Setting the agenda was the publication of the group’s annual energy outlook, which somewhere between the Covid-19 pandemic, mounting fears of climate change and Mr Looney’s appointment has taken a dramatic about-turn.
In short, BP thinks there’s a good chance oil demand may never again reach 100 million barrels per day, as it did last year for the first time ever. Though its modelling contains plenty of caveats – including the necessary admission that all predictions inevitably prove wrong – two of BP’s three central scenarios estimate that liquid fuel consumption “never fully recovers from the fall caused by Covid-19, implying that oil demand peaked in 2019”.
Let that sink in. One of the world’s largest producers of our primary source of fuel just called time on the market for that product. A century of the black stuff’s pre-eminence could already be in decline.
Environmental concerns are already having profound market effects. The unsustainability of the world’s current energy consumption will heap further pressure on fossil fuel demand, Mr Looney argues. This will accelerate the shift to renewables and low-carbon sources, and create opportunities for companies and investors positioned for the transition. Against this backdrop, pledges to increase renewable spending 10-fold and reduce oil production by 40 per cent by 2030 look sensible.
For those who take seriously the threat of climate change, this is all very welcome. But any investor who previously took BP at its word might feel puzzled at the change of direction.
A year ago, the four scenarios for how energy demand might change over the next two decades bear little resemblance to today’s conclusions. For example, the 2019 outlook included a ‘more energy’ world in which all major energy sources (including coal) expand, and a ‘less globalisation’ theme in which renewables rise but everything else stays much the same.
Neither are even up for debate any more. And when Mr Looney’s predecessor Bob Dudley spoke of an ‘evolving transition’ scenario – in which growth in oil and gas demand is outstripped by the rise of renewables – this is now seen as a ‘business-as-usual’ approach. Even here, oil and coal demand is now expected to contract at a faster rate than was envisaged a year ago.
The most ambitious of the pre-Looney models, in terms of reducing carbon emissions, was described as a ‘rapid transition’, though this still fell short of the requirements the 2015 Paris Agreement to keep the world below 2-degrees of warming above pre-Industrial levels.
Now, BP is pitching toward two scenarios that assume deep cuts to fossil fuel demand by the middle of the century (see chart). The ‘rapid’ forecast sees demand for oil, natural gas and coal fall by 53, 4 and 85 per cent respectively by 2050, while a shift to a ‘net zero’ world entails a 72 per cent drop in fossil fuels, as measured in exajoules. Here, coal all-but expires and oil demand collapses by almost four-fifths.
It’s worth noting here that these models are held as “a set of core beliefs as to how energy demand is likely to change”, rather than a set of circumstances required to address climate change. Anyone tempted to back potential equity raises by Tullow Oil (TLW) or Premier Oil (PMO) in the coming months, take note.
