“Too far, too fast:” bp justifies renewables backtrack, Australian mega-projects on back-burner

Global oil and gas major bp has set out its strategy for a fundamental reset, including slashing its spend on “low carbon energy” from a planned $US30 billion out to 2030, to around $4 billion, and redirecting investment to fossil fuels, which it says are its “highest return opportunities.”

The major scale-back on renewables will mean no new investments in “transition” projects over the coming three years, an exit from onshore wind, and a major hydrogen and carbon capture and storage (CCS) cull from around 30 projects to between just five and seven “prioritised projects” – none of which appear to be in Australia.

This confirms that three Western Australia hydrogen mega projects will get no new funding until at least 2027, including the massive $55 billion Australian Renewable Energy Hub (AREH) near the Pilbara, which at 26 GW would one one of the largest projects in Australia, and seen by some as key for the decarbonisation of the north-west.

The projects on hold also include the federal government backed H2Kwinana Hydrogen Hub, which was to include a 100MW electrolyser, and the Geraldton Export-Scale Renewable Investment (GERI) in the Mid West.

“Our optimism for a fast transition was misplaced and we went too far too fast,” bp chief Murray Auchincloss told a capital markets update on Wednesday.

“We are reducing and reallocating capital expenditure to our highest-returning businesses to drive growth, and relentlessly pursuing performance improvements and cost efficiency. This is all in service of sustainably growing cash flow and returns.”

The strategic shift, leaked to the media ahead of the investor presentation on Wednesday, is on theme in the global oil and gas sector, with fellow majors Shell, Exxon and Chevron also doubling down on fossil fuel investments in 2024 to buoy near-term profits.

The bp “reset,” however, is significant, considering the British multinational had announced in mid-2020 a plan to increase its low carbon investment 10-fold by 2030, to deliver in a 20-fold increase in its renewable energy generating capacity to around 50GW by the end of this decade.

Part of bp’s new approach to business under Auchincloss, who replaced the renewables forward Bernard Looney in late 2023, will be a focus on over the next three years through 2027 on “laying out near-term, credible and tangible targets.”

This includes investing around $10 billion in oil and gas, 20% more versus previous guidance, $3 billion on the downstream business, and between $1.5 to $2.0 billion a year on the transition business, with “no plans for further acquisitions.”

“The world is in an ‘energy addition’ phase – consuming increasing amounts of both fossil fuels and low carbon energy,” Auchincloss told the investor presentation.

“We believe over time an integrated energy company strategy will win out over pure oil and gas, or a pure play low-carbon strategy,” he said. “This is the bp of today, and one we are proud of.”

William Lin, the relatively new head of bp’s gas and low-carbon energy arm, elaborated further on what the new “capital-lite” business model will look like in practice, working with a “far more focused, and … high-graded” portfolio.

He says the new approach will be based on lessons learned from trying “to grow too quickly, and …[chasing] too many options.”

“In renewables, we have two top tier platforms – able to grow with discipline while being capital-light for bp and our shareholders. We are also in the process of divesting our 1.3 GW US onshore wind business, which we expect to complete this year,” he said.

“In Hydrogen/CCS (carbon capture and storage) we have 5-7 prioritised projects this decade – down from a global hopper of 30 – and 4 of which have already taken FID in 2024.

“Secondly, by establishing capital-light platforms and high-grading our portfolio, we significantly reduce bp capex to around $2bn in total out to 2027 – around $10 billion less than prior guidance for this period. Two years ago we expected to spend ~$30 billion through the decade. We now expect around $4 billion to 2030.”

As noted above, the scale-back de-prioritises the three “world-scale” hydrogen projects bp has been developing in Western Australia, including H2Kwinana in the Kwinana Industrial Precinct, the Geraldton Export-Scale Renewable Investment (GERI) in the Mid West, and the Australian Renewable Energy Hub (AREH) in the Pilbara, a joint venture with CWP Global and Intercontinental Energy.

Whether the Kwinana H2 project proceeds depends on whether the Commonwealth will give BP funding under its Hydrogen Head Start or similar – although that die appears cast.

As WA energy industry veteran Peter Kerr notes on LinkedIn, the change of strategy in particular makes the prospects of developing the major GERI H2 project at Oakajee and the AREH project in the Pilbara “challenging in the next decade,” although he adds that bp may progress with JV partners.

“Interesting also as the AREH project is contemplated as one of the main pillars of the WA government’s Green Pilbara Link (integrated electricity network) dream,” Kerr says. “Good luck to all the talented and hard working team at BP in WA as they navigate this period.”

A spokesperson for bp in Australia told Renew Economy on Thursday that work is continuing on the design of H2 Kwinana, GERI and the Australian Renewable Energy Hub.

“Over the last three years we have made significant progress to develop bp’s renewable fuels and hydrogen projects at our Kwinana Energy Hub,” the spokesperson said. 

“Prior to going to Final Investment Decision, bp decided to rephase the Kwinana Renewable Fuels project to adjust the pace of delivery with a focus on improving capital efficiency and aligning with the external policy environment.

“bp will continue to develop projects and apply lessons from other projects around the world that show significant capital efficiencies can be achieved, while better aligning with the development of markets and the policy environment.”

On the positive side, bp looks to be forging ahead with the offshore wind business it shares 50-50 with joint venture partner, Jera.

Japan’s Jera (via its fully owned subsidiary Parkwind) is co-developing a 1.2 gigawatt (GW) project in Australia’s Southern Ocean offshore zone, having been awarded a feasbility licence* by federal Labor.

(*Peter Dutton has promised to tear up this contract if he is elected.)

Lin says bp and Jera have agreed that the new JV will have a clear funding model and defined capital investment plans from both partners to support highly disciplined, capital efficient growth – starting with 1GW of operating assets and more than 13GW of development pipeline.

He says bp will maintain access to its equity share of power offtake including supplying its own internal demand when it is applicable and makes commercial sense.

“Jera is a phenomenal partner – Japan’s largest power company and one of the world’s largest electricity producers and LNG buyers,” Lin said on Wednesday.

“Formation of the joint venture is progressing very well and is subject to regulatory approvals, which we are aiming to complete by mid-2025. We are very excited by the opportunities ahead.”

On Lightsource bp, the solar and battery developer bp took full ownership of in November 2023, and which owns multiple projects in Australia, the outlook also remains relatively upbeat, albeit with plans bring back in a strategic equity partner to “further grow and optimise the platform as a standalone joint-venture.”

“We intend to initiate this process in the next few months, and … proceeds will be allocated to bp’s balance sheet,” Lin said.

For all the talk of fossil fuels being the cash cow, Lightsource bp is delivering double-digit equity returns, Lin points out, having constructed more than 2GW of solar projects under budget in 2024, while also developing strong battery storage capabilities. He says it is now scaled to deliver 3-5GW a year, backed by around 50GW of mature pipeline.

“We see further potential through the evolution of the business model – from ‘develop and flip’ to one in which projects will be grouped by geography and sold, but with Lightsource bp retaining an equity share to provide some operating cash flow,” he told the webcast.

“This will leverage the platform’s scale and sustainably grow revenues while maintaining a capital-light model through more timely dilution of developed projects.

“This approach also enables us to provide optionality for bp’s trading expertise to optimise electron flows and capture additional value.”

On climate, bp says it still intends to get to net zero across Scope 1 and 2 emissions within its operational control by 2050 or sooner – including maintaining “near-zero” methane intensity across its operated producing assets.

The company says it has reduced operational emissions by around 38% since 2019, surpassing the 20% target in 2025, and is targeting a reduction of 45 to 50% by 2030.

On Scope 3 emissions the outlook is much less promising, with bp on track for a 5% interim reduction target in 2025 compared with 2019 and a target – “informed by our reset strategy” of an 8 to 10% reduction by 2030, “contingent on supportive policy and market developments.”

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