Page 14 - NorthAmOil Week 39

NorthAmOil COMMENTARY NorthAmOil

BP’s plan includes a
40% cut to its oil and
gas production over the
next decade.

capacity from 2.5 GW to 20 GW by 2025, and to see these returns to believe them, analysts at
50 GW by 2030, primarily focusing on offshore Redburn argue in a research note.
wind. These are considerable numbers, espe- “BP’s challenge lies in the building up of its
cially as the world’s largest wind developer Iber- skill set in renewable energy solutions and a
dola only has around 18 GW of capacity up and competitive advantage in its chosen areas that
running right now. allows investors to believe they can deliver
However, wind energy is costly. BP attractive financial returns from the capital allo-
announced on September 10 a $1.1bn invest- cated,” Aviva’s Baig says.
ment in two offshore wind projects under Under different circumstances, BP could
development by Norway’s Equinor. Their gen- acquire a major renewables developer with
eration is due to reach 0.7 GW within five years, existing capacity and with projects already in
of which BP will net 0.35 GW. This means the the pipeline. But the company is saddled with
UK major is effectively paying $3.1bn per GW, nearly $41bn in net debt, making such an option
suggesting that BP’s 2025 target may cost over unfeasible at this stage.
$60bn to achieve. This dilemma highlights the difficulties oil
It is questionable how BP can devote this majors face in trying to build up their clean
much capital expenditure, especially given energy operations at a time when low oil prices
current constraints on its cash flow. Indeed, mean they are cash-strapped. Total is in a As countries
BP currently assumes it will spend only $5bn stronger position, having moved into renewa-
per year on low-carbon projects, with two- bles sooner than its competitors. across the world
fifths of that sum going towards non-genera- The French firm is focusing mainly on solar. ratchet up efforts
tion infrastructure such as electric vehicle (EV) On September 25 it announced a partnership
charging. with Spanish developer Ignis to build 3.3 GW to decarbonise,
“For BP to meet its low-carbon target of 50 of solar capacity near Madrid and Andalusia.
GW of renewable generation capacity by 2030, Those projects are scheduled to come on stream the role of oil and
considerable growth is required over the com- between 2022 and 2025. Total has also invested
ing years,” Stuart Lamont of Brewin Dolphin billions in power generation in general in recent gas could greatly
Holdings says, according to Bloomberg. “This years. diminish.
will require discipline from the company, ensur- While most of Europe’s major oil and gas
ing a delicate balance between working towards companies have committed to diversifica-
decarbonisation targets while achieving attrac- tion into clean energy, their US counterparts
tive returns for shareholders.” have remained staunchly devoted to hydro-
At the same time, Looney has promised inves- carbon production. But this strategy bears
tors returns of 8-10%, which while not as high significant risks as well. As countries across
as many oil project returns, are still greater than the world ratchet up efforts to decarbonise,
those clean energy investments currently yield. the role of oil and gas could greatly diminish,
The CEO says BP can leverage its experience, especially if carbon capture and storage (CCS)
integration, low borrowing costs and trading and other technologies to decarbonise oil and
clout to push up returns. But investors will need gas disappoint.™

P14 www. NEWSBASE .com Week 39 01•October•2020