The oil industry is evolving. Royal Dutch Shell intends to build a vast wind farm off the coast of the Netherlands. Meantime, the oil giant has decided to delay new fields in the Gulf of Mexico and the North Sea.
BP’s CEO, Bernard Looney, said this month that he planned to increase investment in low-emission businesses like renewable energy by tenfold in the next decade to $5 billion a year, while cutting back oil and gas production by 40 percent. By 2030, BP aims to generate renewable electricity comparable to a few dozen large offshore wind farms. “What the world wants from energy is changing,” Looney said, “so we need to change, quite frankly, what we offer the world.”
Investors applauded BP’s latest moves. The afternoon of Looney’s announcement, his company’s shares jumped more than 7.8 percent, outpacing smaller gains among other oil companies.
“Prodded by governments and investors to address climate change concerns about their products,” The New York Times’ Stanley Reed reported, “Europe’s oil companies are accelerating their production of cleaner energy — usually electricity, sometimes hydrogen — and promoting natural gas, which they argue can be a cleaner transition fuel from coal and oil to renewables.”
For some executives, Reed wrote, “the sudden plunge in demand for oil caused by the pandemic — and the accompanying collapse in earnings — is another warning that unless they change the composition of their businesses, they risk being dinosaurs headed for extinction. This evolving vision is more striking because it is shared by many longtime veterans of the oil business.”
Reed suggested that “the bet is that electricity will be the prime means of delivering cleaner energy in the future and, therefore, will grow rapidly.” He wrote that this could be the year that oil giants, especially in Europe, “start looking more like electric companies.” Claudio Descalzi, the CEO of the Italian oil company Eni, said he wants to build a business increasingly based on green energy rather than oil. “We want to stay away from the volatility and the uncertainty,” he told The Times.
All of Europe’s large oil companies have now set targets to reduce the carbon emissions that contribute to climate change. Most have set a ”net-zero” ambition by 2050, a goal also embraced by governments like the European Union and Britain. American oil companies have moved more slowly, partly because they face less government and investor pressure.
Environmentalists and analysts described Looney’s statement that BP’s oil and gas production would decline in the future as a breakthrough that would put pressure on other companies to follow.
BP’s move “clearly differentiates them from peers,” said Andrew Grant, an analyst at Carbon Tracker, a London nonprofit. He noted that most other oil companies had so far been unwilling to confront “the prospect of producing less fossil fuels.”
“To make a switch from a global economy that depends on fossil fuels for 80 percent of its energy to something else is a very, very big job,” said Daniel Yergin, the energy historian who has a forthcoming book, The New Map, on the transition now occurring in energy. But he noted, “These companies are really good at big, complex engineering management that will be required for a transition of that scale.”
Oswald Clint, an analyst at Bernstein, forecast that the large oil companies would expand their renewable-energy businesses like wind, solar and hydrogen by around 25 percent or more each year over the next decade.
Americans, especially younger ones, increasingly see the industry in a negative light, Rebecca Elliott reported in The Wall Street Journal. One result: A career in oil and gas was unappealing to 44 percent of 20- to 35-year-olds, according to a 2017 survey by Ernst & Young LLP. An even greater portion of 16- to 19-year-olds, nearly two-thirds, held that sentiment.
“There’s a mentality out there that oil and gas is finished,” said Jeff Spath, who leads Texas A&M University’s petroleum-engineering department, adding that there is “a growing disdain” for the industry. To reverse this trend, U.S.-based oil giants must speed their transition to clean energy. Putting an honest price on carbon dioxide emissions would be one sure way to prod them.