BP Resets To Oil, Backslides On Renewables: What Can We Learn Here

Originally published on Forbes.com on March 11, 2025

Short-term profits versus long-term climate risk: the competition becomes more intense for BP and other oil and gas companies.

BP has been a leader in the energy transition since 2020, when its goal was 40% renewables by 2030. This was reduced in 2023 to 25% renewables by 2030. The new Annual Report, based on 2024 results, has again lowered its commitment to renewables, and by a substantial amount. “We plan to grow the upstream, focus the downstream and invest with discipline in transition.”

The overt reason is that BP’s stock has risen less than other oil majors during 2024. BP shares fell almost 16% last year compared with its Big Oil rivals. The issue here is profit margins and stock levels have a short-term basis, emphasized by quarterly earnings and annual reports. In contrast, the energy transition has a long-term basis, with 2050 as the magic date of the Paris agreement to keep global temperature rise below 2 C degrees above pre-industrial times.

The Paris purpose was to avoid the consequences of global warming. Let’s take a look at new data on global warming emissions to identify long-term trends in fossil energy. Remember, the oil and gas industry contributes about 50% of greenhouse gases, CO2 and methane, that cause global warming. Why is this important? Simply put, demand for crude oil will peak around 2030, which puts at risk business-as-usual for oil and gas companies beyond 2030. But first, lets look at BP’s reset to oil.

BP’s Strategy Reset To Oil   

In a surprising re-evaluation, BP has thrown out its previous aim to cut oil and gas production by 2030. BP’s earnings and stock price have performed below those of its rivals in recent years. Another factor is the ascent of President Trump with his denial of climate change and renewed emphasis on drill baby drill.

But there has also been a significant influence by a group of activist BP investors that go by the name of Elliott Investment Management, who have built up a nearly 5% stake in BP. Elliott has demanded tighter cost discipline and a pullback by the company in green energy. This is reminiscent of Chris James and his investment company, Engine No. 1, who did the opposite number on ExxonMobil in 2021. They forced an additional four members to the company’s board, members who had expertise in environmental issues, so that ExxonMobil would be more responsive to the risks of climate change. This seemed to be a factor in ExxonMobil making a U-turn in their attitude toward climate change.

The following amplifies BP’s strategy reset to oil and is taken directly from BP’s Annual Report:

• Growing the upstream: our oil and gas business. We plan to increase investment to grow production while also growing cash flow, in addition to disciplined expansion of biogas.
• Focusing the downstream: our customers and products business. We are reshaping the portfolio to focus on markets and businesses where we have advantaged and integrated positions…
• Investing with discipline in transition. With selective investment in biogas, biofuels, and EV charging, where we see strong demand growth; adopting innovative capital-light partnerships in renewables; focusing investment on hydrogen and carbon capture projects to support us in decarbonizing our operations, and position us for growth through the next decade. We now expect capital investment into transition businesses to be between $1.5-2.0 billion per year through 2027 – more than $5 billion lower per year than our previous guidance.

The last point is a shocker for a company that has led the energy transition in so many ways. Capital expenses in the energy transition will be massively cut from $6.5-7.0 billion per year down to $1.5-2.0 billion per year—a cut of roughly 70%.

Oil Declines After Peak Oil In 2030

So, how concerned do we need to be about long-term oil and gas production? A recent press release by Wood Mackenzie, dated March 3, 2025, addresses this: “North American net energy-related emissions to fall 20% by 2030.” This data, and other data, consolidate around 2030 as the date for peak oil demand.  After this, oil production will fall, albeit slowly toward 2050, as decarbonization proceeds and more electric vehicles take to the roads.

Figure 1 shows CO2 emissions from different energy sources, and these are a proxy for energy demands for these sources. For example, electrical power sources have decreased by about 60% between 2010 and 2030. This can be attributed to coal-fired and gas-fired power plants being shut down in favor of wind and solar renewables. By 2050, the decrease will be about 75% for the base case.

For oil, primarily used in transport, Figure 1 shows little change through 2030, a 20% drop by 2040, and a 45% drop by 2050, which are all attributed to conversions from gasoline and diesel to electric vehicles (EVs). For oil and gas operators, the short-term looks safe but the ensuing decades look precarious. For BP, their new shift back to fossil fuels may seem a short-sighted bet when the clock turns to 2030 in five years.

Where does this leave BP, and other oil majors, and thousands of smaller oil companies around the world? If they continue churning away at pumping crude oil, they should be on firm ground until 2030. But what follows may be a period of retrenchment: reduced profits, layoffs, and asset sales. Finally, the problem of stranded assets may raise its head.

What About The Risks Of Ignoring Climate Change

If the oil and gas industry blasts ahead until 2030, their contribution to carbon emissions won’t change much, as retrenchment of coal-fired power plants in North America is the primary reason for carbon emissions going down in Figure 1.

But meanwhile, global warming will assuredly increase, and so will parts of climate change. Climate change has been separated into two categories: direct changes and indirect changes. Direct changes include polar ice melting, glaciers retreating, coral reefs bleaching, and sea level rising.

But the dire effects are the indirect changes: droughts, wildfires, flooding, and hurricanes. These can cause massive humanitarian effects such as loss of property, loss of life, protests, riots, population migration, and even government collapse. Prime examples of these effects are extreme weather events, which are often blamed on global warming. But no, it’s not true. Data from these four killer weather extremes show they are not worsening, and reveal less urgency about temperatures rising another 0.3°C. The data also imply less blame should be funneled on the oil and gas industry even though it produces 50% of carbon emissions.

The above analysis lets oil and gas companies off the hook, at least partially. But not completely, since they are still mostly responsible for the direct effects of climate change. The result is that big oil can defend itself, at least partially, for business-as-usual over the next five years—but not for the next 25 years.   

Takeaways 

Crude oil demand peaking near 2030 is controversial. Proponents include, not just BP, but also Rystad Energy, and IEA (International Energy Agency). The latter, an independent agency, have been accused of being too liberal in their prediction.

The U.S. senate, led by John Barrasso, is proposing that IEA alter or remove their prediction of peak oil in 2030 because it is focused on an energy transition that is unachievable. And this is detrimental to the drill baby drill strategy of the Trump administration. A quarter of IEA’s funding comes from the U.S., and this adds to the controversy.

President Trump has denied climate change. If he removes the tax credits approved by the Infrastructure and Inflation Reduction laws of U.S. congress, this would remove billions of dollars from the U.S. economy, and deflate he incentive for private industry to jump in and invest in the transition.

Drill baby drill may lower gasoline prices, as Trump promised, but may also undercut the price of oil so much that small operators in the U.S. may throw in the towel.

BP is forging ahead in oil and gas production. The latest is an agreement with Iraq to rehabilitate the Kirkuk oilfield. CEO Murray Auchincloss said the deal was “one of the most important transactions BP has done in 20 years.”  The agreement aims at boosting oil and gas by 3 billion barrels of oil-equivalent (boe) in the Kirkuk oil field and three adjacent fields. It also opens potential investments by BP in exploration of other prospects in surrounding areas that include up to 20 billion boe.