Hello and welcome back to Energy Source.
The Biden administration unveiled its latest plan to curb emissions this morning, with the Environmental Protection Agency taking aim at power plants. How effective the rule will be is up for debate.
Elsewhere, Microsoft signed an electricity supply deal with fusion power start-up Helion, the companies said yesterday. Helion said it would start supplying the power from the world’s first fusion plant in 2028, an announcement that marks either a big breakthrough for the technology or new heights of PR gall from a sector that has long promised the stars. Myles digs in to that in today’s newsletter.
Derek has a dispatch from Washington, where BP chief Bernard Looney waxed lyrical on the benefits of fossil fuels. And Amanda looks at the wind industry’s struggling finances in Data Drill.
Thank you for reading — Justin
BP’s boss sounds like an oil boss again
BP’s chief executive Bernard Looney yesterday mounted a defence of oil and gas and the “enormous good” they have done for the world, weeks after the UK supermajor announced a plan to slow its transition away from fossil fuels.
BP tried to put itself in the vanguard 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 wind down its fossil fuel operations and pivot to green energy.
It scaled back those climate ambitions this past February — just as it reported record profits on the back of surging oil prices following Russia’s invasion of Ukraine.
On Wednesday, the BP chief had a message that seemed catered to an audience in a country that values pragmatism — and oil.
Halting oil production now would be “simply impractical”, Looney told the Economic Club of Washington, DC, suggesting such a move would risk a renewed economic crisis.
“There are people in society who certainly want to see the end of fossil fuels overnight,” he said, in a conversation with billionaire businessman David Rubenstein. “When production falls and demand doesn’t change, there’s only one thing that’s going to happen: prices are going to go up.”
Looney cited last year’s European energy price spike. “The price of gas went up 10 times when we lost 3 per cent of the world’s gas supply — and who wants to deal with that economic, financial crisis, cost of living crisis?”
It wasn’t all fossil fuels. Looney reiterated BP’s latest transition plan on Wednesday — “cleaner energy, more secure energy, and more affordable energy”. And he cited the data to prove it: a tenfold increase in the share of BP’s capex spent outside oil and gas from 2019 to 2022; a plunge in the emissions from the company’s own operations.
But Looney was full of praise for the petroleum that his company eventually intends to move beyond.
“Imagine our global trade, aviation, road transport, shipping — all made possible through energy . . . Imagine in hospitals today, medication that is derived from petrochemicals. Devices that are made using petrochemicals. Imagine feeding 9bn people without ammonia fertiliser, which represents 70 per cent of the fertiliser in the world.”
He added: “With that said, there is an issue called carbon . . . It’s a real issue. It needs to be tackled, and that’s why we want to transition.”
The audience in Washington seemed to appreciate Looney’s candour. The US has generally been a less hostile environment for oil companies in recent years. That has included investors on Wall Street, who have preferred ExxonMobil’s and Chevron’s strategy of sticking with oil over BP’s plan to wind down its output of the fossil fuel.
Billionaire shale boss Harold Hamm, in an Lunch with the FT, likened the move to BP slitting “their own throat”.
When BP scaled back its climate ambitions earlier this year it announced a a sharp jump in fossil fuels capex — alongside an equivalent rise in clean energy spending — and an aggressive US oil production growth plan. Its shares have outperformed Exxon’s since that announcement.
And while BP’s transition plans remain the most aggressive among its supermajor peers, Looney’s comments on Wednesday echo those from other oil leaders in the US. 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 point to the complexities fossil fuel bosses face as they look to take advantage of a phase of elevated prices, while also continuing to navigate a transition to a lower-carbon world.
The BP boss even had kind words for Opec — the Saudi-led oil cartel that drew the ire of western governments including the White House in the last year for its plans to slash oil supply.
Opec was only trying to stabilise oil prices so companies such as BP could invest in future supply, Looney suggested, pointing to his company’s recent $9bn oil platform in the Gulf of Mexico. “These are multi-decade investments. And to do that if the price of oil is swinging $5, $10, $15 [a barrel] on a monthly basis is very difficult.” (Derek Brower)
Is commercial nuclear fusion power on the horizon?
The (not-so-funny and much-repeated) gag about nuclear fusion is that the game-changing technology is just a decade away . . . and always will be.
So when Helion Energy, a private fusion research company, said yesterday it had signed a deal that commits it to harnessing the reaction that powers the sun within five years, eyebrows were raised.
The story involves an eclectic cast of characters:
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Helion Energy: a fusion start-up backed by AI hype-man Sam Altman, the CEO of OpenAI, which is behind chatbot ChatGPT.
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Microsoft: the world’s second biggest public company by market capitalisation, which has struck a deal with Helion to buy fusion-generated electricity from 2028.
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Constellation: the owner of America’s biggest fleet of nuclear (fission) reactors, which has agreed to market and transmit the power.
It’s a line-up that should pique the interest of any self-respecting Hollywood studio.
The catch? Nuclear fusion power doesn’t actually exist yet. At least not in any meaningful way.
Cracking fusion — which could in theory provide limitless, zero-carbon power — has been the holy grail for nuclear physicists since the 1950s, but it has thus far proved elusive.
The technology has taken big strides in recent months. Last December, my colleague Tom Wilson broke the story that the US government’s Lawrence Livermore National Laboratory had achieved “net energy gain” in a fusion reaction for the first time — a major scientific breakthrough, in which the reaction produced more energy than was used to generate it.
Note: As Tom was at pains to point out at the time, the gain occurred for a split second and the energy produced was only greater than that in the lasers used to trigger the reaction — not the total electrical energy use to power the system.
Whichever way you cut it, that is a far cry from commercialised fusion power of the sort Helion wants to generate and deliver to Microsoft from 2028.
Even Kimberly Budil, Lawrence Livermore lab director, said at the time that it would take “a few decades of research” — plus the requisite financing — before the world “could” be in position to build a fusion plant.
It is worth noting Microsoft has bet big on Altman’s OpenAI, in effect tying the two sides’ future success together. By giving Helion a power supply deal, they are giving his fusion start-up a big leg-up in the race to commercialise what could be a fortune-making tech breakthrough.
Still, Microsoft’s of vote of confidence is a big deal and shows some believe the timescale to make fusion a reality could be slashed in a big way.
For now, details on the deal remain scant. Neither the cost nor penalties for non-delivery were given.
“We still have a lot of work to do,” said Helion boss David Kirtley. (He is not wrong.) “But we are confident in our ability to deliver the world’s first fusion power facility.”
If his confidence proves well-founded, perhaps commercial fusion power is now just five years away. And then again, perhaps it always will be. (Myles McCormick)
Data Drill
Wind turbine manufacturer Vestas surprised investors with a profit yesterday after a year of persistent quarterly losses.
But despite the shift into the black, the company — like its rivals — continues to be buffeted by a host of inflationary and supply chain problems.
“Inflation is becoming more and more sticky . . . Turbine prices are not coming down,” said chief executive Henrik Andersen in an earnings call.
It is a difficult time to be in the wind game. While subsidies such as those offered in the US Inflation Reduction Act and government mandates are sending strong, long-term demand signals for manufacturers, supply chain constraints, inflation and permitting delays are slowing take-off.
Other large manufacturers such as Siemens Energy and General Electric have made similar complaints, as they struggle to turn a profit.
“When you look at the wind industry, it’s no secret that there’s not a lot of money being made in wind,” said Rich Voorberg, president of Siemens Energy North America. (Amanda Chu)
Power Points
Energy Source is written and edited by Derek Brower, Myles McCormick, Justin Jacobs, Amanda Chu and Emily Goldberg. Reach us at [email protected] and follow us on Twitter at @FTEnergy. Catch up on past editions of the newsletter here.
