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This year marks the 25th anniversary of BP’s attempt to rebrand itself as a greener oil and gas company, going “Beyond Petroleum”. The campaign, launched by the then chief executive John Browne, was immediately attacked as disingenuous, even cynical, and premature. On more than one occasion since, though, BP has edged towards that early ambition by setting goals to shift from fossil fuels into producing the renewable energy the world will need if it is to address climate change.
This week, it was Back to Petroleum again. But again, BP’s timing is questionable. In a “fundamental reset” of its strategy, under pressure from activist investor Elliott Management, chief executive Murray Auchincloss dropped targets to cut oil and gas production and to develop 50 gigawatts of renewable power. Instead, BP will increase its annual spending on fossil fuels by a fifth and reduce its exposure to renewables. On green energy, “we went too far, too fast”, Auchincloss said.
While widely forecast, this U-turn is regrettable. Given governments’ failures to adopt more robust policies to speed up the green transition, it was perhaps inevitable. It adds to the broader sense that companies can continue to put off urgent action to tackle climate change. BP says its ambition remains to be a diversified oil company, and that its wind and solar arms will be “very big” businesses, despite moving their operations off its balance sheet. But the new strategy signals a return to the pursuit of short-term profit over long-term sustainability.
The International Energy Agency believes oil and gas demand will peak by the end of the decade. Opec disputes those calculations, but if the IEA is correct then investors and oil companies that are banking on a slower decline in demand are making a high-stakes bet. A few hours before the BP announcement, the UK government’s adviser, the Climate Change Committee, warned of a “steep decline” in oil and gas consumption, if the UK follows its recommendations for decarbonisation.
The energy transition shock has not yet been as sharp as some warned. But the negative impact of China’s rapid shift to electric vehicles on the appetite for oil is a sign of the risks run by those, such as Auchincloss, who are forecasting “tremendous amounts of demand” for oil and gas in the next two decades.
The arrival of Donald Trump, with his open endorsement of a “drill, baby, drill” deregulatory energy policy, has given oil and gas companies another reason to redouble their fossil fuel activities, as environmental, social and governance constraints are stripped away.
This changed geopolitical and regulatory context has provided some cover for BP, but investor pressure is the primary trigger for its announcement. BP has been forced to recognise that efforts to cut oil and gas exposure and invest in renewables were chasing away cash flow, disappointing shareholders and frightening off experienced staff working in oil and gas who saw no future in a business trumpeting its commitment to solar, wind, hydrogen and bioenergy. Shell, which refocused on shareholder returns in 2023, and France’s TotalEnergies, which has pushed on with investment in both traditional and renewable energy, have outperformed it.
There is, then, a harsh, near-term market logic to the decision. But it leaves unanswered the question Lord Browne implicitly posed a quarter of a century ago, when making the intellectual case for change: what exactly is the long-term future of the oil majors? If all the big international oil and gas producers, and national oil companies such as Saudi Aramco, concentrate mainly on fossil fuels and demand declines, only some will survive. Higher-cost producers, such as BP, may not be among them.
