Two decades ago, BP set out to transcend oil, adopting a sunburst logo to convey its plans to pour $US8 billion over a decade into renewable technologies, even promising to power its gas stations with the sun.
That transformation – marketed as “Beyond Petroleum” – led to manufacturing solar panels in Australia, Spain and the United States and erecting wind farms in the United States and the Netherlands.
Today, BP might be more aptly branded “Back to Petroleum” after exiting or scaling back its renewable energy investments.
Lower-cost Chinese components upended its solar panel business, which the firm shed in 2011. A year later, BP tried to sell its US wind power business but couldn’t get a buyer.
“We made very big bets in the past,” BP Chief Executive Bob Dudley told Reuters in an interview.
“A lot of those didn’t work. We’re not sure yet what will be commercially acceptable.”
The costly lesson of the biggest foray yet by an oil major into renewable energy was not lost on rival firms.
Even as governments and environmentalists forecast a peak in oil demand within a generation – and China and India say they may eventually ban gasoline and diesel vehicles – leaders of the world’s biggest oil firms are not buying the argument that their traditional business faces any imminent threat.
A Reuters analysis of clean energy investments and forecasts by oil majors, along with exclusive interviews with top oil executives, reveal mostly token investments in alternative energy.
Today, renewable power projects get about three per cent of $US100 billion in combined annual spending by the five biggest oil firms, according to energy consultancy Wood Mackenzie.
BP, Chevron, Exxon Mobil, Royal Dutch Shell and Total are instead milking their drilling and processing assets to finance investor payouts now and bolster balance sheets for the future.
They believe they can enter new energy sectors later by acquiring companies or technologies if and when others prove them profitable.
“There is no sign of peak demand right now,” said Chevron CEO John Watson, an economist by training, who is retiring in early 2018.
“For the next 10 or 20 years, we expect to see oil demand growth.”
The International Energy Agency forecasts a 10 per cent rise in oil demand through 2040, reflecting the consensus among oil firms.
The earliest estimate for peak oil demand from any oil company is late next decade, by Shell CEO Ben van Beurden.
Profit, if any, from the majors’ decades-long interest in renewable energy ventures is unclear. None of the largest oil companies disclose earnings from their solar, wind or biofuels ventures.
Investors such as Alasdair McKinnon, portfolio manager at Scottish Investment Trust, believe oil will sustain shareholders far into the future.
“There isn’t a viable alternative to fossil fuels on the horizon,” he said.
“We’re not buying into the long-term demand destruction for oil.”
The confidence in oil’s future relies largely on rising consumption from emerging economies.
Exxon forecasts that transportation will require 25 per cent more fuel by 2040, propelled by growth in Asia.
Chevron’s analysis of the India and Nigeria markets, meanwhile, concludes that infrastructure needed for electric cars is unlikely to be built.
Cars account for about a fifth of oil consumption, BP estimates.
So if electric vehicles do eventually capture mass markets, oil firms would still expect growing demand from the air, rail and trucking industries.
Natural gas – now a smaller business than oil for most majors – can grow to nearly a quarter of all energy used by displacing coal in power generation and through expanded uses in chemicals, these companies forecast. Natural gas can also fuel the power needed for electric cars.
Although Shell forecasts peak oil demand coming earlier than its rivals, it is preparing for that prospect mostly with massive natural gas investments.
The firm last year spent $US54 billion acquiring BG Group, which derives half its production from gas.
Chevron, Exxon and Shell recently have spent billions of dollars on new liquefied natural gas projects across the globe.
Critics of oil majors’ cautious renewable strategy – including some big investors – say the firms are being short-sighted in their trust that change will come slow, or that one fossil fuel will gradually replace another.
Just as cheap natural gas is supplanting coal, even cheaper wind or solar eventually will displace gas, they argue.
South Australia is soon to become a proving ground for a project that could pave the way for renewable power to supplant fossil fuels for peak electricity – a combined wind farm and grid-scale battery storage facility, by electric-car maker Tesla and operator Windlab.