Dive Brief:
- Oil giant BP is scaling back spending on renewables and clean energy and increasing investments in oil and gas as part of a strategy reset announced Wednesday.
- The United Kingdom-based energy company said its budget allocation to the energy transition business — including investments in biogas, biofuel, carbon capture and storage, electric vehicle charging and hydrogen — would be “significantly lower.” BP is now planning to make “select” and “disciplined” investments in the transition business that will range between $1.5 billion and $2 billion per year. The new allocation is over $5 billion per year less than BP’s prior renewables budget.
- Concurrently, BP will ramp up oil and gas spending to around $10 billion per year and aim to grow fossil fuel production to between 2.3 million and 2.5 million barrels of oil equivalent per day in 2030, the company announced as part of the reset.
Dive Insight:
BP unveiled the changes during a capital markets update, which focused on a pivot back to its core business of producing oil and gas to support a “stronger balance sheet and resilient distributions.”
“We are reducing and reallocating capital expenditure to our highest-returning businesses to drive growth, and relentlessly pursuing performance improvements and cost efficiency,” BP’s CEO Murray Auchincloss said after unveiling the company’s revised strategy Wednesday. “This is all in service of sustainably growing cash flow and returns.”
BP was one of the first oil companies to commit to reaching net-zero emissions across its operations “by 2050 or sooner,” a goal it set in 2020 under Auchincloss’ predecessor Bernard Looney. The same year, BP also pledged to cut oil and gas output by 40% by 2030 compared to a 2019 baseline, while rapidly growing its investments in renewables. However, in 2023, the oil company reduced its goal of cutting production to 20-30% by the end of decade, noting at the time that it needed to keep investing in oil and gas to meet the global energy demand.
Following the strategy update announcement, Auchincloss said BP made some “bold strategic changes” in 2020, but events like the COVID-19 pandemic, the Ukraine-Russia war, a global recession and a shift in market and government attitudes all had a major impact on the energy sector. Auchincloss added that budget constraints led to people favoring lower cost energy in most countries, especially with rising energy demands.
“The pace of transition and decarbonisation, while important, was not as fast as envisioned,” BP’s CEO said. “Our optimism for a fast transition was misplaced and we went too far too fast.”
Given everything that has transpired since BP set its initial goal, Auchincloss said in a question-and-answer session following the announcement that countries are now “prioritizing affordability, assurance of flow, security of supply.” He added that “the [energy] transition just is not being valued as much as it was five years ago.”
On the other hand, he said “oil and gas will be needed for decades to come” as global demand for energy continues to grow.
However, the CEO added that despite these challenges, BP remains committed to its 2050 net-zero target and will continue to invest in the clean energy transition. He said demand for clean energy alternatives such as bioenergy, wind and solar power continue and there is a continued need for global carbon emissions to be reduced.
“While the pace and shape of the energy transition is uncertain, we continue to view it as a significant opportunity to grow value,” Auchincloss said.
