshore wind sector.
BP has not made any dramatic moves into offshore wind so far. But in its most recent results, outgoing CEO Bob Dudley said: “I think you may see us move into — we are very intrigued with — offshore wind for example. We obviously think we have the offshore capabilities to get involved with that.”
The green hydrogen opportunity
With the will of the boardroom, there is no reason why BP can’t follow the likes of Equinor and a host of supply-chain companies in making the jump from offshore drilling to offshore wind.
And even as it adds wind and solar capacity in big quantities, don’t bet against BP joining Ørsted, Vattenfall and other offshore wind developers in championing the push for a hydrogen value chain. Hydrogen offers offshore wind a route to zero curtailment, and if electrolysis were to be carried out at sea, interconnectors can be replaced with H2 pipelines.
We’re getting a decade or two ahead of ourselves, though.
Looney alluded to shorter-term ambitions being set in September at that all-important capital markets day. Those targets — he mentioned 2025 and 2030 as milestones — will determine how sharp the change of course will be.
The smaller and nimbler Ørsted will go from national oil company to net-zero energy company in 13 years if it hits its own net-zero targets. It’s making seven-figure profits in the process.
BP’s challenge is identifying where it can replace what it now accepts as riskier fossil-fuel profits with low-carbon profits instead. Now that BP gets it, it's time for Looney to get it done.