British Petroleum (BP) has reportedly abandoned its target to cut oil and gas production by 2030 in what is considered a significant reversal from previous environmentally-friendly commitments.
The move is part of a strategic pivot pioneered by the company’s new CEO Murray Auchincloss, who is scaling back BP’s energy transition plans to regain investor confidence and boost profitability.
In 2020, BP shared one of the most ambitious climate strategies in the oil and gas sector, pledging to cut oil and gas output by 40% by 2030 by rapidly growing its investments in renewable energy. However, this commitment has been gradually eroding.
In February 2023, BP scaled back its production cut target to 25% and said that it was aiming to produce 2 million barrels of oil equivalent per day by 2030. However, a report from Reuters citing three sources familiar with the plans suggests that BP has now entirely abandoned the 2030 production cut target.
Why Is BP Walking Back from Its Pledges?
Both the new CEO and investors’ pressure over the leadership team of BP have influenced the implementation of this new strategy. Shareholders complained that Bernard Looney’s – Auchincloss predecessor – strategy would hurt the oil firm’s profitability.
After the leadership change, the new CEO started to distance himself from Looney’s approach and is now focused on pouring money into the most profitable segments of the business.
“As Murray said at the start of the year in our fourth-quarter results, the direction is the same – but we are going to deliver as a simpler, more focused, and higher value company,” a BP spokesperson commented.
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Other companies have embraced this trend as well like Shell and Exxon, both of which have also been walking back from their initial net-zero emission and production volume targets. All said, these developments shouldn’t be very surprising. The main products of all of these companies only release dangerous greenhouse gas emissions.
There just isn’t a practical way for them to both complete their fiduciary duty to their shareholders and to get to 0 emissions, which is why critics of these programs argue that regulation is the only answer to climate change. It was always silly to trust oil and gas companies to reach net zero (or anything close to net zero) emissions of their own volition.
One of the reasons why oil and gas companies are walking back their initial pledges is related to the short-term results that renewable energy projects are (not) generating and the other is associated with the positive conditions of the market.
It does not make much financial sense to these companies to pour billions into a technology that is still years away from becoming the primary way through which the world is energized at a point when oil prices are high.
In 2022, Wael Sawan, the CEO of Shell, highlighted that even though his company was pursuing “low-carbon” initiatives, they needed to ensure that these projects would be profitable for the business.
Shell invested as much as $3.5 billion in renewable energy projects during that year. However, Sawan said: “Absolutely, we want to continue to go for lower and lower and lower carbon, but it has to be profitable.”
BP’s move is a response to the market’s eagerness to see results in the near term. For investors, where the energy market is going is not necessarily a priority. They don’t seem to care that their influence over energy companies is accelerating climate change. Instead, they want to see the company they are investing in making as much as they can in the current environment.
There’s also a game theory problem at hand. Because forceful climate legislation is still entirely lacking, there will always be someone who prioritizes current profits over a future disaster that may or may not directly affect them. So many investors feel that it would be pointless to use their influence to reduce the impact of climate change when they feel like it’s inevitable anyway.
With this in mind, BP and its new CEO are now aiming to make investments in three new projects in Iraq including one in the Majnoon field. They are also analyzing potential projects in Kuwait, the Gulf of Mexico (the development of the Kaskida reservoir), and the Tiber field.
However, constantly rising tensions between the West (namely the US and Israel) and Iran may foil these plans as the US is reportedly considering bombing Iran’s oil assets itself, which would almost certainly cause a widespread regional war. Such a war would disrupt the oil market dramatically and would likely allow oil companies like Pioneer, Exxon, and BP to use their market power to artificially inflate the price of energy for profit.
While it certainly is shocking that the US State Department is even considering attacking Iran, it seems unlikely that they would actually do so, especially because we are less than a month out from a presidential election.
BP is also aiming to acquire smaller operations in the United States, primarily in the Permian shale basin.
Advocacy Groups Blast New CEO for Prioritizing Profits Over the Environment
Abandoning its production cut targets means that BP will keep contributing significantly to the world’s pollution. The firm’s huge carbon footprint has a major impact on the trajectory of climate change.
In addition, its decision to walk back from these pledges could incentivize other companies to follow through, which would be a significant setback in the green agenda.
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Groups that advocate for the protection of the environment have reacted strongly to BP’s reported strategy shift.
Philip Evans, Greenpeace UK senior climate campaigner, stated: “It’s clear that Auchincloss is hell-bent on prioritizing company profits and shareholder wealth above all else as extreme floods and wildfires rack up billions of dollars in damages, destroying homes and lives all over the world.”
Meanwhile, Agathe Masson of Reclaim Finance criticized BP’s decision, saying: “BP might be happy to see the planet burn in the name of profits, but investors must take a longer view and reject this climate-wrecking strategy.”
Why Did Anyone Believe BP In the First Place?
Energy experts and industry analysts have weighed in on BP’s strategy shift, offering varied perspectives on its implications.
James Alexander, CEO of the UK Sustainable Investment and Finance Association, commented: “Most oil and gas majors have consistently failed to invest enough into transition technologies, setting targets and making claims that have often been abandoned or debunked.”
He added: “The transition will not wait for them. The gap they have left is already being filled by renewables companies.”
Meanwhile, Krista Halttunen, an energy researcher at Imperial College London, questioned the timing of BP’s decision, asking: “If they’re not going to invest more in the energy transition now, then when?”
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While BP has abandoned its 2030 production cut target, the company maintains that it is still committed to achieving net-zero emissions by 2050.
CEO Murray Auchincloss is expected to share his updated strategy at an investor day event scheduled to take place in February that will likely provide more details on the company’s approach to balancing fossil fuel investments with renewable energy projects.
However, any new targets or commitments related to emissions reduction and sustainability will likely be welcomed with significant reserves as the company has already demonstrated that its word means little when it comes to environmental pledges.
Meanwhile, investors will be analyzing the firm’s plans for expanding its operations in key regions and strategies for improving shareholder returns and regaining the market’s confidence.
As one of the world’s largest oil and gas companies, BP’s actions carry substantial weight and may influence industry-wide trends.