Page 7 - EurOil Week 39

EurOil COMMENTARY EurOil

BP CEO Bernard
Looney.

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

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