NOT MANY PEOPLE KNOW FROM
By Paul Homewood
h/t Ian Magness
AEP sees the light!
The climate left has chosen the wrong target by denigrating BP. It’s a futile mistake to tare all oil and gas companies with the same brush.
Bernard Looney’s BP is doing its part to decarbonize the world in a way that doesn’t create energy chaos or provoke a crippling political backlash. So are all European “majors” to varying degrees.
Contrary to media headlines and feverish criticism from Greenpeace, Friends of the Earth and the Liberal Democrats – who should know better – BP is not retreating from renewable or clean energy. The company is tapping into its booming oil and gas profits to make green hydrogen a commercial reality here, rather than a pipe dream.
In parallel, the company is investing an additional £1bn annually in oil and gas, focusing on “short-cycle, fast payback” wells to take advantage of rising prices and address the looming supply crisis of the mid-2020s.
Yes, it also pays down debt and pays a dividend to pension funds and retirees who are struggling to cope with fuel bills. It’s taking the steps necessary to remain a viable trading company, capable of fending off takeovers by powerful competitors with a very different climate ideology.
Green realists should see the tactical wisdom of BP’s plan to slow its fossil phase-out this decade. Its upstream spending will be focused on sideline pipelines from existing rigs that can produce within one to three years. These include tie-back mini-projects such as Seagull and Merlach in the North Sea for crude oil; or Cypre and Mento in Trinidad for gas.
This doesn’t compare to BP’s exit from renewable energy following Lord Browne’s tenure, when the company went green and lost money a little too soon to become (briefly) the world leader in solar power.
BP’s Energy Outlook this month is an exceptional document in many ways. It concluded that global demand for oil and fossil fuels peaked in 2019, with even China on the verge of tipping over. It rang the bell that tolls for Big Oil.
The $190 trillion (£155 trillion) global economy runs on an outdated fossil fuel infrastructure. Three quarters of UK homes are heated exclusively with gas. The fleet of 1.5 billion vehicles on the roads today will be dependent on petrol and diesel for a long time to come. Ditto for air and sea fleets. Steel, cement, chemical, and fertilizer plants can be decarbonized, but right now they’re running on fossils.
This does not mean that moving this vast and complex system to net-zero emissions by 2050 is impossible. The International Monetary Fund and International Energy Agency say that alternative technologies are already cheap enough that decarbonization can occur at a net negative cost – ie an economic gain.
However, this cannot be achieved by cutting off supplies or puritanical incantations of degrowth. People will not readily submit to economic depression and food rationing.
Vladimir Putin’s energy war has shown us how quickly societies will turn against climate goals when the transition becomes disorderly and threatening. We’ve lost just 120 billion cubic meters (BCM) of Russia’s gas supply out of a global market of 4,100 BCM. That was enough to rock our democracies.
In this decade there would always be an energy crisis – regardless of Ukraine – because the world faces a structural deficit in supply. According to Rystad Energy, upstream investments in oil and gas exceeded $800 billion per year at the peak of the commodity super cycle in 2014. In recent years they have amounted to almost USD 400 billion.
Daniel Yergin, S&P Global’s energy guru, calls it “preventive underinvestment.” The cycle has played its part, but so has net zero signaling, with fears of lost assets and long-tail risks from climate disputes.
Old fields are exhausted. Some new projects coming into operation. Shale drillers have opened up the best seams in the Permian. The “expected ultimate recovery” of wells has fallen this year for the first time since the fracking boom began.
Investments in nuclear energy, renewable energy and electrification have not compensated for this. It needs to increase by a factor of 2.4 this decade to close the gap.
“The world is underinvesting in all forms of energy,” said Jason Bordoff of Columbia University.
The danger of a botched transition should be apparent by now, as should the danger of a premature and misplaced divestment campaign by well-run western oil companies that emit far fewer methane emissions than the bad actors and are strengthening the energy security of our democracies.
Of course, it wasn’t long ago that AEP demonized the fossil fuel industry, insisted its days were over and warned of stranded assets:
And it’s this naïve assumption that renewable energy would simply replace fossil fuels overnight that has led to massive underinvestment in fossil fuel projects.
As the IEA projections above make clear, we may still need almost as much oil in 2050 as we do now.
Too bad AEP didn’t wake up in the real world a few years ago.