BP dumps 18 early stage hydrogen projects as it retreats to oil and gas

BP is selling its US onshore wind portfolio and has dumped 18 early stage hydrogen projects, as the company returns to its safe space of oil and gas. 

The news, revealed in the company’s third quarter announcement, will save the company $US200 million ($A303 million).

BP’s new goal is to develop five to 10 hydrogen projects, leaving it with a pipeline of 1.8 mtpa of developments. 

The oil company has stopped or paused 24 potential projects from very early stage through to pre-final investment decision stage, but hydrogen has been the biggest victim of the shake up. 

It is also scaling back new biofuels projects by pausing two biorefinery projects, one in Germany and one in the US. 

Hydrogen in particular has been a victim of a surge in optimism during 2020/21, as companies raised money at huge valuations. Today, companies are struggling to justify those valuations and the premium put on green hydrogen, as the industry grows at an understandable — but much slower — pace than the tech-like expectations placed on it.

Gas is the yardstick

BP is selling assets, such as the wind portfolio, that can’t deliver the kinds of returns the company is still seeing from its gas fields. 

The company’s quarterly group underlying replacement cost profit of $US2.3 billion was a fall from the previous quarter and a full $US1 billion lower than the prior corresponding period in 2023. 

The biggest hit to the bottom line was oil, a sector where rising exploration costs and lower production upstream, and lower pricing for downstream products accounted for an almost $1 billion drop from the previous quarter alone. 

In Australia, the impact is already being felt, as the oil company delays the start date for electricity generation at its massive $55 billion Australian Renewable Energy Hub (AREH) near the Pilbara to 2029.

That project, and the H2Kwinana hub, are supposed to be eventual suppliers of green hydrogen. Engineering for the latter started in 2023. 

Not completely abandoning ship

Where BP does see some growth is in electric vehicle (EV) charging. 

BP has been rolling out chargers at its network of petrol stations in four “high value” countries and says it’s sold about 1 terawatt hours (TWh) of power in the year to date. The company expects growth in energy sold to double compared to 2023. 

What remains of the oil company’s renewables business is a significant 46.8 gigawatt (GW) development pipeline and a separate 62 GW development portfolio from its lightsource bp acquisition. 

It also fully owns the 2.5GW Beacon Wind offshore project in the US.

But the oil company’s shift back towards fossil fuels was clear, even after it dropped a previous goal to cut oil production by 40 per cent from 2019 levels come 2030. 

“We continue to see energy demand growing as we look through the next few decades, with hydrocarbons remaining central to the energy system as the world decarbonises,” said BP CEO Murray Auchincloss during the quarterly presentation. 

‘We see the potential to grow through the decade.”

He says there is a deep belief in the opportunities created by the energy transition. But investments in businesses in this sector must stack up against the returns delivered by oil and, especially, gas. 

“We are continuing to focus our investments in these businesses around returns and value, ensuring they durably grow and compete with the rest of our business,” he said.