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    Oil producers have cognitive blocks: UK climate champ


And long-lived assets are a big obstacle to net zero carbon, viewers of a webinar dedicated to the launch of BP's annual statistical review of world energy heard.

by: William Powell

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Oil producers have cognitive blocks: UK climate champ

Oil producing companies suffer from a cognitive block that prevents them from viewing the world of energy through anything other than the incumbents' lenses, the UK government's high level climate action champion Nigel Topping told a BP-hosted event July 8.

To back up his argument he quoted a slide that had appeared in BP chief economist Spencer Dale's opening remarks, showing the historical growth in wind energy and its growth over that same period as forecast at the outset by BP. There was a widening gap as lower costs led to more rapid deployment of wind. He interpreted that to mean that BP is continuing to invest money in outdated technology on the basis of wrong forecasts.

Topping said other forecasts would show similar discrepancies as costs fall elsewhere too. The industry will gain knowledge, he said: "Industrial change always happens." This was already the case with batteries, he said: "BP consistently gets it wrong."

On the same grounds he challenged BP's senior vice president for strategy and sustainability, Giulia Chierchia. She had said that in the future, green and blue hydrogen would probably share the market equally, based on likely supplies of renewable electricity available for electrolysis. Topping said that falling costs would tip the scales in favour of green hydrogen. Chierchia however said that she came from outside the industry and so could not be accused of repeating past mistakes. She was formerly a partner at McKinsey.

Speaking for the investment community, BlackRock's Paul Bodnar said that removing pollution from the investment cycle was a very long-term business. Asset life and contractual arrangements mean emissions can extend far into the future. He gave the example of coal-fired power generation, where he said about three quarters of the installed capacity would not be cost-competitive with renewable energy by 2025.

Over 90% of coal is shielded from competition by government policies and long-term contracts. What is needed to reduce emissions is not building wind farms, but increasing the rate at which dirty assets are turned off, he said. Shipping and steel mills were also in that group of long-lived but relatively dirty assets. In that context, he said, it was not surprising that when the pandemic-induced freeze began to thaw, emissions should rebound – even if some people do decide to work from home and others flew more rarely.

They were speaking at a panel session dedicated to the launch of BP's annual Statistical Review of World Energy, now 70 years old. Much of it was devoted to the shocks caused by the pandemic, which, Dale said, showed OPEC+ acting in a very strange way with the intergroup conflict in April. If nothing else, OPEC+ should have been able to co-ordinate to prevent the crash in the oil price. he said, rather than watch the Dated Brent crude contract fall below $20/barrel.

It was chaired by Gillian Tett of the UK business daily Financial Times. The links to the different chapters of the report may be found here.