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Frédéric Baudry on bp's transformation agenda

Frédéric Baudry on bp's transformation agenda

Published:
25 March 2021

Frédéric Baudry is president, bp Australia and SVP fuels & low carbon solutions, Asia Pacific, bringing 30 years’ experience from across the breadth of bp’s global operations. He is responsible for the mobility, convenience and midstream businesses in Australia, New Zealand, China, India and Indonesia, and heads up bp’s new regions, cities & solutions team for the AsPac region. This speech was presented at an Australian British Chamber of Commerce's business lunch.

Introduction


I’d like to begin by acknowledging the traditional custodians of the land on which we meet – the Wurundjeri People of the Kulin Nations – and pay respect to elders' past, present and emerging. 


I’m delighted to join you here this afternoon, and to see so many of our friends and partners together in this room.  


I’ll start by stating the obvious - how tough things have been across the world in 2020! 


I dearly hope you, and your family and friends, have been safe and well throughout this period.


I came into my new role in Australia during the worst of the devastating bushfires and just as COVID-19 was starting to take hold. 


From the beginning I’ve been struck by the strong Australian spirit that has been on display when responding to such incredible challenges.From the thousands of volunteer firefighters and front-line workers right through to the efforts of community groups and not for profits it has been truly inspiring.  


In that time, I have also seen the broader bp family shift gear to be an essential service – working closely with partners, with emergency services and communities to keep them safe and on the move.
It is something I am extremely proud of, as are all of us at bp.   


I wanted to start with this recognition today, as a reminder that, as a business, we have a responsibility to step up when we can – and an obligation to make a positive contribution to society and the communities in which we operate.


And also, as a reminder that when Team Australia comes together – businesses, suppliers, customers, government agencies, communities, and all of us in this room – it is amazing what we can achieve together. 


I will come back to that time and time again today.


You are of course all well aware that, while the world was being hit by the Pandemic, the energy market was experiencing its biggest shock in the past 40 years.


And bp was undertaking the biggest transformation in its history.


This is what I have been kindly invited to speak about today.


Specifically, I will cover the scale of the existential challenge the energy industry is facing, and why it is so important that our industry play an active role in this transition.  


And I will talk about the steps we are taking at bp, and why we have confidence in what we’ve set out to do.


The context 


I’ll start with a bit of context and why it is so important for the energy industry to evolve.


In its simplest form, the challenge is that energy demand is going up globally, and that, despite more than twenty years of effort, we don’t see emissions coming down fast enough.


Some data points.
1. Energy demand is still on the rise. Looking out to 2050, under the best scenarios our analysis suggests global energy demand will increase by around 10%. However, if we maintain the current trajectory this could increase by around 25%, with this growth led by economies where energy demand is synonymous with economic and social development.2. Average global temperatures are estimated to have risen by 1.1 degrees Celsius already compared to the pre-industrial baseline used for the Paris goals. Only 3 weeks ago, the Secretary General of the UN reminded all that the world remains on an unsustainable path and is still far off target to deliver against the Paris goals.


There is some progress of course. Carbon emissions seem on track to peak by the mid-2020s.However, not enough progress has been made as yet in decarbonising the energy system, such that – if government policies, technologies and social preferences only evolve in a manner and speed seen over the recent past  – carbon emissions by 2050 would only be around 10% below 2018 levels. 


That is simply not enough.


One measure is Earth Overshoot Day. 


This is the day each year when human demand for ecological resources is estimated to exceed what the earth can regenerate in that year. In 2020, Earth Overshoot Day was 22 August – meaning that for the following 131 days of the year humanity used more resources than can be renewed.

 

The point being that the world needs access to affordable and reliable energy of course, but it also needs energy that is cleaner.

 

These are global outlooks, but the themes hold in the Australian context. Australia’s total energy usage across all sectors is around 1,000 Terawatt-hours, of which around 20% only comes from renewable sources. And we know that the investment that would be needed to decarbonise the entire Australian energy system is going to be in the trillions of dollars. Irrespective of how the future plays out – and nobody can predict the future – through our research we have established several fundamental beliefs for the energy outlook.

 

We believe that over the next three decades:

  • Oil and gas demand is going to be increasingly challenged.
  • The role of fossil fuels will diminish, offset by the increasing importance of renewable energy and electrification.
  • Energy markets will be more localised, and grids decentralised.• And we will see increasing levels of integration and competition.
  • Consumers and investors will be less accepting of fossil fuels for heat, light and mobility, leading to the shift of capital towards renewables and other forms of zero or low-carbon energy. 

In summary, I think I have made the points that the world is on an unsustainable path; that for the world to transition at the pace that it needs to, the energy sector and companies like bp must transition too; And that there is an urgency: if we are to make an impact on the world while ensuring we are more robust for the future, we – as a company – need to get started immediately.


But this is not another phase of the industrial revolution – it is a consumer-led transformation of energy value-chains. And it will require trillions of dollars of investment, against a highly uncertain pricing outlook.


IOC to IEC


Recognising that we must get started now in addressing these challenges. Twelve months ago our bp Group CEO Bernard Looney shared our new ambition: to be a net zero company by 2050 or sooner, and to also help the world get there. 


Because this will take time, in addition to our 2050 ambition we have also published interim targets for 2025 and 2030, and strategic priorities to get us there.


In essence, we will be a very different kind of energy company as early as 2030 – one that has transformed from an International Oil Company to an Integrated Energy Company. 


This sounds subtle, but in fact it is quite a fundamental shift. 

  1. From a company that for more than a century was defined by two commodities only – oil and gas to one that will focus on value over volume while responding to the world’s need for increasingly complex, multi-energy solutions, in the knowledge that for the foreseeable future energy will be a mix of fossil and renewable energy.
  2. We will pivot from a company known for producing, transforming, and distributing resources to a company providing diversified, integrated, energy and mobility offers.
  3. We will shift from a conglomerate organised in verticals – such as upstream, refining, and marketing to a company that can create integrated value chains to satisfy the energy needs of consumers and society.

And while much of this is new to many players in our industry, bp has been rapidly expanding its skills in renewables including onshore and offshore wind, bioenergy, solar power, and more recently, hydrogen.


In doing so we have started demonstrating that, where bp can integrate its capabilities, products and services with our business partners, we can create value for customers greater than the sum of our parts.


This is what we mean by transitioning bp from an International Oil Company to an Integrated Energy Company.


Three focus areas


With that in mind, the bp strategy will focus on three areas:

Making our world class oil, gas and refining portfolio more resilient. 

  • By maintaining an absolute focus on safety and operational reliability.
  • And continuing to high-grade the portfolio to higher margin production and refining assets.

Transforming our convenience and mobility offer.

  • This is fundamentally a high growth and high return business.
  • And bp is strengthening investments in markets where we have a strong position – like Australia – and also building its presence in growth markets.
  • We’re putting customers at the heart of what we do investing in the customer experience at our retail sites.
  • And we are leading next generation mobility at a pace coherent with the energy transition in those markets. We will double the size of our customer-facing business in the next ten years. 

Scaling-up our low-carbon electricity and energy businesses. 

  • Including building scale in renewables and bioenergy production.
  • Seeking early positions in hydrogen and carbon capture and storage.
  • And building out a customer gas portfolio to complement these low carbon energies.
  • We will invest 5 billion US dollars a year over the next ten years in low carbon businesses, a ten-fold increase on the $500m we invest today.


This is not at the exclusion of one or the other, all three are important focus areas and complementary.


And that first point – making our world class oil, gas and refining portfolio more resilient, delivering more value from less volume – is essential.


The cash generated by our oil and gas operations will fuel the transition into our two growth areas – our customer facing businesses and our renewable energy businesses.


The role that oil and gas will play in this transition phase can’t be dismissed when you consider the scale of investment needed in rewiring and replumbing the earth’s energy system towards more Renewables. It’s estimated that some 16 trillion dollars will be needed in the next 10 years and, according to the International Renewable Energy Agency, perhaps as much as 110 trillion dollars by 2050.


Three sources of differentiation


We’ve identified three sources of unique differentiation for bp as we set out to execute this strategy. 

Integrating energy systems along and across value chains. 

  • Creating integrated value chains is what we do as a business. 
  • We will pull together bp’s many capabilities to optimise energy systems and create end-to-end offers for customers. 
  • We will build on the strength of our relationships with customers and partners and the global reach of our trading organisation. Very few energy companies can do this.

Driving digital and innovation

  • To enable new ways to engage with customers, create efficiencies, develop offer ecosystems and support new businesses.
  • We plan to double capital investment in digital to around $1.5 billion per annum out to 2025.

Alignment, collaboration and partnership

  • It is essential that we do this in alignment, collaboration, and partnership, with countries, cities and industries as they shape their own path to net zero. 
  • This is why I referenced Team Australia at the beginning. When businesses come together with governments and communities, it is incredible what can be achieved together. bp is very well positioned in this space and I’ll talk a bit more on this soon.


What it means for bp in Australia


That’s the broader context for bp globally. Let’s turn to a more local lens now.


While I have only been in your amazing country for one year, Australia has been hugely important to bp for more than 100 years.


In that time, Australia has developed as one of the world’s most prosperous nations, and bp has been proud to be part of that journey. 


We have directly employed many thousands of people, invested billions of dollars, and today are working with thousands of local businesses and suppliers.


We have established long, deep, and mutually beneficial relationships across every corner of this country.


Our customers are commuters in urban centres, they are farmers, miners, and truckers, they are all of us in this room.


We’re part of a global business, but our team is proudly Australian. bp is part of the fabric of Australia and I believe we have a responsibility to make a positive contribution to society and the communities we operate in. As bp’s Senior Vice President for the Asia Pacific my starting point is focusing on the critical role Australia can play in the energy transition and to build on the strength of our major operations to help make this become a reality here and now. 


There are three reasons why bp believes Australia is well positioned to be a powerhouse of the energy transition, just as it is today with fossil energy:

  1. Australia has access to abundant renewable energy sources such as wind and solar. 
  2. There is clear alignment on the importance of the energy transition between major customers and a global energy provider like bp. 
  3. There’s a strong appetite from local and global investors to support green energy. 


And, for the right opportunities, Federal and State governments are committing to work with industry to support projects which create jobs and prosperity for the nation.  For these reasons, I firmly believe Australia can play a critical role in the global energy transition.


There’s been a lot of discussion about the role of gas in the transition. While gas will continue to play an important role in supporting local and regional energy needs, gas alone won’t be enough. 


Here in Australia, to truly affect the energy transition, we must tackle hard-to-abate sectors and industries, which includes many of bp’s long-standing customers and valued partners.


Sectors like mining and heavy transport, for example, drive significant economic activity and carbon emissions, and they depend on us for their fuel and energy needs. 


Many of these players, especially leading mining companies and airlines, have already made net zero commitments.


They have strong and positive low carbon ambitions and they have stated a commitment to get to net zero – but, they can’t do it alone. And bp can’t do it alone either. 


The situation here is no different to that globally where, in fact, around 80% of corporates have a climate target of some kind, but only a quarter of those are on track to achieve them.


It is a similar story in the cities.


Cities increasingly want access to all of cleaner, reliable and more affordable energy for power, mobility, energy efficiency and waste management solutions.  


They are actively looking for carbon management solutions and pursuing technology as an enabler to achieving their goals.


Yet, no responsible company or city is going to invest billions in supply projects, in a new fleet of vehicles or in new industrial infrastructure without confidence that the green energy solution selected is going to be economic and feasible across multiple time horizons. 


A successful energy transition will be founded on integration, and on partnerships.


It will need companies with the right capabilities and financial resilience to bring together technology solutions and build integrated energy value-chains. 


Strong partnerships and innovative business models are needed between suppliers, consumers, equipment manufacturers, financial institutions and government to align on strategies that will work for everyone.  
This is key in overcoming some of the barriers to investment.


It is essential for bp to work alongside our customers to explore with them how to deliver BOTH their energy needs AND their low carbon ambitions. Joining forces so that we can achieve our shared goals.
And yes, given bp’s position in Australia, we are starting from a position of strength – and we’re off the mark already! 


Qantas


To illustrate this, in recent – and exciting news – two months ago Qantas and bp announced a strategic partnership to further advance our shared decarbonisation ambition for the aviation industry.
Qantas is a pioneer in the energy transition. It was the first airline to announce capping its net emissions at 2020 levels, and in 2019, the second to commit to net zero emissions by 2050. 


Qantas already operates the largest carbon offset program in aviation globally with 11 per cent of flights booked being offset. 


This is the first partnership for bp in the heavy-transport sector, anywhere in the world.


It is also an innovative example of 2 companies in Australia working together on multi-dimensional offers to meet their net zero ambitions and the interests of their investors and consumers.


Jointly, our teams will explore opportunities and projects in areas including advanced sustainable fuels, advocacy for further decarbonisation in the aviation sector, renewable power solutions and generation, carbon management and emerging technology.


We have very clearly aligned goals and are incredibly excited by the potential of our partnership with this leading Australian company. 


This is the first of many partnerships to come.


In summary there are two things I would like you to take away on how we will work with customers in and for the Energy Transition.

  1. Partnerships for mutual benefit will be essential.
  2. And those partnership will need to extend to integrated, multi-energy offers.


New and emerging technology


I now want to turn briefly to the supply side of things: renewable energy. 


New and emerging technologies will of course play a key role in reducing emissions in Australia.


They will also create opportunities for us and our customers and support economic growth for the nation.


As I’ve already said, Australia is advantaged with ample access to renewable resources – so it can produce competitive renewable energy at scale. And we in bp are already playing a role here in this space.


This includes our own developments through Lightsource bp, which is currently commissioning its 200MW Wellington Solar Farm in New South Wales.


This is the same as taking more than 120,000 cars off the road.


It is the first of eight major Lightsource bp solar projects in Australia. With a further 1.5GW in the pipeline.


In addition, late last year bp announced that it will cease refining at our site in Kwinana, in WA, and convert the refinery to an import terminal.


But much more, our sites at Kwinana and Bulwer in Queensland, have the potential to host clean energy hubs comprised of existing and emerging low-carbon technologies and we have exciting plans to develop them as such.


This is building on the capabilities bp has globally in biofuels and which we are now building in clean hydrogen, and in electrification of mobility.


The Federal and State governments also have a role to play in helping de-risk investments. 


We welcome the Federal Government’s commitment to the opportunities identified in the Technology Investment Roadmap, and Minister Taylor’s focus on the development of existing and emerging technologies over the medium to longer term.


Just earlier this week Dr Alan Finkel noted the increasing action and ambition at State and Federal levels. Dr Finkel stated this past week: “Prosperity and low emissions. It is my firm belief we can have both”.  We agree.


And we are working with State governments on such opportunities as they emerge. 


In particular, as the mining, heavy transport and aviation industries turn to low carbon renewable fuels to address their emissions, we look forward to continuing to work with the Government on policy settings that will help facilitate the transition to cleaner energy that customers want and need.


My conclusions on the supply side: there are complex, multi-energy technology solutions with an uncertain economic outlook.


Therefore, de-risking projects will be essential, and for that we must work across industry and government.


Why bp?


But why bp?  Let me just add a few final points on why bp will be a force in the energy transition.


As you can see, we are already in action across several fronts: forming partnerships with customers, building capabilities and production of renewable energy solutions, and growing relationships with investors, governments, and other stakeholders.


First, our knowledge and experience of the energy business, collectively, is vast – with more than a century’s worth of know-how and a history of delivering successful and complex energy projects and operations across the world.


We have thousands of brilliant engineers, scientists, and technologists with the ability to adapt, apply and transfer those skills to decarbonise the world.


Second, we can offer diverse, sources of energy at scale thanks to our global access to resources and capabilities. 


Third, we are committed to investing in renewables and we know how to build end-to-end value chains – the very basis of bp’s record of success in reinventing itself over the past 100 years and more. 


And last but not least, we have a history of helping our customers grow their business and in forming strong partnerships for mutual benefit. 


Especially here in Australia, one of bp’s core strategic markets, where we have grown stronger thanks to those relationships...our relationships with so many of you here today.


This is what we mean when we talk about being an integrated energy company. 


We have a contribution to make and we want to be part of the solution – for our customers and partners, right here in Australia.


Conclusion


So, to conclude:

  • The world is on an unsustainable path – we all know that. For the world to get back on track, the energy sector and bp must transition, fast.
  • We – and companies like ours, have a role to play. It is also an opportunity to shift our business – to grow and be more robust for the future and those of our customers and partners.
  • And what gives me confidence to do this is our global capability.
  • We have a strong track record and positions on both the demand and supply side in Australia to be a key actor in the transition while transforming our business to an integrated energy company.
  • And to repeat - we are determined to tackle that transition together, across industry and government, now. And we are off to a strong start in building partnerships with much more to come.


I look forward to the opportunity to work with all of you as together we build back better from the year that was 2020.


Thank you again for inviting me to join you today.