Electrolysers split water into hydrogen and oxygen. The prospective 50 megawatt facility would use renewable energy provided by Ørsted from a North Sea offshore wind farm. The refinery already uses hydrogen, but this is produced by “reforming” natural gas, a CO2-producing process.
This is only at the design stage, with a final investment decision to come in 2022 and operations to begin in 2024 if all goes to plan. BP has said it would up its renewable investment from around $500m (£377m) a year now to $5bn a year by 2030, although has not outlined any costs for the Lingen project yet.
BP’s share price has climbed around a fifth since the start of the week, after trending downwards for months, following the news Pfizer has developed a vaccine for Covid-19.
BP gas and low carbon energy boss Dev Sanyal said the Ørsted tie-up could both cut emissions and “build experience of large-scale green hydrogen production and deployment”. While BP has talked up its commitment to going green, both through investment and slowing investment in oil and gas reserves, there are questions over how it will manage to keep investors looking for dividends happy.
Morgan Stanley put out a note this week looking at how BP and others will fare compared to utilities companies that have been investing in renewables for years, like Ørsted. The analysts looked at the companies on a net income per gigajoule of energy produced and capital expenditure per gigajoule basis. This found the utilities had far-higher profits per gigajoule but also higher capex requirements than the oil majors. Ørsted makes almost $20/gigajoule in net income but spends over $60/gigajoule, while BP is around $1 for both net income and capex on a unit basis.
The brokerage said there was concern over oil majors crowding out the renewables space, but said there was plenty of market share to go around. “Excitement around [oil majors’] plans from utilities investors seems overdone given aggregate oil company renewables plans of 124 gigawatts to 2030 imply [around] 5 per cent of the global additions over this period,” Morgan Stanley said.
If the Lingen electrolysis plant is built, it will save around 80,000 tonnes (t) of CO2 a year. BP's operational, or scope 1, emissions in 2019 were 49mt CO2 equivalent. This week has offered an insight into investors' approach to BP. Its share price moved up for the first time since the March oil crash on the back of an expected increase in oil demand, while its grand green plans have been met with sell-offs. We think it will be a tricky few years for the supermajor. Sell at 242p.
