Isn’t it considered self-defeating if an oil and gas company decides to not produce the particular products? This condition that was once unimaginable in the past has become a norm under the existing global trend of carbon reduction. BP has announced that the company will reduce the output of oil and gas by 40% starting from 2030, and invest substantial resources in renewable energy, in order to achieve the target of zero carbon emission by 2050. BP is not the only self-defeating oil and gas company, as Shell is also striving for the zero carbon emission goal by 2050. Despite the trailing progress in carbon reduction compared to European competitors, major American oil and gas companies have also been investing heavily in renewable energy under economic factors.
BP’s determination in carbon reduction was seen from the company’s estimation of carbon tax for 2030 in June 2020 from US$40/ton to US$100/ton. The company once again explained in August 2020 about the implementation details regarding the target of zero carbon emission by 2050, which consists of an elevation of annual investment in carbon reduction from the initial US$500 million in 2019 to US$4 billion by 2025, and a further increase to US$5 billion by 2030. In comparison, the total investment of BP during 2020 is expected to be US$1.2 billion.
Currently possessing 2.5GW of renewable energy, BP plans to elevate the figure to 20GW by 2025, and achieve 50GW of renewable energy by 2030, where the company is expected to sell 5,000kWh of electricity, including the addition of charging stations for electric vehicles from the current 7,500 units to 70K units by 2030. In addition to electricity, BP is also executing aggressive production on biofuel by increasing the production capacity fourfold to 100K barrels per day. Regarding hydrogen, BP will be simultaneously developing green hydrogen (hydrogen production through renewable energy electrolysis) and blue hydrogen (natural gas produced hydrogen paired with carbon capture), and hopes to acquire 10% of market share.
Carbon reduction comes with hefty consequences, including permanent halved dividend, a quarterly loss of US$16.8 billion, and a reduction in oil and gas assets at US$6.5 billion, though it seems that the shareholders are willing to accept such sacrifices, where the stock price even rose by 8% on the day of the announcement. BP commented that the rate of return will be higher by replacing the revenue from oil and gas with revenue of electricity produced from renewable energy. The current rate of return for oil and gas investment is at 5-6%, though the rate of return on electricity revenue from the existing contract price for power purchase from various countries can reach to 8-10%, which may exceed 10% if renewable energy back-ups, or hedges through diversified portfolios, are implemented after the integration of the oil and gas businesses.
Shell has proposed the identical target of zero carbon emission by 2050 just like BP, and in order to achieve the specific goal, the company has not only reduced on relevant investment in the oil field by marching into the sector of renewable energy, but also developed the carbon capture technology, in the hope of offsetting the carbon emission from oil and gas businesses. Shell acquired 100% of Select Carbon in August 2020; the primary operation item of the latter is to elevate the natural carbon storage capability of soil through land management, including re-afforestation and pasture management that avoids excessive grass gnawing. Select Carbon operates at 70 locations that occupy 9 million hectares of land, and the natural carbon storage from the land will produce “Australian Carbon Credit Unit”, which Shell can utilize to offset its own carbon emission, or sell on the market.
In addition to major European oil and gas companies, US enterprises that have not been pressured by carbon reduction, have been getting involved with the implementation of green energy in succession under mere economic factors. Chevron announced at the end of July 2020 that the company will be establishing 500MW of renewable energy at the Permian Basin in order to provide power for its oil and gas drilling facilities at the location. As commented by Chevron, the drastic price reduction of wind and solar power indicates the competitiveness in both energy, thus the development in renewable energy has become a feasible option.
Chevron had previously bought 65MW of wind power from Texas, and another 35MW from California in 2019, with 500MW of wind and solar power projects purchased from Ørsted way back in 2018.
(Cover photo source: Flickr/Mike Mozart CC BY 2.0)