Earlier this year boffins at BP gazed into their crystal ball and came up with the oil giant’s annual energy outlook — how it sees demand holding up until 2035.
There was more than a touch of self-denial about it. BP’s forecast for electric cars — both hybrid and pure battery — was that they would make up just 6% of the global fleet by 2035, about 100m cars. That is up from about 1.2m in 2015.
This is a fancifully low prediction. Most car makers are racing to develop electric models. Volvo’s decision to commit to electric power in all its cars from 2019 is a seminal moment. It does not spell the imminent death of the combustion engine, but it shows that petrol and diesel engines are a sunset industry.
Volkswagen wants to sell 1m electric cars a year by 2025; Tesla aims to sell 1m by 2020. France says it intends to ban the sale of petrol and diesel vehicles by 2040. In May, Client Earth, the lobby group that has taken the government to court over air pollution, warned BP that it was misleading investors by not properly addressing the downside risks to oil demand.
Still, at least BP recognises the world is changing and is doing something about it. The 2010 Deepwater Horizon disaster and the oil price crash have forced a capital discipline on a company not used to counting the pennies. Since 2010, BP has sold more than $50bn (£39bn) of assets, moving away from the capital-intensive end of oil production. It is mulling over the sale of fields such as its Canadian tar sands as it focuses on exploiting existing assets. At 444p, its shares have gained almost a third from their early 2016 lows.
Chief executive Bob Dudley is increasingly staking the future on gas and downstream, particularly retail. Motorway services are the type of cash cow he wants to milk. BP is expanding tie-ups with retailers such as Marks & Spencer and alighting on forecourts in Australia, Germany and Holland. Meanwhile, the power for electric cars needs to come from somewhere, and gas will help fill the void created by the demise of coal.
All of this will help prepare BP for the inevitable shake-up of the oil majors and, crucially, should buttress its $4.6bn of annual dividends a little longer.
Set against some of its peers, such as Exxon Mobil, BP has been more willing to modernise. But is it moving fast enough to keep pace with the seismic shifts in the world of power? Its reluctance to admit to the scale of change suggests not. Avoid.
