Global oil giant BP has flagged a write-down of its production and exploration assets of up to $US17.5 billion ($A25 billion) as it reassesses the global energy market in the wake of the Covid-19 pandemic, and dials in a new assumption of a rapid shift to clean energy sources.
The oil and gas giant already has a zero carbon target for 2050, but it now dialling in an even quicker transition. Significantly, its re-appraisal of the global energy market is not based on short term assumptions, but a fundamental and long term shift away from fossil fuels.
“BP’s management also has a growing expectation that the aftermath of the pandemic will accelerate the pace of transition to a lower carbon economy and energy system, as countries seek to ‘build back better’ so that their economies will be more resilient in the future,” CEO Bernard Looney said in a statement on Monday.
Looney says BP has now re-set its price outlook based on the impact of the pandemic, the anticipated push by governments to rebuild towards a Paris-consistent world, and the realisation that it will need to leave much of its resources in the ground.
“We are also reviewing our development plans. All that will result in a significant charge in our upcoming results, but I am confident that these difficult decisions – rooted in our net-zero ambition and reaffirmed by the pandemic – will better enable us to compete through the energy transition.”
The actions of BP are not unique. The Italian oil major ENI recently flagged a shift away from oil and gas to wind, solar and “green hydrogen”, and another European energy major, Enel, has also flagged a push into green hydrogen, targeting Chile, the US and Spain – despite the fact that it has renewable energy assets in Australia.
Germany has announced a $10 billion investment in green hydrogen projects. ENI is splitting its company into an “energy evolution” unit, and a fossil fuel division full of legacy assets, and Shell is reportedly preparing to do the same, placing its faith in the future based around electricity generation, renewables, and green hydrogen.
In Australia, meanwhile, even the concept of a zero-emissions target by 2050 – and the long term Paris agreement in general – is being ignored by the federal government and the gas lobbyists who make up the bulk of its Covid-19 recovery advisory board, and the prime minister’s own inner sanctum of advisors.
Energy minister Angus Taylor is hailing a “gas-led” recovery, raising fears that Australia will back major infrastructure investments that will prove to be a white elephant. Taylor even took time out from announcing a welcome investment by the CEFC into EV infrastructure company jet Charge to decry EV targets, and repeat electioneering nonsense about the cost of EV incentives on car owners.
Taylor has also advocated a hydrogen strategy, but is also keen to pursue options for “brown and blue hydrogen” that would exploit Australia’s brown coal and gas reserves.
Enel, however, has said that any form of hydrogen other than renewables “will be a trick”, and Germany has announced a $US10 billion investment in green hydrogen projects, leading a push by European countries into the same technology.
“Germany’s hydrogen strategy shows that one of the world’s largest fossil gas consumers is preparing for a future without it,” Felix Heilmann, a researcher at climate think tank E3G, told Clean Energy Wire. “The government’s recognition that only green hydrogen from renewable sources is sustainable reduces the long term risk of fossil gas surviving through the back door.”
Of course, the BP write-downs may just be a fraction of what the oil and gas industry is facing. Carbon Tracker recently warned of trillions of dollars in global write-downs of anticipated profits as a result of the clean energy transition, mostly in the form of oil and gas reserves that will never be exploited.
Because of this, oil majors are taking drastic action. ENI is splitting its company into an “energy revolution” unit, and a fossil fuel division full of legacy assets, and Shell is reportedly preparing to do the same, placing its faith in the future based around electricity generation, renewables, and green hydrogen.
BP has also revised its carbon prices for the period to 2050 and these now include a price of $US100 a tone of CO2 in 2030. It is also expanding into renewables in a major way: apart from its BP Lightsource joint venture, which has so far focused on solar, it is also looking at wind energy and has talked of a 1.5GW wind and solar project in West Australia to produce green hydrogen.
It had previously resisted calls – even from its auditors – to adjust the value of its assets. Deloitte explicitly noted in 2019 that BP’s previous impairment prices were not consistent with the Paris goals, based on a comparison to third party scenarios, but it seems the Covid-19 pandemic has forced it to act.
But while the European oil majors take action, the US majors such as Chevron, Exxon, and Conoco-Philips have not; perhaps encouraged, if not deluded, by the anti-climate position of president Donald Trump, who has hauled the US out of the climate treaty. Still, Chevron last December wrote down $11 billion on the value of some US gas assets because of falling demand and gas prices.
The Australian gas industry, similarly fooled by, or happy to exploit the Australian government’s own lacklustre climate policies, is also seeking to extract a maximum amount of government support, and even new subsidies, to lock its future in the face of an accelerating global shift to green energy.
Incumbent generators are also seeking to slow down the introduction of new rules and regulations that are designed to give a level playing field to new technologies. So far, the regulators have resisted that push in regards to wholesale demand management, but is under pressure to postpone a shift to 5-minute settlements considered crucial for the transition away from fossil fuels.
BP will release its results on August 4, and Looney is expected to provide a more detailed road map for BP’s transition to clean energy and net-zero emissions in September.
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