Renewables stance reflects customer attitudes

Rinnai’s Chris Goggin reviews BP’s recent decision to reverse renewable investments in favour of increasing fossil fuel opportunities and what this means for the direction of international and UK net zero objectives.

Back in 2020 BP announced a new strategy that would aim to reduce oil and gas production 40% by the end of the decade, focusing its investments on the low-carbon energy market instead. BP promised to limit fossil fuel production to around 1.5m barrels a day by the end of the decade, down from 3.7m barrels a day in 2018.

Since then, BP has recently scaled back these objectives, instead committing to reduce production by 25%. BP will now direct $10bn a year of investment towards oil and gas projects while reducing $5bn a year from their green energy strategy. Current CEO Murray Auchincloss is quoted as saying: “Our optimism for a fast [energy] transition was misplaced, and we went too far, too fast”.

BP will now refocus on starting 10 large-scale fossil fuel projects by 2027, with a possible eight to 10 more by 2030. Among the projects said to be cancelled is the £100m HyGreen Teesside green hydrogen project, which was supposed to contribute 5% of the UK’s goal of adding 10GW of hydrogen capacity to the UK grid by 2030. 

BP has lost commercial ground to rivals Shell and ExxonMobil in the last two years, effectively losing a quarter of its market value. Instead, Shell and ExxonMobil have seen their market value increase, with both companies concentrating on oil and gas production.

To replace lost revenue BP is planning to sell $20 billion of assets, including the noteworthy BP subsidiary and solar power developer – BP Lightsource. BP also plans on potentially selling an additional subsidiary, lubricant company Castrol as well as its network of service stations in an attempt to cut costs by $5bn by 2027.

Additional influences BP is subject to include the 5% (£3.85bn) stake share that activist hedge fund Elliot Management has acquired. An activist hedge fund is an organisation that invests in a company and exerts pressure to force managerial and strategic change. Elliot Management is widely expected to demand changes to increase market value.

In contrast, Shell and ExxonMobil have pursued opportunities that focus on fossil fuels. Shell announced last year that it will reduce carbon-based climate targets. Shell’s previous aim was to weaken carbon emission intensity of all sold energy by 20% at the end of the decade. The new objective is to reduce carbon emission intensity by between 15 and 20%.   

Carbon intensity refers to the carbon produced through each unit of activity as opposed to released atmospheric emissions. Shell’s new target allows the organisation to produce more gas at lower emission intensity but will raise overall emissions as production increases.

Shell has also failed to set out “Scope 3” emission targets associated with its gas production and distribution. Scope 3 emissions consider the entire range of emissions created through an organisation’s value chain, including elements that exist outside of direct company control, such as suppliers, customers and product disposal. Shell’s gas business is expected to grow 50% by 2040.    

In 2021, Shell announced it will reduce oil output every year for the entire decade from the 2019 peak of 1.9m barrels a day. Having completed a 2021 $9.5bn sale from a stake in a Texas Permian basin project, Shell announced that this had reduced its daily oil production to 1.5m barrels a day. Shell now plans to begin enough fossil fuel projects to add 500,000 barrels a day by 2025 highlighting a shift in strategy. Shell has also stopped investing in offshore wind opportunities and instead focused on expanding its current portfolio of oil and gas projects.   

ExxonMobil has not actively embraced renewable or alternative energies in the same way. The American organisation instead aims to reduce carbon emissions by introducing a variety of low-carbon energy sources into their product inventory. ExxonMobil will invest around $20bn to add fuels such as hydrogen, carbon capture and biofuels between 2022-2027.

A subjective interpretation of current oil and gas companies moving their focus away from ‘clean’ energy aims is that market and consumer demand for fossil fuels remains strong across all continents. Net zero aims are not as highly valued by both consumer and shareholder when compared to lower energy costs and share prices.

However, an objective view could also claim that large energy companies will return to clean power objectives once the global market is in a better condition to be able to return profits from renewable investments.

Rinnai will continue to provide constantly updated data-driven information and knowledge that equips the UK customer to make informed choices to assist in specifying, installing and maintaining heating and hot water delivery products and systems which are technical, feasible and economic.    

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