Oil giant BP promises a “fundamental reset.” What will that look like?
Oil giant BP promises a “fundamental reset.” What will that look like?
Oil company BP said it’s planning to announce a “fundamental reset” of its business strategy later this month. The company had a rough 2024 — its profits dropped by more than a third.
So what’s that “reset” likely to look like?
If recent moves — and analyst intel — are any indication, the company will be moving away from renewables and doubling down on oil and gas.
It’s not just BP. Other oil companies, including Shell and the Norwegian company Equinor, are doing the same.
Just five years ago, oil companies were announcing big investments in renewable energy projects and setting climate goals.
“Oil and gas companies are trying to make money, and they have been following the political wind,” said Severin Borenstein at the University of California, Berkeley’s Haas School of Business.
He said a few years ago those political winds “were pretty clearly blowing towards having more emphasis on renewables, and potentially restrictions on oil drilling. That’s changed.”
In Washington, the Trump administration is now encouraging more oil and gas drilling and rolling back clean energy incentives. Christopher Knittel at the Massachusetts Institute of Technology said that’s changed the calculus.
“These companies are publicly traded companies that have a fiduciary responsibility to maximize shareholder wealth, and the profitability of oil and natural gas is increasing,” said Knittel.
And not just because of shifting political winds.
“Natural gas prices in Europe are still high since the Russia invasion of Ukraine,” said Knittel.
Oil prices have stayed pretty high, too, he said. So these companies can make good money doing what they’re good at.
“Getting oil and natural gas out of the ground. That’s what they’ve done for the last century. Whenever you pivot to an alternative product, there’s a learning curve. You may lose some of your comparative advantage that you enjoyed with the old product,” said Knittel.
That’s why Hugh Daigle at the University of Texas at Austin said policy and public investment matter.
“When you look at the history of any kind of emerging technology that has gotten a lot of initial government support early on, it takes a long time for it eventually to become profitable,” said Daigle.
And until it does, for-profit companies don’t have much incentive to invest on their own.
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