BP CEO Bernard Looney Talks Energy Transition Strategy, Pitfalls

BP knows all too well the consequences of getting too far ahead of the game too soon.

CEO Bernard Looney briefly flashed back to the early 2000s when the multinational oil and gas company set out to add renewable energy to the mix, including solar energy.

“We invested heavily in renewables when probably the policy environment, the regulatory environment wasn’t right and maybe society wasn’t quite ready for it,” Looney said May 19 during Columbia University’s virtual global energy summit. “We ended up writing off $7 billion worth of assets. So, you have to be careful.”

His words came as moderator Jason Bordoff, founding director of Columbia University SIPA’s Center on Global Energy Policy, pointed out what he called a “large and growing gap between ambition and reality, and how quickly the world is actually changing.”

The consensus is that the world needs and will need oil and gas for decades. Many also agree that reducing emissions and responsibly producing energy is a must. In recent years, the appetite of many investors, countries, companies and consumers to reduce emissions have grown, leading to heightened investments in alternative energy and better emissions management.

“I don’t think it’s right to just say we’re going to sit here and wait for society to move and therefore somehow put the onus to solve the problem on somebody else,” Looney said. “Equally, we can’t just rush ahead of society and develop things in a vacuum. Otherwise, we’ll waste shareholders’ money.”

It’s a delicate balance meeting the needs of customers and consumers, generating returns and pursuing ambitions. He referenced a conversation with Daimler CEO about hydrogen trucks in Germany.

“Daimler is not going to build a hydrogen truck until there’s a customer that says they’re going to buy the hydrogen truck. The customer isn’t going to buy a hydrogen truck until they know they can refuel it. And BP isn’t probably going to build a hydrogen network in Germany until there are customers and trucks that will use it. So, if we just said we’re going to do this in step with society, we’re stuck because nobody moves.”

Moving Forward

BP is on the move again. This time, pulling together people—cities, companies and corporations—to move toward net zero alongside BP. It is partnering with 10 to 15 cities, including Houston and Aberdeen, to reshape energy systems and the high tech and consumer products, heavy transport and heavy industry sectors to align net-zero ambitions.

The European major also extended in late 2020 its deal with Amazon, agreeing to supply renewable energy to power Amazon’s operations, and teamed up this year with Qantas on sustainable aviation.

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The evolving energy landscape is turning greener. As Looney pointed out the EU has the Green Deal, the U.K. has a green industrial plan and the U.S. has rejoined the Paris accords. This comes as BP transitions from an oil supermajor to an integrated energy company, targeting net-zero emissions by 2050 or sooner.

“We want to bring the absolute emissions down by between 35% and 40% by 2030, and part of that means that we will produce less oil and gas by 2030—40% less oil and gas,” Looney said. “We think it’s right for our shareholders and our investors because actually we want to be the best-run hydrocarbons business, not the biggest hydrocarbons business. And therefore, shrinking and focusing on value, focusing on margin, is a way to do that.”

Getting there will require a tenfold increase in low-carbon investment—about $5 billion per year, he said. “We’re going to have 50 gigawatts of renewable capacity.”

Like others with similar ambitions, earnings from oil and gas is bankrolling the transition. For BP, sales from divestments is also being reinvested into its low-carbon business.

The company looks to further diversify by 2030, having recently added U.K. offshore wind to a portfolio that also includes solar, bioenergy and products. BP said it is also building or strengthening positions in integrated low-carbon electricity, gas, hydrogen and carbon capture, use and storage.

“It’s going to be a diversified energy company in 2030,” he said. “It’s going to be decarbonized. Therefore, it’s going to be derisked as an investment.”

‘Performing while transforming’

Looney sees opportunity in U.S. wind projects, where BP has partnered with Equinor to jointly develop four assets in two existing wind leases offshore New York and Massachusetts. Together, they will be capable of generating enough power for more than 2 million homes.

“The key for us is making sure that the renewable investment stands on its own two feet as a good investment,” Looney said. “That’s an 8% to 10% return.”

The company also sees hydrogen as a fuel of the future because everything can’t be electrified. BP aims to capture 10% of the markets when they emerge, he said.

The energy transition, however, is not without risk.

Referring to a Financial Times article about a survey of investors, Bordoff mentioned that two-thirds of those surveyed wanted oil companies to focus on upstream instead of renewables. Half believed oil firms were investable, potentially benefiting from a future oil supercycle.

To that, Looney said “we’re building an investment proposition here for the long term.”

Five or six months ago, the reaction to the company’s strategy was mixed, but that has since changed, he added, noting Barclays’ recent selection as BP as a “top pick” in the sector.

“In many ways, a lot of investors hadn’t quite understood where the value was. Now, our job is to help our investors understand that. I think we’re seeing that happening more and more.”

Looney said he is optimistic about shareholders buying into the strategy. Delivery will be key. The company has been chalking up wins lately: hitting a $35 billion net debt target ahead of schedule and reporting a first-quarter profit of $2.6 billion.

“We’ve coined this phrase: performing while transforming,” Looney said. “We have to perform for our shareholders today, while transforming the company for tomorrow.”