BP projected Monday that global oil demand may have already peaked, marking the latest development in the supermajor’s strategy to transition away from fossil fuels to renewable energy.
shares fell 2.1% in London trading and its stock is down 46% year-to-date, similar to other energy companies devastated by the coronavirus-driven collapse in oil demand. Its peer
Royal Dutch Shell
also fell 1.9% on Monday is 52% down so far in 2020.
The back story. After becoming chief executive of BP in February, Bernard Looney set a goal for the energy giant: become carbon neutral by 2050, including fuel burned by customers. The goal, ambitious for any company, let alone one in the business of hydrocarbons, marked BP out from the rest of the world’s major oil companies in its commitment to combating climate change and emphasizing renewable energy as key to the company’s future.
BP has since put its money where its mouth is. In August it pledged to increase low-carbon investment tenfold to $5 billion a year by 2030. Earlier this month, it paid $1.1 billion to Norwegian energy giant
for a 50% stake in two of that company’s wind farm developments on the East Coast of the United States.
Read more:BP Enters Offshore Wind Market With $1.1 Billion Equinor Deal. Why The Stock Is Falling.
What’s new. In its influential annual energy outlook report, published Monday, BP outlined three projections for the future of global oil demand, all of which predict a decline in demand over the next 30 years. The report doubled down on the company’s commitment to leading a global energy transition while remaining profitable.
The most conservative case, called “business as usual,” predicts that oil demand will rebound from the dip brought on by the coronavirus, plateauing in the 2020s and beginning to decline after 2030. The two other scenarios, which presume government policies to combat climate change, show global oil demand failing to recover from the coronavirus slump and leading a sharp long-term decline.
Looking ahead. The report lays out much of the nuts and bolts rationale behind BP’s strategy to transition away from fossil fuels. It should reassure investors that the decision to go carbon neutral is backed by hard economic logic.
Also:BP Cuts Dividend for the First Time in a Decade After Record Loss. Why Its Stock Is Rising Anyway.
Of course, BP’s strategy to transition away from its core business of oil may worry investors in the short term. After all, oil companies have historically enjoyed a healthy cash flow from the lucrative oil and gas business which translates into strong dividends for investors.
But in some ways, that is just the point: the writing is on the wall, and some short term sacrifice in terms of profitability may be needed to ensure the company is around for the long haul. This report, and BP’s recent investment into Equinor’s wind assets, should embolden investors to stick around with an energy company that is serious about a renewable future.