06. 04. 2020

Is COVID-19 the Crisis Both BP and Shell so Badly Need?

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Courtesy of COVID-19, the price of oil today (6th April) is hovering around $30. Prices have fallen by more than half in the last month; production is down by roughly 20%; $130 billion of projected investment has been cancelled; many refineries have been shuttered, as demand has collapsed all around the world. And the COVID-19 crisis has been compounded by a vicious price war between Saudi Arabia and Russia, both of whom have an interest in seeing whether they can kill off US shale oil producers. Even at $35 a barrel, 75% of new projects can’t even cover the original cost of capital.

So the single most pressing question the CEOs of Big Oil companies will be asking themselves is simple: how long before economic activity begins to pick up again, gradually returning the global economy to something resembling pre-COVID-19 rates of economic growth, with demand for oil and gas trending upwards to fuel that ‘return to normality’.

I shall be blogging quite a bit about this over the next few weeks – in what is, by any standards, as devastating an inflection moment for humankind as anything since the onset of the Second World War. And what happens to Big Oil during that crisis is going to be critical.

First, however, a bit of recent history – as in revisiting the last ever, poignantly irrelevant pre-COVID World Economic Forum in Davos in January. Personally, I have very little time for the World Economic Forum, but every now and then somebody says something at Davos that really does jump out at me. And, no, I’m not talking this time about the blistering contribution from Greta Thunberg (along the lines of ‘Act not only as if the world was on fire, because it is, but act as if you love your children as much as you pretend you do’), but about the contribution from Fatih Birol, Executive Director of the International Energy Agency.

In a joint IEA/WEF report warning oil and gas companies that their contribution to global decarbonisation initiatives has been woefully inadequate to date, Fatih Birol spelled out the irreducible reality of where this industry sits today:

‘Average investment by oil and gas companies in non-core areas has so far been limited to around 1% of total capital spending, with the largest outlays going to solar PV and wind … overall, there are few signs of the large-scale change in capital allocation needed to put the world on a more sustainable path.’

That’s right: 1%. That’s for the industry as a whole, including all the national oil and gas companies (rather than the publicly listed companies) that have been under no pressure whatsoever to shift capital allocation to renewables. But even for the big listed oil and gas companies, the figures have been pathetic: between 2010 and 2018, Total’s investment in renewables comes in at 4.3%, BP at 2.3%, Shell at 1.3%, Chevron at 0.23%, and ExxonMobil at 0.22%. For others, it’s too small a figure even to mention in their annual accounts. These companies are literally incorrigible, justifying this hydrocarbons-first strategy on the basis of needing to ensure high dividends for shareholders. But even this strategy is now completely bankrupt: Shell is having to borrow billions of dollars this year in order to maintain that kind of dividend. Madness.

Back in 1991, nearly 30 years ago, I went to a showing of a film produced by Shell, called ‘Climate of Concern’, laid on for some of its external stakeholders. It was a remarkable piece of work, with commendably accurate projections regarding the build-up of greenhouse gases in the atmosphere, average temperature increases, and the likelihood of progressively worsening climate impacts including heatwaves, floods, sea-level rise, famine and growing numbers of climate refugees. It had a big impact on me at the time (it was based on work from a number of leading climate scientists, even in those early days), and it led me to believe that Shell would inevitably start changing its ways.

Nothing could have been further from the truth. From that point on, Shell acted as if its own film had been made by a bunch of flaky activists rather than its own extraordinarily well-informed scientists. Year after year, it continued to spend millions of dollars lobbying against climate action (including, most recently, the European Commission’s efforts to set renewable energy targets), investing billions in Canada’s tar sands – the most carbon-intensive of all new assets – and consistently and dishonestly, year after year, reassuring its shareholders that all was well.

I have to admit my stomach churns every time I hear senior executives in Shell (past or present) setting out to justify their actions during this time. In March, Mark Gainsborough, the outgoing Executive President of New Energies at Shell, gave a sickeningly self-justifying interview to Eco-Business, claiming that ‘most things we did were the right thing at the right time’. I’m sure he’s a decent man (he’s certainly a rich man, retiring from Shell after 39 years), but the depth of his self-deception is staggering. I find myself asking whether or not he too had watched ‘Climate of Concern’? Did he know what the consequences would be of constantly ramping up new hydrocarbon investments around the world? Did he ever feel a single twinge at constantly prioritising, year after year, the short-term interests of shareholders over the future of humankind? Can he sleep at night? And if he can, will he be able to in another ten, twenty years’ time, when the ravages of accelerating climate change make COVID-19 look like a stroll in the park?

Sorry to personalise this. I know that makes a lot of people very uncomfortable. But I only do this because I still feel quite a lot of ‘guilt by association’, at having worked, on and off, with both Shell and BP (for 15 and 20 years respectively), seeking to move them on from their science-denying hypocrisies. The fact that we didn’t give up on this endeavour much earlier than we should have done (in 2012) was largely down to my own naivety in believing that we were still making a difference in terms of the high-level advice we were giving them.

Which brings me to BP – and to John Browne, BP’s CEO between 1995 and 2007. No big oil company has ever gone so far as BP did when it launched Beyond Petroleum in July 2000. Though the cynics had a field day at the time (‘This sets a new benchmark for premium, gold-star greenwashing’), there was much more to it than that, including significant commitments to start shifting more and more capex into renewable energy. What’s more, BP sort-of delivered on those commitments, despite massive opposition from the hugely powerful ‘oil barons’ inside BP who John Browne (often dubbed the Sun King!) never managed to get under control. Then came the Deepwater Horizon blowout in the Gulf of Mexico in 2000, and it was game over for BP’s ambitions ever to be anything other than a conventional oil and gas company.

Twenty years on, John Browne was in the audience on 12th February when BP’s brand new CEO, Bernard Looney, did his own Beyond Petroleum re-tread in announcing BP’s big new ambition to become a ‘net zero company by 2050’. That certainly made me sit up – and get stuck into some fairly detailed analysis of exactly what he was and wasn’t promising.

So should we be cutting Mr Looney some slack? We absolutely should not. I say that not just because I am indeed ‘once bitten and now very shy’, but because pretty much everything in his speech was either incredibly vague (committing to a 50% reduction in methane emissions, but no date provided as to when this would be delivered), incredibly far out in the future (almost everything is about 2050, which is literally entirely irrelevant, given the speed with which climate impacts are now multiplying), or incredibly opaque. On the single most important indicator of all (the percentage of annual capex which BP will allocate to renewable and non-hydrocarbon investments), we were told we will have to wait until September to hear what he has in mind.

So here’s my first bit of free advice for Mr Looney: Anything less than a 15% allocation by 2025, and 30% by 2030 (through direct investment, joint ventures or acquisitions), will simply confirm BP’s continuing duplicity – as in short-term shareholder priorities still taking precedence over the future of life on Earth.

All the rest of his speech (focused on BP’s apparent new-found enthusiasm for supporting moves towards a net zero world by 2050) was so much mind-bogglingly mazy moonshine! Transparency, pro-Net Zero advocacy, collaboration with others, sorting out retrogressive trade associations – forget it. We’re in a full-on Climate Emergency now, not an extended PR blitz, and that’s partly because of the reprehensible behaviour of companies like BP over the last three decades.

Here’s my second bit of free advice for Mr Looney: deliver a high-level speech between now and the end of the year transparently acknowledging the astonishing amount of public funding still going into the fossil fuel industries today, unequivocally advocating for the phasing out of those subsidies by 2025. If you can do that, people might have some reason to start listening to the rest of your advocacy.

And here’s my final bit of advice for Mr Looney and his Chairman: at your AGM on 21st May, announce a radically different remuneration policy for BP. In its most recent report, Carbon Tracker revealed that the remuneration policies of 26 of the 30 largest listed oil and gas companies (including Shell and BP) are still based exclusively on growth in hydrocarbon production or reserves replacement. Whatever target Mr Looney may come up with in September for capital reallocation, we will know it’s just more PR bullshit unless he fundamentally transforms remuneration policy.

The tragedy is that both BP and Shell had a chance, with all the incontrovertible science they had at their disposal, to make it a little easier for humankind to transition to the kind of Net Zero world we now so urgently need. Instead, they did literally everything in their power to make it a lot harder. If either company wants to correct its cumulative malfeasance over the last 30 years, they’re going to have to do a great deal more than is currently on the cards.

Instead of mobilising all its intellectual firepower into working out how to get back to pre-COVID-19 production levels, just as fast as possible, why wouldn’t a ‘new’ BP deploy that resource to work out how best to contribute to the kind of radical decarbonisation all experts tell us we now need? Never waste a good crisis, Mr Looney.

(If anyone would like a more dispassionate and forensic analysis of Bernard Looney’s speech, then you might want to check out Margriet Kuijper’s excellent blog. As an ex-Shell insider, she knows a lot more about these things than I will ever do.)
 

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