BP even changed the logo.
By Leonard S. Hyman and Bill Tilles, for WOLF STREET:
“Oil and gas companies are becoming energy companies,” according to Bob Dudley. He heads the giant British oil company, BP, and stated this in a National Public Radio interview. Interestingly, his company under legendary CEO Lord Browne changed its name from British Petroleum to the far more ambiguous BP.
Browne informed the public that BP (now) stood for “beyond petroleum.” He changed the corporate logo to a green and yellow sunburst design and built up a renewable energy portfolio well ahead of other major energy companies.
But after Browne left, BP’s new senior management team refocused its commitment away from renewables (except for the environmentally-sensitive appearing) green logo and returned to their corporate roots, oil drilling.
Mr. Dudley’s proclamation comes shortly after two of the giant oil majors, Exxon and Chevron (upon retirement of long serving CEOs), decided to join the Oil and Gas Climate Initiative. This is a petroleum industry group established in 2015 that supported greenhouse gas emission curbs including the Paris Climate Accord.
Meanwhile, the drip-drip-drip of news about business accommodation to climate change continues. Transportation usage accounts for about 70% of the oil consumed in the United States. Running just cars on electricity (apart from trucks, planes and ships) would make an appreciable dent in demand for oil.
Tesla has led the way. Elon Musk and company captured the imagination of the public while raising billions from investors. Tesla’s finances as well as recent run-ins with the SEC and possibly the DoJ make many nervous for clear and good reason. But that is beside the point. Every major auto manufacturer now offers electric vehicles as an option.
In three years, 2016-2018, car companies launched an average of six electric models per year. In 2019-2021 they plan to launch 16 fully electrified models per year. VW, for example, projects that 30% of its cars will be powered by electric drive trains by 2025. Which means that while retail gasoline sales may slowly decline, most vehicles will still run on gasoline even a decade from now.
This multi-decadal timetable should give both the petroleum industries as well as the real beneficiaries, the electric utilities, ample time to prepare for the future. Once energy companies stop denying the reality, presumably they can move ahead. But there is always something.
Academic research shows that large business organizations often know well in advance that the times they are a-changing, so to speak. And that a competitor’s new products will take business from them. But despite this realization large, entrenched, often near monopolies will nevertheless fail to produce new product in response. Instead they adhere to original strategies, the ones that first made them a success.
The difficulty of organizational change in business is the stuff of legend – especially where the structure provides no convenient place for any new product or concept. Legacy managements fail to embrace new products or ideas, not because of ignorance or lack of foresight, but because of the self-imposed limits of their organizational structure. It is a conceptual “box” in which the managements operate and they oftentimes have trouble thinking outside of it.
We would argue that the decades-plus lead time before the electrification of the transportation sector, rather than conferring a business advantage to energy producing incumbents (plenty of time to get ready), actually or paradoxically presents instead a danger. Long lead times waiting for the end of the world, so to speak, tends to breed complacency.
Short-sighted executives can cut spending on R&D to maximize current profits, believing there will be plenty of time for innovation later on. We are not sure that the oil companies have a strategy for the coming transition. What can they offer besides their huge balance sheets versus relatively puny electric companies? Maybe that is the strategy. Do nothing now and then resort to mergers and acquisitions to solve the problem later. A strategy cynically known as, if you can’t beat ’em, just buy ’em.
Electric companies at least recognize that new products like electric vehicles (EVs) will substantially raise demand for electricity. For the electric industry, the irony is that they’re trapped in a different conceptual “box” involving legacy nuclear and fossil-fueled central-station power generating facilities. And these legacy units have to compete with ever cheapening electricity produced by renewables.
For the electric industry, there may be a pot of EV gold at the end of the rainbow. But industry management has to figure out how to supply existing customers and all that hoped-for new load while shuttering older, expensive coal and nuclear plants. By Leonard S. Hyman and Bill Tilles, for WOLF STREET
Sales of electricity in the US stagnated for years despite economic growth – a discouraging drip, drip of bad news for the electricity industry. But so far in 2018, electricity consumption rose 3.3%. In other industries, that’s not a high growth number. But for electric utilities, it constitutes unusually high levels of growth. Read… Why Have US Electricity Sales Surged in 2018, after Stagnating for Years?
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