BP boss: Fossil fuels have done ‘huge good’

Hello and welcome back to Energy Source.

The Biden administration has unveiled his latest plan to curb emissions this morning, with the Environmental Protection Agency targeting power plants. How effective the rule will be is up for debate.

Elsewhere, Microsoft has signed an electricity supply deal with fusion energy start-up Helion, the companies said yesterday. Helion has said it will begin supplying power from the world’s first fusion plant in 2028, an announcement that marks either a giant leap forward for the technology or new heights of PR gall from an industry that has long promised stars. Myles elaborates on this in today’s newsletter.

Derek has a dispatch from Washington where BP chief Bernard Looney spoke lyrically about the benefits of fossil fuels. And Amanda examines the wind industry’s financial woes in Data Drill.

Thanks for reading – Justin

The BP boss sounds like an oil boss again

BP chief executive Bernard Looney yesterday mounted a defense of oil and gas and the “enormous good” they’ve done for the world, weeks after the British supermajor announced a plan to slow its transition from fossil fuels.

BP sought to be at the forefront of the energy transition in 2020, when it shocked the oil world with a plan – outlined during the depths of a historic crude price crash – to scale back its fossil fuel operations and switch to green energy.

It scaled back those climate ambitions last February, just as it posted record profits in the wake of soaring oil prices following Russia’s invasion of Ukraine.

On Wednesday, the BP boss sent a message that seemed appropriate for an audience in a country that values ​​pragmatism and oil.

Shutting down oil production now would be “simply impractical,” Looney told the Economic Club of Washington, DC, suggesting such a move would risk a new economic crisis.

“There are people in society who certainly want to see the end of fossil fuels overnight,” she said, in conversation with billionaire businessman David Rubenstein. “When production goes down and demand doesn’t change, only one thing will happen: prices will go up.”

Looney cited the spike in energy prices in Europe last year. “The price of gas went up 10-fold when we lost 3% of the world’s gas supply – and who wants to deal with that economic, financial, cost of living crisis?”

They weren’t all fossil fuels. Looney on Wednesday reiterated BP’s latest transition plan: “cleaner energy, safer energy and cheaper energy.” And he cited data to prove it: a tenfold increase in BP’s share of capex spent outside of oil and gas from 2019 to 2022; a dive into emissions from the company’s own operations.

But Looney was full of praise for oil that his company eventually intends to go further.

“Imagine our global trade, aviation, road transport, shipping, all made possible by energy. . . Imagine in hospitals today, drugs derived from petrochemicals. Devices made from petrochemicals. Imagine feeding 9 billion people without ammonia fertilizer, which accounts for 70% of the fertilizer in the world.

He added: “That said, there is a problem called carbon. . . It’s a real problem. It needs to be addressed, and that’s why we want to make the transition.”

Audiences in Washington seemed to appreciate Looney’s candor. The US has generally been a less hostile environment for oil companies in recent years. That included Wall Street investors, who preferred ExxonMobil and Chevron’s strategy of sticking to oil over BP’s plan to cut its fossil fuel output.

Billionaire shale boss Harold Hamm, in a Lunch with the FT, he compared the move to BP slitting its “throat”.

When BP scaled back its climate ambitions earlier this year it announced a sharp increase in capital spending on fossil fuels – along with an equivalent increase in spending on clean energy – and an aggressive plan to grow oil production in the United States. His stock has outperformed Exxon’s since that announcement.

And while BP’s transition plans remain the most aggressive among its fellow supermajors, Looney’s comments on Wednesday echo those of others oil leaders in the United States. They will raise eyebrows in Europe, where some environmentalists have cautiously welcomed BP’s attempt to take a leadership role in the energy transition.

His remarks also underscore the complexities fossil fuel leaders face as they seek to capitalize on a period of high prices while continuing to navigate the transition to a low-carbon world.

The BP chief even had kind words for OPEC, the Saudi-led oil cartel that has drawn the ire of Western governments, including the White House, over the past year for its plans to cut oil supplies .

OPEC was just trying to stabilize oil prices so companies like BP could invest in future supplies, Looney suggested, pointing to his company’s recent $9 billion oil rig in the Gulf of Mexico. “These are multi-decade investments. And to do that if the oil price is swinging $5, $10, $15 [a barrel] on a monthly basis it is very difficult.” (Derek Brower)

Is commercial nuclear fusion on the horizon?

The (not so funny and much repeated) joke about nuclear fusion is that the breakthrough technology is only a decade away. . . and always will be.

So when Helion Energy, a privately held fusion research company, said yesterday had signed a deal committing him to harnessing the reaction that fuels the sun within five years, eyebrows have been raised.

The story involves an eclectic cast of characters:

1. Helion Energy: A fusion start-up backed by AI hype-man Sam Altman, CEO of OpenAI, who is behind the ChatGPT chatbot.

2. Microsoft: The world’s second largest public company by market capitalization, which has entered into an agreement with Helion to purchase merger-generated electricity starting in 2028.

3. Constellation: The owner of America’s largest fleet of nuclear (fission) reactors, which has agreed to market and transmit energy.

It’s a lineup that should pique the interest of any self-respecting Hollywood studio.

The socket? Nuclear fusion power doesn’t actually exist yet. At least not significantly.

Cracking fusion – which could in theory provide unlimited zero-carbon energy – has been the holy grail for nuclear physicists since the 1950s, but has so far proved elusive.

Technology has come a long way in recent months. Last December, my colleague Tom Wilson broke the story that the US government’s Lawrence Livermore National Laboratory had for the first time achieved a “net gain in energy” in a fusion reaction – a major scientific discovery, in which the reaction produced more energy than was used to generate it.

Note: As Tom was careful to point out at the time, the gain occurred for a fraction of a second and the energy produced was only greater than that of the lasers used to trigger the reaction, not the total electrical energy used to feed the system.

Whichever way you slice it, it’s a far cry from commercialized fusion power of the kind Helion wants to generate and deliver to Microsoft from 2028.

Kimberly Budil, director of Lawrence Livermore’s laboratory, also said at the time that it would take “a few decades of research” — as well as the necessary funding — before the world “might” be able to build a fusion facility.

It’s worth noting that Microsoft has been betting heavily on Altman’s OpenAI, in effect tying the future success of the two sides together. By giving Helion an energy supply contract, they’re giving its fusion start-up a big head start in the race to commercialize what could be a technological breakthrough to make a fortune.

Still, Microsoft’s vote of confidence is a big deal, and it shows that some believe the timeline to making the merger a reality could be shortened in a big way.

For now, details about the deal remain scarce. Neither the cost nor the penalties for non-delivery have been indicated.

“We still have a lot of work to do,” said Helion boss David Kirtley. (He’s not wrong.) “But we are confident in our ability to deliver the world’s first electric fusion facility.”

If his faith proves sound, commercial fusion energy may be only five years away. And then again, maybe it always will be. (Myles McCormick)

Data tutorial

Wind turbine maker Vestas surprised investors yesterday with a profit after a year of persistent quarterly losses.

But despite the move into the black, the company, like its rivals, continues to be hit by a series of supply chain and inflationary problems.

“Inflation is getting stickier. . . Turbine prices are not going down,” Chief Executive Officer Henrik Andersen said in an earnings call.

It’s a tough time to be in the wind game. While subsidies like those offered in the US Inflation Reduction Act and government mandates are sending strong signals of long-term demand for manufacturers, supply chain constraints, inflation and approval delays are slowing the takeoff.

Other major manufacturers such as Siemens Energy and General Electric have filed similar complaints, as they struggle to turn a profit.

“When you look at the wind industry, it’s no secret that there isn’t a lot of money in wind,” said Rich Voorberg, president of Siemens Energy North America. (Amanda Chu)

Strengths

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Energy Source is written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg. Reach us at energy.source@ft.com and follow us on Twitter at @FTEnergy. Retrieve past editions of the newsletter Here.