BP’s Dudley calls fossil fuel divestment movement counterproductive

BP PLC Chief Executive Officer Bob Dudley strongly criticized oil and gas critics’ calls for investors to sell their holdings in fossil fuel companies and invest in renewable alternatives instead. “They push for potentially confusing disclosures, raise the specter of a systemic risk to the financial system from stranded assets and campaign for divestment—all in an effort to squeeze oil and gas out of the fuel mix,” he said during an Oct. 10 address to the 2018 Oil & Money conference in London.

The strategy ignores the contributions from oil and gas that will be needed during the low-carbon energy transition now under way, Dudley said. “Renewables are growing at a remarkable rate—faster than any fuel in history—with optimistic projections, including our own, suggesting they could supply around a third of the energy mix by around 2040,” he said.

“But we still need to meet the remaining two thirds of demand—and oil and gas have a crucial role to play. They can do that and be consistent with the Paris goals—so long as [carbon capture, utilization, and storage (CCUS)] is deployed widely, especially in the power sector,” Dudley said.

BP’s latest Energy Outlook projects oil and gas supplying 40% of the world’s energy needs in 2040, while a similar International Energy Agency scenario puts the figure at nearly 50%, he said.

“In the models for a scenario meeting the Paris goals, growth in renewables will meet rising demand for energy,” Dudley said. “But BP economists estimate that many trillions of dollars of investment in oil and gas will still be required to counter the substantial decline rates of existing fields.”

Far-reaching consequences

When it comes to investment decision risks, he said the biggest threat comes from exploration and production underinvestment, not overinvestment.

“Suppose $2 trillion less was invested than actually required to meet demand. The impact of such underinvestment on financial stability could be much more far-reaching. Oil and gas supply would be constrained, and prices would likely rise, slowing global economic growth, with knock-on effects across other sectors. This could have serious consequences for both financial stability and economic prosperity more generally,” Dudley said.

“I would also contend that there will always be someone willing to produce that energy. If not us, then perhaps others less focused on the energy transition,” he said.

Dudley noted that while it is important to continue investing in oil and gas production, not all of the estimated 5 trillion boe that is technically recoverable will be produced. The amount is much more than the world needs, and without carbon capture and underground storage, it is far more than would be consistent with the 2015 Paris climate accords, he said.

“But even in a scenario consistent with Paris, where the percentage of oil and gas in the fuel mix is lower than today, the world will still need substantial amounts of oil and gas in absolute terms: perhaps around 10% fewer barrels of oil in 2040 than today and the same levels or a little higher of natural gas,” Dudley said.

In that competitive environment, the winning barrels will be the most economical to produce, the least risky to bring to market, and the cleanest from an emissions standpoint—or what BP calls “advantaged oil and gas,” he said.

An impractical requirement

Dudley also questioned critics’ calls for additional financial disclosures and scenarios in an industry that already uses them extensively.

“But what concerns me is the expectation that we should undertake a different kind of scenario analysis that tries to predict and disclose precise potential financial impacts on our business,” he said. “To my mind, that sort of analysis needs to assume a particular future portfolio, or energy prices decades from now—which none of us is in a position to do.”

The divestment path focuses only on the emissions challenge and not on how to provide billions of people with energy of all kinds, Dudley said. Innovation and collaboration would be more productive, but it can’t simply be business as usual, he said. “It requires significant and rapid disruption to our industry. We all recognize that the energy mix has to evolve quickly—and we’re investing accordingly,” he said.

He said, “All of us know we have to help renewables push coal out of the power sector. That’s why we’re all investing in all kinds of renewable energy: solar, wind, bioenergy, battery technology, and enabling electrification of vehicles. It’s also why we’re investing in natural gas—it emits half the carbon emissions of coal in power and is the perfect partner for intermittent renewables.”

Multinational oil companies also are collaborating in partnerships like the Oil & Gas Climate Initiative (OGCI), where 13 firms representing 30% of the world’s production are working to develop CCUS so that oil and gas may play their full part in the global energy transition, Dudley said. “OGCI members recently set a 0.2% methane intensity ambition—an industry first—to help gas reach its potential,” he said.

Dudley also said the world’s top multinational oil companies are working with leading automakers to improve engine designs and manufacture advanced fuels and lubricants. “We are embracing change and coming together to meet the dual challenge, and we can do this even faster and more efficiently with clearer, smarter policy signals from governments,” he said.

The 3-day Oil & Money conference where Dudley spoke was cosponsored by the New York Times and the Energy Intelligence Group.

Contact Nick Snow at [email protected].