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BP shift leaves bigger questions for reliability than climate

Energy transitions will always be dirty business. Blood pressure of the week rowed back Dropping out of the 2020 climate commitments, including a headline pledge to cut production by 40% by 2040. The oil and gas major may have proved rather an environmentalist, given that these pledges were called “cynical” by Friends of the Earth three years before him. ‘ point.

BP expressed its move in terms of how the world changed after Russia’s invasion of Ukraine. The energy trilemma of finding energy stability, affordability and sustainability is shifting. In the near future, we plan to invest in and produce more fossil fuels and sell less assets so that by 2030 production is only about a quarter below what it was in 2019. Not cents, but 35 to 40 percent.

I don’t understand the story at all. Indeed, BP increased his investment plans by $1 billion in both fossil fuels and transition businesses. But the group is aware that it believes the outcome of the Ukraine war will accelerate the transition, said Kings Milbond, his energy strategist at clean energy nonprofit RMI. increase.

The new target is due to another three-way tension: the demand for cash returns from investors, the need to invest in future clean energy businesses, and the fossil fuel cash flow required for both. BP’s stock hasn’t trailed much of its climate-sensitive European peers, but has been overtaken by more oil-rich American companies. Amidst talk of transatlantic bids and investor skepticism about the returns of low-carbon businesses, this is an attempt to change the mood.

This is not a climatic catastrophe. In 2030 he should have produced 500,000 barrels of excess oil per day, mostly sold to other producers. BP is reducing its own operational emissions, which in technical terms are Scope 1 and 2, faster than expected. But all that change is aimed at boosting short-term returns. With low carbon, less money goes to long-term, less profitable businesses like renewable energy, and more money goes to areas like electric vehicle charging and convenience stores. In oil, basically a quicker barrel is the mantra to take advantage of higher than expected oil prices.

This is not a surrender to the US model either. BP put his 30% of its investment into the low-carbon sector last year. By 2025, it will be 45% of spending and halved by 2030. Compare this to ExxonMobil. “This year. Three-fifths of that bucket’s spending will total $17 billion over the years to 2027 and go towards its own emissions reductions. Investment BP counts upstream. Last year’s BP, which owns about half of Exxon’s operating cash flow, plans to invest $60 billion in low-carbon businesses by 2030.

With Europe’s energy dinosaurs flying around in search of a post-asteroid future, if BP can get that return from investors it will likely be seen as progress.World needs more investment in energy full stop is. Oil and Gas shareholders seem pretty resistant to management spending big on anything, clean or dirty.

However, this is also a change that has resulted from an unexpected long-term rise in oil price expectations. Resource groups, including miners, are notorious for swapping or declining assets in response to fluctuations in commodity prices. Not a long term plan. His Biraj Borkhataria of RBC Capital Markets said: “BP works with the environment in a way. He would rather discuss oil at $80 than $40 a barrel.”

Falling oil prices mean tougher choices about investment amounts. Higher means more pressure on the barrel. BP’s various stakeholders, whether cash-hungry or climate-sensitive, will have to convince themselves that there will be no shift if markets move again.

@Helen Biz

https://www.ft.com/content/ac419492-f512-4660-b088-76b6c537728e BP shift leaves bigger questions for reliability than climate

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