Global oil company bp will ramp up its spending on low-carbon energy resources to about $5 billion annually by 2030, it announced Tuesday as part of its long-term strategy to pivot away from fossil fuels and toward renewable energy.
Currently, the company spends around $500 million annually on low carbon energy, and it plans to up its spending to $3-4 billion per year by 2025 while reducing oil production 40% in the next 10 years. "Within the next decade, bp intends to be a very different kind of energy company," CEO Bernard Looney said during the company's second quarter earnings call.
Following the appointment of Looney as the company's CEO in February, bp announced it would reach net-zero emissions by mid-century. Analysts said Tuesday's announcement gives stakeholders more clarity on the oil giant's path toward that goal.
Fossil fuel companies are increasingly diversifying their investments as pressure mounts for companies to mitigate their carbon footprint. The "stark truth" is that companies need to become more sustainable, or risk being left behind, bp chairman Helge Lund said during the company's Q2 earnings call.
"Energy markets have begun the process of fundamental, lasting change, shifting increasingly towards low carbon and renewables," he said. But although the company says it will pivot from an international oil company to an "integrated energy company" in the next decade, its oil investments will not weaken completely, he said.
"Oil and gas, produced safely and efficiently will, we continue to believe, perform a wide role for the world and in our business, but … over the long term the demand for oil and gas will be increasingly challenged," he said.
The company took a $16.8 billion loss in the second quarter of 2020, prompted largely by a "a volatile and challenging trading environment" caused by the COVID-19 pandemic, Murray Auchincloss, chief financial officer of bp said during Tuesday's call. Gas prices hit their lowest levels in 25 years and Brent crude prices fell by over one-third in the second quarter. But the company's stock ticked up almost 8% Tuesday following the clean energy announcement.
"Today's strategy update marked a big step forward, filling in many of the blanks, including detailed guidance to 2030," Luke Parker, Wood Mackenzie vice president of corporate analysis said following the Q2 call. "It leaves stakeholders with a much clearer ... idea of where BP is headed over the next decade, how it will ... get there and what that means for the value proposition."
The company's planned investments include renewable energy, biofuels, hydrogen and carbon capture, utilization and sequestration, totaling 50 GW in renewables in particular by 2030. As of 2019, bp had developed 2.5 GW of renewable energy. It also plans to bring its share of electric vehicle charging stations from 7,500 to over 70,000 by 2030.
In 2001, bp became the first oil company to commit "significant capital" toward renewable energy, according to power media company NS Energy. Royal Dutch Shell set an investment target of $4-6 billion in clean energy between 2016 and 2020, but as of January was reportedly behind on those targets. French-based oil company Total S.A. has plans to reach 5 GW of renewable energy capacity in the next five years, but Parker said bp's goals go far beyond the commitments of other oil companies.
"We said back in February that no company of bp's stature had gone as far, or committed so unequivocally, to transforming itself in the face of the energy transition. The guidance that bp laid out today brings that transformation to life – makes it real. It constitutes the clearest and most detailed roadmap to Big Energy that any of the Majors have provided to this point," he said.