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Panel on BP Statistical Review reflects global climate change
Alan Bailey for Petroleum News
Following a presentation on July 8 on the results of BP’s annual Statistical Review of World Energy, a panel of experts discussed some of the findings of the review. Much of the discussion revolved around efforts to tackle global warming and what these efforts mean for the future of the energy industry.
The COVID-19 pandemic The Statistical Review had found that a massive drop in energy usage in 2020 in response to the COVID-19 pandemic resulted in a drop in global carbon emissions matching the annual drop required to meet the emissions targets set in the 2015 Paris agreement on climate change. And, despite the fall in energy usage, there was an increase in the amount of renewable energy produced. However, given the fact that the decline in carbon output was related to a major plunge in economic activity, this carbon decline appeared likely to be transitory, with carbon emissions increasing again as the world economy recovers.
Picking up on this point, panel chair Gillian Tett, U.S. editor at large for the Financial Times, expressed skepticism about efforts to achieve the desired restraints on a warming climate.
“On current trajectory, as far as I can see, we’re not going to hit the Paris climate change accord goals, which is very, very alarming,” Tett said.
A push from society Nigel Topping, UK representative for the upcoming UN climate change conference in Glasgow, expressed a somewhat more optimistic note in terms of climate targets, saying that society is likely to push much more strongly for climate action, as more climate reports appear in the near future, and as people experience weather phenomena such as heat domes and early hurricanes. Shareholders are starting to apply pressure to energy companies, he said.
“There will be stranded assets and huge value disruption … if an incumbent company is still allocating capex on the basis of bad projections of the future, that just leaves it open to the disrupters to reap the spoils,” Topping said.
Paul Bodnar, global head of sustainable investing at Blackrock, a major asset management company, said that, while investors tend to be interested in a company’s long-term performance, “one takeaway from this year’s report is that energy systems are sticky, and it takes time to transition them.” An energy company has to figure out how to position itself for the energy transition that needs to happen over the next decade or two, while investors also need to consider the same issues, with the direction of decarbonization pretty clear.
“We want to see evidence that companies are taking this seriously, and that they have a plan for thriving in a world that is moving to net zero,” Bodnar said.
At the same time the world runs on energy and energy must become available to more and more people. And company financial performance needs to be considered in the context of various forms of energy, not just oil and gas or electricity, Bodnar said.
Change is difficult But shifting an entire energy economy is hard, in particular because many of the carbon emitting assets such as passenger cars, power plants, steel mills and cement factories are long-life assets, Bodnar said. While, on the one hand investors are interested in opportunities for building the new climate economy, the investors also need to understand at what speed the energy transition may be possible. How are the existing emission generating assets going to be taken offline?
For example, long-term contracts and tariffs shield most of the coal industry from competition with renewables. So, rather than just pouring money into investments in the green energy, it is necessary to work with the world of energy policies, to understand how to reduce emissions by accelerating the rate of capital stock turnover in the capital economy, Bodnar suggested.
Topping commented that there has to be an interplay between the market and policy makers, with policy makers becoming serious about how to take polluting assets out of the energy system.
“We haven’t really grappled with that question enough yet,” he said.
BP’s strategy Giulia Chierchia, BP executive vice president for strategy and sustainability, commented on BP’s approach to the energy transition. BP sees this as an integrated play, with the company bringing energy systems together and playing a critical role in creating global value chains. For example, it is necessary to build up value chains for hydrogen production and transportation, moving production from grey through blue to green hydrogen.
“That’s something that we can do,” Chierchia said. “We are aiming to actually create those value chains and drive that integration.”
Grey hydrogen, produced from natural gas, is relatively carbon intensive, blue hydrogen involves carbon sequestration and green hydrogen is produced from the electrolysis of water. BP views hydrogen as extremely important in the energy transition, in particular for heavy duty, long haul transportation. The company sees blue hydrogen becoming competitive with grey hydrogen by the end of this decade, with green hydrogen becoming competitive a few years later at locations with good solar or wind resources, Chierchia said.
BP also thinks that it can drive attractive returns from investments in renewables, including solar and offshore wind. The company has communicated its hurdle rates for investments in renewables and will only invest if those hurdle rates can be met, Chierchia said.
Chierchia also commented that, although in the future less oil and gas will be needed, the continued running of the energy system will continue to require some oil and gas. BP has announced a strategy to reduce its oil and gas production by 40% by 2030, she said. Divestments from oil and gas will support the company’s investments in low carbon alternatives. Compared with smaller companies, BP is in a privileged position to carry out the complex shaping of those new global value chains, Chierchia said. Moreover, given societal pressures, all companies will come under scrutiny over their long-term emissions performances.
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