In February 2021 Graham Knight, Head of Global Natural Resources at Willis Towers Watson (GK), was pleased to interview Dominic Emery, Chief of Staff at bp plc (DE). In this interview, Dominic talks about the global energy transition, bp’s current and future thinking and how his company is addressing the strategic risks posed by climate change.
GK Dominic, many thanks for speaking to us today. I’d like to start off by asking how you think the global energy transition has accelerated over the last three years?
DE My pleasure Graham. Well, it certainly has accelerated, both from a national and a private sector perspective. From a national perspective, last year we saw China commit to net-zero by 2060 - a very big deal indeed. We have also seen the US re-committing to the Paris Agreement, following the recent change in administration. And by the time we get to COP 26 in November this year, we would expect many other countries to follow suit and commit to net-zero by the middle of the century. If successful, this would correspond to an average temperature increase of 1.5 degrees Celsius rather than 2 degrees. From a private sector perspective, we are now seeing hundreds of companies committing to net-zero through various different approaches. These include business sectors where commitment to net-zero is relatively straightforward, such as large companies buying sizeable renewable energy PPAs, and those businesses where the commitment is much more challenging, for example shipping, aviation and hard-to-abate sectors. Nevertheless, these industries are also starting to make net-zero commitments – Maersk Shipping is a good example. And now we are seeing an increasing number of oil & gas companies doing the same thing, making their own net-zero commitments.
GK Do you think there are now enough investments being made around the world to meet the Paris Agreement goals?
DE Investments must still increase significantly – the IEA came out some weeks ago with a report which determined that roughly $100 trillion needs to be invested over the next 30 years for global temperatures not to exceed 1.5 degrees by 20501. That’s a huge investment commitment, and investment levels aren’t nearly at $3 trillion a year yet – right now we are talking about only hundreds of billions of dollars per annum. The energy transition will is there, both at national and private sector level, but investment levels now need to step up exponentially.
GK Is there any future for oil and gas companies who continue to adopt a “business as usual” approach to the transition?
DE Yes, but the world’s carbon budget is finite and running out. Any kind of realistic proposition around net-zero and the Paris goals does require fossil fuel usage to decline over the coming decades, and bp are aiming to reduce our own oil and gas production by 40% by 2030. There will of course be a need for oil and gas in the coming decades, but it will have to taper down over time. We expect those who can produce oil and gas to the best possible quality to be the winners as the industry declines over the coming decades.
GK Do you think that oil and gas companies who continue to adopt a business as usual approach will still to be supported by stakeholders such as investors, insurers and lenders?
DE It rather depends on the nature of the investors and financiers. What we are seeing in some jurisdictions are banks that are no longer wishing to lend to oil and gas; that’s happening with the North Sea for example, where there are now only a handful of banks who will lend to some players, so in some jurisdictions that’s going to be really challenging. In other parts of the world there is still strong investor support for a more business as usual approach, but the extent to which that is going to continue for the longer term is less certain. GK How has COVID-19 affected the industry in general terms?
DE What we have seen over the last year is a precipitous fall in oil & gas share prices; in part, the COVID-19 tragedy has impacted that, particularly in terms of demand destruction. We also saw a dramatic fall in oil prices earlier last year when OPEC+ started to raise production during the start of the pandemic; you may recall the WTI oil price actually going into negative territory at one point last year. Share prices have become depressed, a number of investors are no longer assigning terminal values to oil and gas companies and current oil and gas valuations are now much diminished compared to what they were historically. And while we have seen oil prices return to where they were 12 months ago, we certainly haven’t seen a similar effect with share prices. In the past, there was a broad linkage between an oil company share price and the oil price; however, that linkage has been broken over the last 12 months. So it will be very challenging.
GK How do you feel that the different business environments around the world - the West, Russia, China, the Middle East and Latin America – will respond to the energy transition challenge? What differences, if any, would you think will emerge during the next few years?
DE Most countries have signed up to the Paris Agreement; that requires them to commit to a global temperature increase of well below 2 degrees and make efforts towards 1.5 degrees. But energy environments around the world are dramatically different – if you are a resource-rich country where it is relatively cheap to produce oil & gas, then you will seek to continue to produce it over time. Fundamentally, countries will respond to the transition according to their endowment of energy resources. Those could be fossil fuels, but they could be biomass such as in Brazil, or they could be wind or solar. Or their approach could come down to their ability to deploy Carbon Capture and Storage (CCS) and thereby successfully reinject CO2.
I would also mention the importance of the diversification of economies; if you are very fossil fuel dependent, then the energy transition will entail a diversification programme, as we are seeing in some countries in the Middle East.
GK Let’s turn now to bp’s own response to the energy transition. Several years ago you exited CCS as part of the Beyond Petroleum initiative, citing lower than expected carbon prices. Now that carbon prices have increased, what is bp’s current approach to CCS? Do other oil and gas companies have the scale to adopt a similar approach?
DE I don’t think CCS has quite had the dramatic effect around the world that we might have hoped for a few years ago. It depends on whose numbers you use, but in very broad terms something like 5 gigatons of CO2 will need to be captured by CCS to enable us to get to net-zero by mid-century. That’s very significant; right now it’s only in the order of a few tens of millions of tonnes, so we are orders of magnitude away from what needs to happen at a global level. bp did develop a CCS project; we learnt a lot from it and we also tried a couple of others in various parts of the world. However, they didn’t materialise for two primary reasons – no supportive carbon pricing regime, and for the power projects with CCS, the electricity was just too expensive.
However, having CCS capability is very firmly in the oil and gas company skill set and the industry does have the scale to take on a more ambitious approach. We have just seen ExxonMobil announce the formation of their CCS unit and other companies are doing much the same thing, whilst also collaborating on CCS through the Oil and Gas Climate Initiative. We believe that CCS deployment needs to be significantly ramped up – right now, it is insufficiently scaled to contribute to meeting the net-zero target. As for carbon prices, we are seeing them start to rise, but to enable CCS to scale to where it needs to be, carbon pricing really needs to be in three figures.
GK So what is the role of governments in encouraging companies to scale up their CCS efforts?
DE Governments can help enable the transition using several different tools – here are three examples. One is putting in a tax incentive, as is happening in the US, through 45Q, that enables benefits for CO2 enhanced oil recovery of $35 per ton and for CCS of $50 per ton, which is helping to stimulate CCS in the US. Then there’s a second enabler - deploying CCS infrastructure on a rate-based approach with a regulated return for the national good. Thirdly, there’s the issue of the long-term liability for CO2 storage - when does it transfer from being a private liability to a public liability? These are the sort of important conversations and regulatory points that need to be concluded over the coming years.
So governments have an important role to play, but it’s not about throwing money at it - it’s about creating the policy and regulatory environment for CCS to develop. In the UK, the government has been quite generous in supporting the CCS clusters developed to date, while the US has chosen to use tax incentives to stimulate CCS. There are a number of different enablers out there, but they all have their role to play in getting CCS to scale-up.
GK In 2018 you said that bp would take a broad-based approach to investing in renewable technologies. Are you any closer to identifying any winning technologies?
DE We had a number of different areas that we were investing in three years ago, including electrification, CCS, carbon offsetting and biomass to products. We were also in the process of creating an advanced mobility unit, which was primarily focused on battery storage and vehicle electrification. As a result of that work, and by investing in several different products and technologies through our venturing unit, we took a strategic approach and have started to invest at scale.
The best example of these is offshore wind through our recent investments with Equinor in offshore USA, as well as in the most recent offshore licencing round in the UK with ENBW. The technology is proven, despite the exponentially increasing turbine sizes, incentive models are generally clear, and project development and management capability is part of our – and our partners’ - skill-sets. Similarly with solar - we have been in solar for a long time now, initially as a manufacturer, but most recently as a project developer through our Lightsource bp partnership. We have seen the cost curves for solar come down by an order of magnitude in the last decade or so. This is less a result of technology improvements (although there are some interesting new technologies such as perovskite solar which could prove to be very promising) but because of mass-production of solar panels. It’s a similar story for vehicle electrification and battery costs – here again we are starting to see another technology where manufacturing is scaling, costs are reducing dramatically, and quality is improving.
So these technologies are just getting better and better and lower and lower cost. In terms of the future, I also think there continues to be interesting developments in CCS technologies, several of which we have invested in, which will enable CCS to scale at lower cost.
For the future there are some interesting technologies around waste and biomass conversion to fuels; for example, we are investing in a company called Fulcrum Bioenergy that takes municipal solid waste and turns it into biojet. This helps solve two problems, that of waste management and reducing the carbon emissions of jet fuel.
GK Is bp still on track to achieve zero-net growth in operational emissions by 2025? How much of your movement towards this target is been augmented by carbon-based offsets?
DE The former target of zero net growth has effectively been retired and replaced by a new aim which we set at the beginning of last year, in which we are targeting an actual reduction in our operational emissions of around 20% by 2025.
GK What is bp doing to reduce your methane emissions? Do you have a separate target to “net-zero” these emissions?
DE Yes, we do, as part of the overall target structure. Our overall operations emissions reduction aim for 2025 is 20%, for 2030 it’s 30-35% and for 2050 (or sooner) it’s 100%, i.e. net-zero. Within that overall structure, methane is included on a CO2 equivalent basis. But we also have a separate methane emissions intensity target of 0.2% that we laid out a couple of years ago and continue to make progress against.
However, the interesting thing about that particular target is that methane measurement is still primarily through engineering calculations and standards; we now want to measure methane directly. By 2023, our new aim is to have direct methane measurement equipment for all our major upstream facilities, so that we really do know what we are measuring.
GK Dominic, let’s turn now to the issue of risk management. What are the key strategic risks that bp faces as a result of the energy transition?
DE There are broadly two buckets of risks that we face - there are the strategic transition risks and then there are the practical, operational and resilience risks from extreme weather events. I’ll focus on the first bucket, on strategic transition risks and how that is playing out with shareholders. Most of our investors like our broad direction of travel in terms of the strategy that we’ve laid out, but one of the key risks for us is our ability to execute on our plans, particularly in new businesses and new business models. Execution and performance are going to be mission critical for us over the coming years - we have to demonstrate to our stakeholders that we can be highly successful in the energy transition.
Then we must also bear in mind the views of civil society as a whole - which wants and needs us to change. Are we meeting the aims and objectives that we have committed to in terms of our sustainability framework? Are we doing it in the right way?
And finally, we have to support our colleagues and teams as we go through the transition. We have just undergone a programme of major changes to the organisation resulting in 10,000 people leaving the company, with most already having done so. That has been deeply unsettling. So we are very focused on communicating with the team, making sure people understand and have confidence in our strategy as we lean into the energy transition.
GK Building on that confidence and conviction, how is bp moving to quantify/manage these risks and thereby strengthen its ESG credentials?
DE ESG is an increasingly important element of investors’ portfolios. Back in August last year, we laid out our strategy and our investor proposition to appeal not only to investors who want dividend and growth, but to those who also want growth in the new forms of energy.
As I mentioned earlier, $3 trillion a year is going to be required to re-wire and re-plumb for a net-zero world by mid-century, and this represents a fantastic opportunity for bp to participate. At the same time, we also want investors to support us from an ESG perspective, so we’ve laid out different carbon targets and aims as part of our ESG plans. As well as getting to net-zero, there are two other important components of our sustainability approach; one is to improve people’s lives and the other is to care for our planet. Sitting beneath these sustainability focus areas are the ESG credentials that we are starting to lay out, including commitments to issues such as biodiversity and human rights. From a pragmatic perspective, it’s important to achieve a good ESG score, but it is more important to do the right thing. We’ve carried out a comprehensive inventory of our ESG credentials; it’s complex, because there are many different frameworks and metrics. We’ve now got a very senior team focusing especially on these ESG metrics and on investors’ perception of them; we now need to see how we can simplify them and focus on some key measures.
GK In general terms, does bp see the energy transition as more of an opportunity than a challenge?
DE At the highest level, if the world is having to invest $3 trillion a year to meet net-zero, then naturally it represents a great opportunity. One of the very earliest things that our CEO, Bernard Looney, said back in February 2020 was that seeing this change as an opportunity rather than a threat is key – and with sufficient conviction, you can start to lean into the energy transition.
I think it’s the same with ESG credentials; they do give us the opportunity to think more deeply about how we practically implement our policies - for the planet, for human rights and how to improve people’s lives. This all feeds into our overall company purpose; it’s an opportunity to galvanise ourselves internally, but it’s also an opportunity to meet societal challenges and support the world to get to net-zero.
GK Do you see bp as having a role in offering the benefits of its expertise in climate issues to companies from other parts of the world with less experience of these issues?
DE Yes, we hope we can share our expertise, but we are also here to learn as well. In all humility, there are companies with huge amounts of experience in these areas that we can learn from. For example, take some of the work that we are doing with biofuels in Brazil with Bunge and their decades of experience. Another example is our partnership with Equinor in US offshore wind. In other parts of the world, we can bring our expertise to either partner with companies or countries, and we would be delighted to do that. I think there will be a learning experience both ways and a sharing of some of the benefits of what we have learned with others and vice-versa.
Several years ago, with partners that include several national oil companies, we created The Oil & Gas Climate Initiative. That’s been a great way to learn from each other, particularly in terms of the pre-competitive opportunities around methane management and CCS.
GK Turning to the future, let me ask you to reach for your crystal ball - where do you expect the oil and gas industry to be by the end of the decade? Are current fossil fuel projections of their future share of the energy mix somewhat optimistic?
DE I would defer to my esteemed colleague Spencer Dale, our Chief Economist, and our Energy Outlook that we issued back in September 20202. I think what is highly likely is that the share of oil & gas as part of primary energy will decline under any scenario; what’s in question is the pace of that decline by the end of the decade.
What we do see going forward is a much more even share of the energy mix, not only in the next decade but also increasingly over further decades, with much more competition between the various fuel types. If you look back in history, there tends to be a domination of the market by a particular fuel type - coal back in the early part of the twentieth century, then oil coming to the fore in the 60s and 70s and subsequently we have seen growth in gas. But I think what we will see is a much more even share in the future and therefore more competition between different energy types.
However, if we use a trajectory that is more directed towards country Nationally Determined Contributions (NDCs) - or policies that have already been proposed by countries - the rate of change in the energy mix simply won’t be fast enough to get the world to net-zero by the middle of the century. That’s supported by some of the new net-zero projections provided by the IEA, as well as Shell’s recent scenario work, which also gives grounds for the view that we need a more rapid transition. Because if we don’t, and delay change for too long, we could end up in the middle of the century with a much more chaotic and disorderly transition.
GK Would you say that in ten years’ time hydrogen will have a significant piece of the global energy mix?
DE I think hydrogen will indeed have a part to play - it may be modest over the next several years, but a number of different commentators, including the Energy Transition Commission and the Hydrogen Council, are forecasting there will be significant hydrogen use by the middle of the century. It will likely have a role in de-carbonising heat and industrial sectors and potentially the heavy transport sectors – on road and marine - as well. We are excited about it - we’ve said we want to be a major player in hydrogen and gain a 10% share in core markets for by 2030. Whether green or blue, we believe there will be significant opportunities for both in the decades to come.
GK Can the renewable energy industry defend itself successfully from allegations that the extraction of the raw materials needed for wind, solar and battery infrastructure actually involve an increase in overall carbon emissions?
DE It can defend itself more easily than might be imagined - the actual emissions that are involved in the extraction of those raw materials are minimal compared to the emissions generated by the combustion of fossil fuels. In due course there will also be solar manufacturing facilities that will be powered by solar, wind or some other form of renewable energy. As the energy mix becomes increasingly renewable, so will the manufacturing base, so the problem will diminish over time quite significantly.
GK Is a completely decarbonised oil industry possible in the future? If so how?
DE One of the most interesting developments recently around this issue was something that Occidental did some months back – they sold a cargo of carbon-neutral crude, with the emissions from both the extraction and combustion of that crude neutralised by subsurface CO2 injection. I think that’s an interesting proposition, but the challenge will be doing that at scale to achieve complete decarbonisation. It simply cannot be done for global production of ninety to one hundred million barrels a day. Offsetting of emissions through natural climate solutions may provide perhaps 10 gigatonnes – or 20-30% - of the answer, but the solution is not for land carbon to act as a sink for continued fossil fuel use on the scale of today. That’s neither the right thing to do or indeed physically possible.
GK So finally Dominic, to what extent is resolving the climate crisis the oil industry’s responsibility and burden, compared say to government action or even individual choices?
DE It is down to us all – and this goes back to a speech that Mark Carney gave a few years ago called Breaking the Tragedy of the Horizon3, and is also a tragedy which appears long dated to many – unlike the immediacy of the pandemic.
Having said that, I do think that we in the industry can learn a lesson from the level of emissions reductions seen during the pandemic. We’ve seen global CO2 emissions fall by around 7% in the last year, primarily as a result of dramatically reduced travel, and, to a lesser extent, lower power production. But that’s only a 7% reduction at a time of tragedy, deep disruption to people’s lives and trillions of dollars wiped off global GDP. The demand side, from energy customers, can only take us so far, and it behoves us on the supply side to decarbonise the products that we take to market. So, although we all have a role to play, we do have a particular mission to deliver low carbon energy over the coming decades to millions of customers.
GK Dominic, thank you so much for your time.
Dr Dominic Emery is chief of staff to the chief executive officer for bp.
Dominic is a geology graduate and has worked for bp since 1986. He has held positions in bp’s Exploration and Production Division, in Asia and the Middle East, and also in the UK North Sea. Dominic has led Gas and Power business development in Europe, as well as running power and utility assets at bp industrial sites. He joined bp Alternative Energy in 2007, ran Emerging Business & Corporate Ventures in 2012. In 2013 he moved to the role of VP, Group Strategic Planning, responsible for strategy development, long-term planning and policy. He was appointed to his current role in February 2020.
In addition to his bp role, Dominic was the founding CEO of OGCI Climate Investments, a $1bn fund set up by oil and gas companies to invest in technologies and projects to reduce carbon emissions. He is also on the Board of the EITI (Extractive Industries Transparency Initiative).
Graham Knight is Head of Global Natural Resources, Willis Towers Watson. graham.knight@willistowerswatson.com
1 https://www.iea.org/reports/world-energy-outlook-2020/achieving-net-zero-emissions-by-2050 2 https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/energy-outlook/bp-energy-outlook-2020.pdf 3 https://www.bankofengland.co.uk/speech/2015/breaking-the-tragedy-of-the-horizon-climate-change-and-financial-stability
All photographs within this article are reproduced by kind permission of bp plc
