By Paul Homewood
h/t Ian Magness
AEP sees the light!
The climate Left has picked the wrong target in vilifying BP. It is a futile mistake to tar every oil and gas company with the same brush.
Bernard Looney’s BP is doing its part to decarbonise the world in a way that does not trigger energy mayhem in the process, and does not provoke a paralysing political backlash. So are all of the European “majors” to varying degrees.
Contrary to media headlines and feverish censure from Greenpeace, Friends of the Earth, and the Liberal Democrats – who ought to know better – BP is not retreating from renewables or clean energy. The company is tapping its booming oil and gas profits to make green hydrogen a commercial reality in this country instead of a pious dream.
In parallel, it is investing an extra £1bn annually in oil and gas, concentrated on “short-cycle fast-payback” wells to exploit soaring prices and meet the looming supply crunch in the mid-2020s.
Yes, it is also paying down debt and providing a dividend to pension funds and retirees struggling to cope with fuel bills. It is taking necessary steps to remain a viable commercial company, able to fend off takeovers by powerful rivals with a very different climate ideology.
Green realists should recognise the tactical wisdom of BP’s plan to slow its exit from fossils this decade. Its upstream spending will focus on spur pipelines from existing drilling platforms able to produce within one to three years. They include “tie-back” mini-projects such as Seagull and Merlach in North Sea for crude; or Cypre and Mento in Trinidad for gas.
This is nothing like BP’s retreat from renewables after Lord Browne’s tenure, when the company went green slightly too early and lost money becoming (briefly) the world leader in solar power.
BP’s Energy Outlook this month is in many ways an extraordinary document. It concluded that global demand for oil and fossil fuels peaked in 2019, with even China close to rolling over. It has rung the bell that tolls for Big Oil.
The $190 trillion (£155 trillion) global economy runs on a legacy infrastructure of fossil fuels. Three quarters of British homes are heated exclusively by gas. The fleet of 1.5 billion vehicles on the roads today will depend on petrol and diesel for a long time. Ditto for aviation and maritime fleets. Steel, cement, chemical, and fertiliser plants can be decarbonised but for now they run on fossils.
That does not mean it is impossible to switch this vast and complex system to net zero emissions by 2050. The International Monetary Fund and the International Energy Agency say alternative technology is already so cheap that decarbonisation can be done at a negative net cost – ie, an economic gain.
But it cannot be done by shutting down supply or by Puritan incantations of “degrowth”. People will not willingly submit to economic depression and food rationing.
Vladimir Putin’s energy war has shown us how quickly societies will turn against climate targets if the transition becomes disorderly and threatening. We have lost just 120 billion cubic metres (BCM) of Russian gas supply out of a global market of 4,100 BCM. That has been enough for our democracies to wobble.
There was always going to be an energy crisis this decade – regardless of Ukraine – because the world faces a structural supply deficit. Rystad Energy says upstream investment in oil and gas was running at over $800bn a year at the top of the commodity supercycle in 2014. It has been running at closer to $400bn over recent years.
Daniel Yergin, S&P Global’s energy guru, calls it “pre-emptive underinvestment”. The cycle has played its part, but so has net zero signalling, with fears of stranded assets and long-tail risk from climate litigation.
Old fields are depleting. Few new projects coming on stream. Shale drillers have tapped the best seams in the Permian. The “expected ultimate recovery” of wells has dropped this year for the first time since the fracking boom began.
Investment in nuclear, renewables, and electrification has not compensated. It needs to rise by a factor 2.4 this decade to plug the gap.
“The world is underinvesting in all forms of energy,” said Columbia University’s Jason Bordoff.
The danger of a botched transition should by now be obvious, and so should the danger of a premature and misplaced campaign to disinvest from well-run western oil majors, which have much lower methane emissions than the bad actors, and which bolster the energy security of our democracies.
Of course it was not long ago that AEP was demonising the fossil fuel industry, insisting that its days were over and warning of stranded assets:
And it this naive assumption that renewables would simply replace fossil fuels overnight that has led to the massive underinvestment in fossil fuel projects.
As the IEA projections above make clear, we may still be needing almost as much oil as we do now in 2050.
It’s a pity AEP did not wake up to the real world a few years ago.
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February 16, 2023 at 08:54AM