Wednesday, July 8, 2009

BP and alternative energy

There was a nice feature article in the Financial Times earlier this week on BP's retreat from its alternative energy business. Headlined 'Back to Petroleum' it argued that since the departure of former chief executive Lord Browne, the new BP leadership had brought about a greater attention to core business in oil and gas .... and that this had meant the "BP Alternative Energy" business unit was being scaled back. Noting the early retirement of the quasi-independent unit's chief exec, the closing of its off-site office, and cut backs on funding, the paper remarked that having led the charge towards alternatives, "BP is now leading the retreat".

To be honest, even under Browne, BP had hardly been gung-ho in its commitment to alternatives. Even with year on year increases over the past few years, by 2008 the company was diverting just 1.3 per cent of its 2008 capital expenditure on solar energy, 2.6 per cent on wind, and a full 93 per cent towards oil and gas extraction (see the handy BP presentation on the Greenpeace website). Hardly a signal of a change of direction. It's no surprise that many of questioned whether the iconic 'Beyond Petroleum' rebranding was simply that - a change in advertising and logo that did little to alter the fundamental substance of the company.

Certainly under Browne, though, the momentum towards renewables, however small in relation to the core business of BP, was unmistakable. It wasn't all just empty rhetoric. The company quickly turned itself into a recognized leader among the big oil companies for its attention to sustainability issues - not that it faced much competition. The strategy, a common one in the CSR toolkit, was to stay just enough in front of the competition to be a leader, but not so much as to risk changing the game and threatening the underlying cost and revenue structure.

Under current CEO Tony Haywood, BP is clearly employing a back to basics approach. There's a lot of sense in some of this - not least in the greater attention being focused now on core health and safety issues aroung exploration and refining. The last thing the company needed was another Texas-style 'preventable accident'. But in stalling investment in the renewables business (not to mention new investments in the Albertan oil sands), Haywood is clearly serious about sticking to the core oil and gas business for the time being and waiting and seeing on alternatives until a clearer message (and more subsidies) come from governments.

We're not sure anyone should be too surprised by BP's reversal given some of the clear messaging that Haywood has given since taking over - such as describing the company as having “too many people that were working to save the world”, and a determined commitment to cut costs in the face of falling oil prices. Perhaps also, we're simply looking in the wrong place if we expect oil companies to be the engines of a low carbon economy of the future. As the FT hints, succeeding in the renewables business requires a very different set of organizational capabilities than in the oil and gas business. Old economy thinking is not likely to equate to a new economy mindset. The future of the energy business is more likely to be found in innovative new business start-ups than among the collossal energy giants of today. Although once the young tigers have proved their worth, it'll be the companies rich from oil revenues that'll be looking to buy them up.

Photo by Mancio7B9. Reproduced under Creative Commons license.


  1. wow you guys have a blog too.
    i'll visit it regularly.

  2. The future may lie with "innovative new business start ups" but it's the collosal oi (and car, chemicals etc.) companies that have the vast resources needed - small clean energy companies are being starved of capital (see my post on Climate Inc., and FT article Aug. 22).
    Climate Inc. (click my name above) also has an analysis of why oil companies are going "back to petroleum" - they are returning to their "core competencies". Biofuels fits best, but not solar or wind.


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