BP’s decision to cut oil production by 40 per cent and shift to renewables big time by 2030 is likely to last about as long as oil prices stay fairly low, which might not be as long as people think. BP’s green programme announcement is obviously a good move to reverse the slide in its share prices. Indeed BP’s previous ‘green’ rebranding as ‘Beyond Petroleum‘ in 1998 produced good trading results and put it in a position to scrap a lot of its investments in renewables a few years later and continue to invest in new oilfields. The same is likely to happen again.
Now I’m sure we’ll see some announcements of BP investment in flagship projects – although how much will be in real renewable energy and not just ‘blue hydrogen‘ (carbon capture and storage) demonstration projects, remains to be seen. But, with the first whiff of serious recovery of oil prices, we are likely to see BP quietly sideline its bigger investment plans for a big shift to renewables and plough straight into investing in new oil fields.
Ah, but you might say, surely with the oil price being fairly low at the moment and people shifting away from petroleum driven transport there is little chance of high oil prices?
In that case I’d say you are dead wrong. Indeed BP sending out signals that it isn’t worth investing in new oilfields is quite a canny move for its shareholders. That’s because if there isn’t any investment in new oilfields to replace existing ones that are now uneconomic, maybe being depleted (and/or sold off by BP), then the supply of oil will lag behind demand as, and it will happen sooner or later, the world economy recovers. Then, as oil prices spike, BP can cash in bigtime with investment in new oilfields.
We’d all like to think that with Covid etc and people pronouncing they’ve seen the green light ahead, that sales of electric cars and people using bikes instead would reduce oil demand. But not so fast. Sales of SUVs (bad news!) are surging and in China and elsewhere as oil prices reduce fuel costs the surge towards electric cars slumps. Far from oil demand falling in the medium term, it will probably increase in the medium term. Sure the green transport revolution will kick in eventually, but no so fast as people think.
Now I don’t want to criticise people who are taking BP’s statement at face value – of course we’ve got to be positive and welcome good intentions, but I like to do reality checks. Meanwhile, when we get an oil price spike don’t be blindsided! BP certainly won’t, because they’ll want to cash in on this!