Australian biofuel plant holds key to BP’s renewable energy future

A new biofuels factory in Australia was at the forefront of BP’s efforts to go green during former boss Bernard Looney’s government.

Indeed, BP Australia boss Frederic Baudry describes the country as the “model” for the FTSE 100 giant’s very ambitious global energy transition strategy.

So what happens to the plant in Kwinana, south of Perth, following Looney’s departure last week – not to disclose his personal relationships with staff – will say a lot about BP’s future under new leadership.

For 65 years the site provided a steady source of employment and fuel to the generations living in this small branch of industry in Western Australia.

But with planes grounded and cars sitting on roadways during the Covid-19 pandemic, fuel demand plummeted, further squeezing profit margins.

BP closed the plant, laid off 600 workers and converted the site into an import terminal to ship cheaper fuel from abroad.

Two years later, the site is about to be repurposed again to spearhead the oil company’s pivot from hydrocarbons to renewable energy.

It has been earmarked for a new generation of fuel refineries, one that produces sustainable aviation fuel from feedstocks such as used cooking oil or household waste, and renewable diesel using vegetable oils, animal fats and other biowaste products.

This project took a step further last month, when a feasibility study backed by the state government gave it the go-ahead.

With construction expected to begin next year, BP hopes it will be its first global biofuels project, powering planes, trucks and cars.

If all goes according to plan – and it’s a big if – BP estimates it will produce hydrogen starting in 2026 and on a scale sufficient to begin exporting it by the end of the decade.

With its natural abundance of sun, wind and space, Australia is considered an ideal place to generate wind and solar energy, despite its remoteness.

During Looney’s tenure, Australia moved up the pecking order, behind the United States and the United Kingdom, with projects worth tens of billions of dollars in the pipeline.

Ambitious plans: BP Australia boss Frederic Baudry

Some of the projects being planned are mind-boggling in scale and would be out of the question in smaller, more densely populated European countries.

One of the largest is being led by BP in the Pilbara region of northwest Australia, best known as the country’s iron ore heartland.

In June last year, BP bought a 40.5 percent stake in the Asian Renewable Energy Hub, which plans to cover around 2,500 square miles of hinterland, an area roughly the size of Devon, with more than 1,700 wind turbines up to 950 feet tall, and 18 giant solar farms.

And all dedicated to generating electricity to produce ‘green hydrogen’, before adding nitrogen to convert it into ammonia to facilitate its export.

The push for renewable energy has been encouraged by Australian Prime Minister Anthony Albanese’s Labor government, which came to power last year on bold promises to tackle climate change.

The company has already received $70 million in funding from the federal government for the Kwinana centre.

But at an event in London earlier this year, Baudry warned the Albanese government that more government support is needed to give BP the confidence to invest hundreds of millions of dollars to turn its “shovel-ready projects” into a reality.

But with the departure of Looney, the driving force behind the company’s green ambitions, some shareholders dismayed by BP’s focus on renewable energy, which they believe has come at their expense, have been offered a ray of relief. hope.

BP has performed the worst of all the global oil majors, with its shares rising 10 percent since Looney became chief executive in February 2020, compared with a rise of more than 25 percent at Shell.

David Hewitt, an analyst at Liberum, said the company now has an opportunity to “reverse the overzealous shift toward reducing the performance of renewables” and refocus on what BP does best.

BP has already watered down its energy transition plan to some extent, announcing earlier this year that it would aim to cut oil production by a quarter by 2030 rather than 40 percent.

AJ Bell’s Russ Mold believes a further withdrawal is not possible for now, especially with Murray Auchincloss, Looney’s former CFO, as interim CEO.

But Mold speculated that BP could moderate its green ambitions if oil prices remain high for a long time, or if high inflation deters households and businesses from switching to more expensive and potentially less reliable forms of renewable energy.