BP fleshes out net-zero pledge
CEO Bernard Looney and his senior team used BP Week 2020 to explain how the major plans to pivot its business and fulfil its 2050 goal
When CEO Bernard Looney in February committed BP to net-zero carbon emissions by 2050, it is fair to say there was some industry scepticism about how the 111-year-old IOC could achieve its aim. BP Week went a substantial way to explaining what transforming into an integrated energy company would mean in practice.
“Our ambition is to become a net-zero company by 2050 or sooner and to help the world get to net zero,” says Looney while adding several nearer-term milestones to provide transparency on its progress.
These includes some big changes by 2030, such as a tenfold increase in low carbon investment, to c.$5bn/yr; a 20-fold increase in developed net renewable generating capacity, to 50GW; a near tenfold increase in electric vehicle charging points, to over 70,000; a 40pc reduction in oil and gas production; and energy partnerships with 10-15 major cities and three core industries.
This is “all underpinned by a resilient financial frame and in service of a compelling proposition for investors and other stakeholders,” he says, describing the strategy as ambitious but realistic. “Our new strategy is going to transform BP into a very different company… fast, because the world needs change.”
Solutions for customers
Looney says he is refocusing BP on providing solutions for customers, such as helping cities, including Houston and Aberdeen, to decarbonise, and supporting the UK government to bring forward its ban of new petrol and diesel car sales from 2040 to as early as 2030 if it chooses to do so. “We are up for it,” says Looney.
“Our new strategy is going to transform BP into a very different company… fast, because the world needs change” Looney, BP
BP’s latest Energy Outlook underpins the business’ transformation. Indeed, the annual report’s modelling period was extended to match its 2050 pledge and its publication delayed from February to shape its new “core beliefs” (coincidentally allowing it to factor in the transformative impact of Covid-19). “Our strategy is informed by the Energy Outlook,” he adds.
Energy Outlook models two outcomes that are relevant for BP’s strategy. Its ‘rapid’ transition pathway is largely aligned with achieving the Intergovernmental Panel on Climate Change (IPCC) ‘well below 2°C’ scenario. Going further, its ‘net zero’ (actually a 95pc reduction on 1990 emissions) scenario aligns with the IPCC 1.5°C target. Its third ‘business as usual’ (BAU) scenario can largely be ignored as it is entirely incompatible with BP’s pledge.
The scenarios do not attempt to predict the future, rather “help better understand the range of uncertainty”, says group chief economist Spencer Dale at the report’s launch. Every one of its scenarios assumes increasing global energy demand, concentrated in developing economies, but declining absolute demand for fossil fuels over the next 30 years. Although this has become an uncontroversial prediction, “this would be entirely unprecedented”, says Dale. “In the modern history of energy, there has never been a sustained decline in the consumption of any traded fuel.”
The decline in fossil fuels is largely to be replaced by renewables, which would account for up to 60pc of the primary energy mix by 2050 in the rapid scenario. “Renewables in all three scenarios—including BAU—penetrate the energy system more quickly than any fuel in modern history.”
In rapid, “for much of the next 20 years, the global energy mix is far more diversified… [which] means that the mix is likely to be increasingly driven by customer choice rather than fuel availability”.
As this diversification involves electrification and hydrogen, which are less efficient carriers of energy than hydrocarbon molecules, the energy system needs to become more localised, according to Dale.
Declining demand for fossil fuels means their respective markets will become more competitive and compress margins for producers. This “increases the bargaining power of consumers, with economic rents shifting away from traditional upstream producers”, he says.
BP assumes that Covid-19 will have a lasting impact on energy demand, with the severity depending on how resilient the virus proves to be. In all but BAU, 2019 was the year of peak oil and peak carbon emissions from energy consumption.
Mobility will be a hugely important driver in the decline of oil consumption, according to BP, based on the assumption that c.75pc of kilometres driven will be by electrically powered vehicles (in all scenarios but BAU) by 2050. This is underpinned by electric ‘robotaxis’ (or shared-mobility services) emerging around 2030 and accounting for 40-50pc of kilometres within a decade.
“For much of the next 20 years… the [energy] mix is likely to be increasingly driven by customer choice rather than fuel availability” Dale, BP
“The scale and pace of these falls stem primarily from the increasing efficiency and electrification of road transportation, with the declining use of oil within road transport… accounting for between 50 and 60pc of the total reduction in oil demand in rapid and net zero,” says Dale.
“The nature of the mobility revolution—particularly with the emergence of autonomous vehicles—means electrification is likely to go hand-in-hand with the increasing importance of shared mobility services.”
The hydrocarbons industry will be more reassured by BP’s outlook for natural gas, with demand expected to be far more resilient. Even in the net-zero scenario, consumption peaks in 2025 and remains above half its current level in 2050. In the rapid scenario, it peaks in 2035 and falls gently to just under today’s level in 2050. In either case, it replaces coal and oil while its own position is eroded by renewables.
The resilience of gas is also supported by carbon capture, utilisation and storage (CCUS). In rapid, 40pc of gas will be consumed in conjunction with CCUS, which equates to an 8pc share of the primary energy mix (of which half will be in the form of blue hydrogen). For net zero, this increases to 75pc being consumed with CCUS and 10pc of the mix.
Dale, meanwhile, cautioned that that strong growth of green hydrogen could be counterproductive if renewable power is diverted away from grids.
The continued growth of renewable power will be supported by falling costs “as they move down their learning curves” with solar costs falling c.60pc and wind c.30pc. This will underpin an acceleration of capacity development; record development of 150GW/yr will increase to 350GW/yr and 550GW/yr in rapid and net zero respectively by 2050, based on investment of $500bn/yr and $750bn/yr.
“These levels of investment in wind and solar power may seem eye-bogglingly high. But it is worth noting that they are roughly equivalent to only around 3pc of total global business investment in 2019,” he adds. “They are perfectly achievable if there is sufficient collective will and support.”
Global electricity demand will, of course, grow as demand increases in the developing world and the world in general decarbonises. But the pathways for how this electricity will be generated, with corresponding levels of carbon intensity, vary significantly across the scenarios.
BP predicts a c.22,000TWh increase in overall electricity demand by 2050. It is “striking” that “the increase in electricity demand is very similar in all three scenarios, growing by around 80pc over the next 30 years”, says Dale.
“The shift towards an ever-increasing share of wind and solar power begins to flatten out in the 2040s in both rapid and net zero, as the cost of managing the associated intermittency rises.”
Batteries will play an increasing role in managing short-term intermittency, with hydro-based solutions useful in the medium term and hydrogen and combustion-and-CCS solutions most suited to spreading energy over weeks and seasons.