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Finding the right balance
Bogdan Kucharski, head of BP in Poland, talks to the BPCC’s Michael Dembinski about the challenges faced by a company built on hydrocarbons in a world focused on tackling climate change.
CEO Bernard Looney has set out ambitious plans to transform BP from an oil company to an energy company, with a target to achieve Net Zero – carbon neutrality – within 29 years. How will that transformation manifest itself on the Polish market?
The modern global economy relies on an energy model in which all types of energy used today are indispensable. At present, a quarter of energy used globally comes from coal, a quarter from oil, a quarter from natural gas and another quarter from a variety of alternative fuels. These proportions will definitely shift, but gradually. Currently two out of the almost eight billion people living on our planet have limited access to energy or no access at all, which hinders their wellbeing, progress and development. For the time being, there is no possibility to provide them with what they need using alternative energy only. Therefore, we need to find a certain balance between the expectation to carry out energy transition as quickly as possible, and the possibility to supply energy in a way that is most favourable to transition.
Traditional business models generate revenue and cash, and that cash is being reinvested in alternative energy resources. BP’s latest Energy Outlook [see panel below] looks into possible scenarios of global energy transition, development pathways in global energy markets over the next 30 years as well as the key variables that can shape these trends. The world is not on a sustainable path. The scenarios show that achieving a rapid and sustainable decrease in CO2 emissions will likely require a number of measures to be taken. The adoption of appropriate policies, including primarily a significant increase in carbon prices, which will ensure efficient use of energy and energy transition. These policies may require further reinforcement by changes in social behaviour and preferences. A delay in adopting these policies and social changes may significantly increase the scale of challenge, and lead to substantial additional economic costs and disruptions.
According to the basic scenarios analysed in Energy Outlook, global demand for energy will keep growing at least for some portion of the period remaining until 2050. However, the structure of demand for energy will change significantly over that period, and the declining use of fossil fuels will be gradually replaced by a growing share of renewable energy.
Energy Outlook 2020 analysed the trajectory of the energy transition until 2050 under three main scenarios. The Rapid scenario assumes the implementation of specific policies, including those leading to a significant increase in carbon pricing, that will result in CO2 emissions from energy consumption falling by about 70% by 2050 compared to 2018 levels. The Net Zero scenario assumes that the policies put in place under the Rapid scenario will be reinforced by significant changes in social and consumer behaviours and preferences, such as a more widespread adoption of circular and sharing economy, and a shift to low-carbon energy sources. Finally, the Business-as-Usual scenario assumes that government policies, technologies and social preferences will develop in a way and pace seen in the recent past.
The pandemic and turbulences on the oil market which are clearly linked with each other only made the need for transition more urgent. These events have shown how vulnerable the traditional business model is to macroeconomic volatility, and that there is no turning back from this change. However, there is an important caveat to be made – this cannot be done overnight. Therefore, BP's strategy globally is to accelerate the transition, but still use the traditional business model to finance the development of low-carbon solutions.
BP's new strategy, announced in 2020, through which the company will transform from an international oil company focused on resource extraction to an integrated energy company, focuses on provision of energy solutions to customers.
With climate foremost in our minds, we set out ten aims to get BP to net zero by 2050 or sooner, and to help the world get there, too. We are now introducing ten further aims. Five are to help us to care for the planet and five to improve people’s lives. Together, the full set of 20 aims define our sustainability frame.
As far as the situation in Poland is concerned, our country is facing big challenges with regard to energy transition until 2040, but these challenges can definitely be overcome. Our starting point is an economy still largely based on coal-fired power, but I am glad to see that the authorities, companies and businesses are increasingly aware that the transition is necessary, and needs to be accelerated. We cannot wait idly, because things will not happen by themselves. We have to invest in specific programmes to really transition to a low-carbon economy by 2030 and then 2040. I believe that over the next 20 years the Polish energy market will change dramatically. We will largely move away from coal-based power generation. We will be moving towards transition fuels, such as gas, and ultimately seek to increasingly rely on renewable energy sources in our energy sector and our economy. This is a direction we must choose, because this is what the local society expects and this is what our partners from the EU expect us to do. It’s a good business, worth investing in. Over the coming years and decades, BP will be investing heavily in renewable energy sources, in electromobility, and in the service offerings for our retail customers. We will direct significant investment into solar energy, while at the same time will reduce traditional investments in fossil fuel extraction. Admittedly, it is not possible to switch off production of fossil fuels overnight because the entire global economy is just relying on it to a great degree. There needs to be a transition, there needs to be a whole journey from the starting point to the end point which is a low-carbon economy, so BP will be reducing investment in fossil fuels and shifting more and more investment to renewables. BP’s global transition is an ambitious agenda, but it is the only one possible, and the world’s expectations in this area are clearly picking up speed. This is a good move from the global perspective, but we are also very happy about it locally because our businesses in Poland– current and future – are well aligned with this strategy.
In Poland, we are in a good position in terms of energy transition, because we are not exploring or refining. Of course, we still sell our conventional products, traditional fuels, which will certainly also be affected by transition, but as the Polish branch of BP, we are ready for this. We are developing and promoting our range of refined and more efficient fuels which are less burdensome to the environment. We will also be ready to offer all types of new products and services, such as alternative fuels. All three key business lines in Poland (mobility and convenience, lubricants and aviation fuels) are well aligned with the company’s strategy. There are other possibilities for BP to explore globally which will definitely also be considered in Poland. Let us take the example of solar energy. We operate in this sector in 13 markets already thanks to our joint venture Lightsource BP. Further investment priorities are being evaluated and Poland features high on the list. As an example, offshore wind energy may also be a possibility to explore.
- A key part of the challenge revolves around electromobility. How do you foresee Poland – Polish motorists – making that switch from fossil-fuel-powered cars to electric vehicles? Do you envisage a transitional phase via plug-in hybrid technology, or rather do you see a tipping point beyond which consumers will stop buying internal-combustion engine cars? What could trigger a sudden change?
BP is one of the leaders in electromobility globally. A few years ago, we acquired Chargemaster which has 7,500 charging points in the UK and additionally sells home charging stations, totalling about 40,000. This provides us with our own fast charging technology.
Using our leading position in the UK, we are developing electromobility solutions in selected markets worldwide. Apart from the UK, our initial priority markets include Germany and China and the USA. We are testing this technology in a number of other markets, too. Over the next decade, we are planning to operate a network of 70,000 charging points for electric vehicles.
Is BP prepared to cope with a rapid increase in demand for battery-charging points? Will the driver of a battery-powered car be able to charge it quickly - or will changeable battery packs be the way forward?
As far as Poland is concerned, we are ready to develop electromobility on a large scale here as well, but we want to do it when the market is ready. At present, merely 6,000 fully electric cars travel on Polish roads. We can see that this number is growing, but the scale is too small for now. I can assure you that we will be able to quickly and on a large scale come up with electromobility solutions for Poland over the next few years. The Polish market is not yet prepared for rapid development of charging infrastructure, due to the number of fully electric cars still being small and challenges with sufficient power supply for charging stations. This reminds me of the situation with LPG twenty years ago. At that time, the market struggled a little with taking off, but when all started, the snowball effect took place very quickly. This can be similar with electromobility.
Do you see hydrogen as a potential fuel - either in liquified form, or as fuel cells - and if so, is BP looking to refuel hydrogen-powered vehicles in future?
At present, we do not really know what the new standards of mobility will be. We are in a situation where everyone still uses traditional fuels, while alternatives such as CNG, LNG and electric fleets represent a small portion, and it is not entirely clear which direction the market will develop into. Today, it is not yet entirely decided which of these competing technologies will win out, but BP is ready for this myriad of possibilities and will develop them.
Hydrogen as a fuel of the future is prominently featuring in BP's global strategy and we want to achieve a 10% share in this area in selected key markets. If Poland becomes a large hydrogen market, we will definitely move in that direction.
Currently, it appears that the passenger car market will move towards electromobility and the heavy transport market eventually towards hydrogen, although it will likely take another decade to become a material part of the fuel mix. We will be ready for this.
Whatever happens in terms of powering vehicles, drivers will always have a need to take a break at service stations. Food, shopping and washroom facilities will remain important for travellers. How will BP be competing in this space with other brands? In the current market, revenues from non-fuel sales are critical in determining the profitability of a given service station. Will this remain so in future, or will the mix between fuel/non-fuel services change?
I think that just like today retail stations will still be needed 10-20 years from now, although they will probably operate in a completely different format. We will keep selling some forms of mobility and offer a range of additional services. Retail stations will stop being places where you just refuel your car, they will become multifunctional hubs where we can quickly meet many needs of everyday life, including but not limited to mobility.
The pandemic could result in permanent changes in consumer behaviour that will continue to affect the fuel market even when the health crisis is over. It will affect various sectors of the economy. For example, in China, where BP also operates in the retail market, the cities where life has already returned to normal are seeing an uplift in traffic jams by up to 20% from pre-pandemic peaks, as people have begun to avoid public transportation whenever possible. Certain purchasing trends may also change in the long term. For example, there seems to be no turning back from the more significant role that online shopping and contactless payments play nowadays. There will also likely be changes in the way we work, with an increase in remote work, which will translate into less commuting. On the other hand, we can expect a greater share of inland tourism over the medium term which will cause more traffic. These factors will affect the fuel market in different ways, and we will keep watching these changes and respond adequately.
The future, the so-called new normal, which is the new post-Covid reality revolves around customer experience and e-commerce; environment protection, convenience, safety and technology define our customers' needs. BP is transforming at many levels, with a particular focus on developing a wide range of convenience services available at BP stations. In Poland, we partnered with Auchan and created a convenience shop under the name Easy Auchan with a very appealing range of products that complements neatly our own food offer, Wild Bean Café. The entire concept will be highlighted by a modern, transformed look of our fuel stations. The trend towards convenience shops which we have observed for a long time will keep accelerating. In addition, we increasingly often carry out activities in the digital world, and satisfy more and more of our needs remotely, without leaving home, or away from home using available technologies. The pandemic has just accelerated those processes. A new BP station model will be a service hub, where the driver will be served holistically, and customers will be able to use many additional services such as car rental under a car sharing schemes and have their car treated at our carwash accepting cashless payments. At the new BP station, micro-mobility solutions will be available to our customers, thanks to the presence of Bolt’s urban mobility platform. Bolt electric scooters will be available in designated places at our stations. The station will also be a pickup location for Auchan shopping when using the Click&Collect option offered by the retailer. In the future, further elements of this concept will be implemented at BP stations.
What have been the greatest lessons learned by BP over the pandemic? How has it changed the way you do business, serve customers, work with partners, relate with employees?
The last year was exceptional in a number of ways. Firstly, since March 2020 we have been coping with the pandemic and its effects on our health, society and economy. At present, we still do not know when we will return to the lives we had before the pandemic. However, there is a positive element even in the most difficult of experiences. What I mean here is the incredible demonstration of positive emotions, empathy, creativity and appreciation for the presence of others in our private and professional relations.
Companies were more than ever expected to take decisive action in line with the values they declare to live by. Companies which have built their teams based on values and relationships have seen an incredible commitment of their people. Our staff have effectively adapted their ways of working to the dramatically changed reality. Despite the pandemic, we managed to carry out a number of investment projects this year. The coronavirus pandemic hasn’t stopped BP from building new retail sites in Poland. In the area of interactions with customers, the pandemic has accelerated the changes which were happening anyway. We still do not know how long the present situation will persist, how well we will be prepared to handle the most difficult scenarios and what the real social and economic effects will be. However, a lot of difficult decisions were made and we believe that by complying with temporary restrictions everyone can make a real contribution to our common safety. As for the plans for 2021 – BP will implement the new strategy globally and in Poland. We will continue to invest in all three segments in which BP is already present in Poland: mobility and convenience, the lubricants business and jet fuel. We will keep investing in all three segments but naturally heavier expenditures can be expected in cleaner, more efficient fuel technologies and electromobility. The pandemic has changed our ways of working. We in BP plan that at least 25,000 staff around the world will be expected to work from home for two days per week after the pandemic in a permanent shift to flexible working. The new ‘hybrid’ arrangements will apply to more than 6,000 of our staff in Britain, including more than 2,000 in central London, we will also apply this model in Poland – Castrol already has a new office and we are planning new ways of working to start in our Krakow head office in next few months when we move over to a new facility. The change is part of the modernisation of the company and it will offer staff a more flexible, engaging and dynamic way of working.