BP mulls £18 billion spend on oil, net-zero for UK energy security push

BP said it could invest £18 billion ($22 billion) in the UK by 2031 following the prime minister's call to increase domestic low-carbon energy supplies and slash imports of Russian natural gas.

While the company did not guarantee the funding, it noted the potential for investing it in fossil fuel production to help meet UK goals outlined in the Energy Security Strategy published on 7 April.

From the same pot of funding, BP wants to invest in hydrogen, electric vehicle (EV) charging, and offshore wind to help the UK meet its 2050 net-zero emissions aims, it said in the 3 May statement.

BP CEO Bernard Looney said: "We're backing Britain. It's been our home for over 110 years, and we've been investing in North Sea oil and gas for more than 50 years. We're fully committed to the UK's energy transition — providing reliable home-grown energy and, at the same time, focusing on the drive to net zero."

Potential investment is foreseen in BP fields in the North Sea and West of Shetland alongside its existing hydrogen pilots.

Certain projects are dependent on obtaining the necessary government support and regulatory approvals, the company said.

The move follows a similar statement in March by Shell pledging investment of "up to" £25 billion ($33 billion) over 10 years in the UK's energy sector, of which about £19 billion ($26 billion) would go towards low-carbon projects. Shell produces about 10% of the UK's oil and gas from its 50 North Sea interests.

Following the Russian invasion of Ukraine and related pressures on European gas prices, UK Prime Minister Boris Johnson urged majors to ramp up oil and gas production during a roundtable with Shell, BP, and other sector representatives on 14 March.

Providing the UK government with advice on energy, BP Regional Senior Vice President for Europe Peter Mather joined the board of the UK's Department for Business, Energy & Industrial Strategy on 30 March.

Russia is threatening European energy security, having cut off pipeline gas it supplies to Poland and Bulgaria last week following a dispute over payment in rubles.

While the UK does not depend as much on Russia for its gas supplies, it does depend on Russian diesel for 18% of its needs.

The UK aims to avoid gas price pressure as it has already seen high electricity prices and energy supplier shutdowns. On 11 September, day-ahead wholesale power prices for the UK reached a record £400.01 per MWh on the Epex Spot exchange, as a result of gas-fired power, interconnector, and wind power outages, according to Marlon Dey, research lead at Aurora Energy Research.

Government action on energy prices in the Energy Security Strategy came after this energy price surge, though skeptics panned its failure to quickly cut gas dependency.

Among the proposals, the UK is seeking to stop importing Russian oil, coal, and natural gas in the form of LNG, to approve North Sea gas production projects, and to launch roadmaps for using North Sea infrastructure for CCUS and hydrogen projects.

Production for energy security

To help the UK meet its "near term" supply needs, BP said it could invest in oil and gas production at its North Sea hubs. Production may increase, for example, at the BP-operated Murlach and Mungo fields in the North Sea as well as the Clair field and Schiehallion Area West of Shetland.

BP filed an 8 April environmental impact statement proposing a new project to redevelop the Murlach field.

It may also invest in developing the Kate discovery within the Madoes field, which began production in 2002. Production at an appraisal well targeting the discovery was suspended after finding oil-water-contact on drilling in 1998, according to an IHS Markit field summary report.

However, BP subsidiary ARCO British bought a 62.74% stake in block 22/28a, the site of the discovery, from Phillips Petroleum in 2001.

BP said emissions for certain production projects would be lowered through the use of electric power, and it could pick up the pace on existing electrification projects.

The potential funding for production would be in addition to BP's existing operating spending in the UK. Globally, operating spending reached $23.6 billion in 2021, BP said in its annual earnings report.

The question that remains is whether the plan to increase production at these fields will affect BP's ability to reach its net-zero targets. It wants to reduce operational emissions 50% from a 2019 baseline by 2030, having raised its target in a February update to its plans.

Green campaigners opposing fossil fuel production criticized the spending plan. Greenpeace UK's Climate Finance Advisor, Charlie Kronick, told Net-Zero Business Daily by S&P Global Commodity Insights the oil and gas produced would be sold abroad as well as in the UK.

"More fossil fuel extraction can't and won't increase UK energy security because what is extracted will be sold at international rates on the international market," he said.

He added that investing in renewables, low-carbon heat, and energy efficiency was an effective alternative.

A Tohoku University study recently estimated that oil majors only put 1% of their capital expenditure towards clean energy investment.

Potential net-zero spend

Growing offshore wind, EV, and blue and green hydrogen use are all targets within the UK's strategy to reach net-zero GHG emissions by 2050, which was released last year.

To help the UK reach these objectives, BP sees the potential to invest a share of the earmarked billions in these technologies.

As a joint developer of three offshore wind leases in the UK, it may spend more than £100 million ($123 million) on infrastructure, ships, ports, harbors, and shipyards to support the offshore wind sector.

BP is developing a blue hydrogen facility in Teesside with 1 GW of electrolyzer capacity and a blue hydrogen fueling hub for the mobility sector, H2Teeside. Blue hydrogen is produced from natural gas.

The company plans to make a final investment decision on a separate, green hydrogen production facility in the same area by 2024.

BP previously announced it would invest £1 billion in the UK over 10 years in EV charging through its company BP Pulse.

Today BP mostly supplies gasoline and diesel to its vehicle customers, but as part of the transition towards net-zero, that will change, the company said. The UK has pledged to ban fossil-fueled car sales in 2035.

Posted 05 May 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.