French national Frederic Baudry says it has been an “amazing couple of years” since he took up the role as president of BP Australia in early 2020, but there’s a big task ahead.
This is an edited transcript of an interview with Carbon Challenge on the British major’s journey to transform its LNG-dominated business here to one fit for the clean energy revolution, including hydrogen, renewables and clean fuels.
Frederic, thanks for joining us. How do you assess what progress Australia has made in the energy transition since you arrived?
Considering it’s only two years – and two years of COVID — since we first started that, it’s such an evolution from that situation to now, with a legislated set of targets to 2030.
Forty-three per cent [emissions reduction] is great – 2030 is only eight years away – but really, it’s what happens beyond that, and what we put in place now in order to get to something which we estimate and others reference is more like 60 per cent by 2035 that the world needs to hit the targets of Paris.
It’s that realisation and the importance of pursuing multiple technologies [that has grown] across government and industry; the engagement in policy is very different. And the other marked change is the sense that it’s no longer an either-or, and it’s no longer a fight of good and evil, and that there is a real sweet spot here for Australia.
Internally in BP, of the many geographies in which we’re looking to establish our energy transition strategy and investments, Australia is really standing out as one of probably three places globally where we see the opportunity.
Top three in what sense?
When we look at the quantum of investment, and the range of technologies for energy transition it’s one of the three geographies that we think have the greatest potential.
Is that primarily because of the sheer abundance of renewable resources?
That’s part of it. So plenty of sun, plenty of wind, right opportunity, that’s very clear. But it’s also a stronghold of capabilities, human capabilities, industrial capability to develop complex projects. It is also the availability of capital. And frankly… it’s in the postcode. We know that more than 60 per cent of the emissions are in Asia-Pacific. Just last week, I happened to be invited by the PM, with the Japanese delegation in Perth, and the message that we need gas for some time to come, but we need to decarbonise gas, and we need other forms of energy in order to secure the security for the region really was prominent.
So abundance of renewable energy, absolutely — that’s why we invested in the Asian Renewable Energy Hub [AREH in Western Australia’s Pilbara]. But there’s a much broader set of opportunities for industry and investments to get the Nirvana of Paris: clean, reliable, affordable energy which will come from energy diversity.
Which other regions rival Australia for transition investments for BP?
We are extremely active in the UK, across blue hydrogen in particular, but offshore wind and a variety of investments in decarbonising power industry and helping cities decarbonise, but also decarbonising mobility, which is a big theme of our strategy implementation. That’s incredibly relevant to Australia right now.
The Middle East is, is another region in which we are extremely active. Germany is also of interest to us, we have a large business there. And then, of course, the US the Inflation Reduction Act, or maybe Emissions Reduction Act, as it might be dubbed – the IRA is tipping the scale, so the US becomes a really attractive place for investment in energy transition globally, as a result of that package.
That’s a real game-changer, the IRA?
It is, It’s a game changer between traditional and renewable energy inside the US, it’s a game changer between the US and the rest of the world, because capital is finite….If you can get hydrogen at $US1.50 per kilogram in the US, then it becomes the most competitive by a very, very large number internationally. Likewise, it’s brought the advent of breakeven on EVs forward from what we estimated would be around 2030 to 2022.
So the IRA could be tipping the scale and the message we had in our various ministerial engagements over the last few weeks, is we must respond, we must respond with policy in Australia, because Australia has all the ingredients to be that powerhouse that [Energy and Climate Change Minister Chris] Bowen referenced, you have all the elements, but we have to create the policy settings to divert investment to the country.
In the absence of that will Australian projects slip down the agenda globally for BP?
That’s indeed a danger. Let’s look at the investments that we’ve already committed. So solar through our Lightsource bp joint venture, one gigawatt in construction, 2GW aspiration – that would make us the number one developer in the country. That’s in implementation. We launched EV [charging] last week, and we’re going to scale up. That’s in implementation and economic. We also have a whole set of carbon offset products that’s active and products that are effective, transparent, sustainable. We’re already proceeding with these investments.
We have invested in AREH to become the operator and project developer. We’re super excited about the project, we’re working well with our partners with 17 million tonnes of CO2 abatement with a capacity to effectively be the equivalent of decarbonising one-third of the National Electricity Market. That’s that’s a massive opportunity. We need the settings in terms of backing demand, stimulating demand and in terms of encouraging the strong transmission to the customer base that will make this project economic. We’re not there yet. It’s at the capital appraisal stage, environmental license application stage, it’s early stage, but it’s not economic yet.
Likewise we are working really hard to decarbonise our gas through Project Angel. We need the settings that will help us make that economic so it’s all about anchor demand and policy settings.
I’ll make a quick detour to transportation because the 43 per cent by 2030 incentivises electric mobility. We’re delighted with it – 18 or 19 per cent of our emissions are from transport and we support that – but that only gets you so far in terms of decarbonisation, you still have a whole set of sectors that are really, really hard to abate.
Aviation, that does not have a technology solution. We have an investment that’s ready to come out of the traps in Kwinana, trying to transform that refinery, into a renewable plant to support the aviation industry and the mining industry. We’re ready to invest behind this. That will be more than a billion [dollars] into the transformation of the Kwinana facility. But these are not quite economic ….because the demand for these is incentivised in Europe.
So we’re working across with a number of investments across decarbonisation of industry, of power, of gas. We’re working in mobility through EV, biofuels and evaluating hydrogen mobility. But to get from top three in terms of the funnel of projects to making the investment … there’s this next step required in policy.
What sort of reception has your message got from federal and state governments?
Both the IRA specifically on renewable fuels, encouraging, The resolutions, the commitments being made, and the funding being made available for transmission has been recognised as a major pull for government support and public spending. We’re really encouraged by that.
Then, secondly, in terms of policy setting, I think, the message has landed, Mr. Bowen himself was in [the Global Clean Energy Action Forum in] Pittsburgh, a few weeks back, and the need to respond and a call-out for a response from industry is being workedand we have been counselled to engage in the conversation.
This is after all an administration that’s only been in place for months – give them time to respond with policy settings.
We’re also hearing encouragement over building resilient local supply chains, and that’s, that’s great news to us because on some of those policy settings we’re able to demonstrate that we are building a supply chain that is very much anchored here in Australia.
In EV, we’re working with Australian manufacturers to ensure that the equipment is made here locally to support the deployment of our EV network. Likewise, in renewable fuels, we are working with aggregators and non-food energy crop producers that will help build local supply chains. So you can have quite a strong storyboard that goes from local feedstock through to local transformation at an industrial facility in Kwinana through to helping the Qantases and the BHPs decarbonise operations that otherwise they couldn’t do in Australia.
The set-up of the ‘Jet Zero’ council in Australia and the fact that it’s been recognised and funded and that there’s some urgency being put behind that by Canberra – that’s referenced in the budget. We take all of this as an encouragement because our customers are calling for it, we’re calling for it. And now I think that government has realised that there’s a sweet spot between clean, reliable affordable energy and prosperity and investment jobs. That sweet spot actually is in our hands to chase down at the moment.
Are your clean energy projects off the table until we do get policy like that to make them economic?
Too early to say. The economics are moving all the time. Right now, we’re a long way from $US1.50 [a kilogram for hydrogen], and we have to consider that the investments have to be economic in their own right. But as a company that has committed to decarbonise 50 per cent of its operations by 2050, and [to reduce] 35 to 40 per cent of the carbon content of its product by 2030, we have to make choices on behalf of our investors globally.
So we’re proceeding bringing a whole slate of investments forward, we want to see AREH be economic, we want to see Geraldton GERI – where we’ve received an allocation of land from the West Australian government – being economic, we want to see the Kwinana biofuels investment being economic, but they have to be economic for us to proceed with these investments. And we are not quite there, that’s very clear.
Is that one way of saying that if these policies don’t happen, you will have to maybe sell out of some of your existing fossil fuel investments in Australia?
No, I absolutely would not make that bridge. We cannot proceed with investments in energy transition in Australia that are not economic, our investors will not support that. We have committed to have by 2025 40 per cent of our investment towards transition growth and by 2030 50 per cent. That will happen.
We have a major objective to decarbonise the gas that we’re currently producing on the North West Shelf, we’re really keen to continue to proceed with Browse [LNG] and we’re working very hard with our partners to do that.
We just have a mission globally to help decarbonise gas, and it’s inevitable that we’ll get there. We believe that …you have the continued obligation to produce gas in order to feed the energy needs. Energy self-sufficiency is really important, the energy needs of the whole continent that will continue to be an activity for Australia, and in return there’s the objective for carbon to come back from Japan and Korea into some of those fields in the North West Shelf and elsewhere. So there’s a real opportunity to decarbonise gas at scale, that is plentifully available in the North West Shelf.
You are talking of carbon capture and storage there?
Absolutely. That’s why we’re active in project Angel. And that’s why we’re continuing to work with Browse. The region needs this gas. It does for years and decades to come. We’re estimating that hydrogen will by 2050 have the same place globally in terms of the energy supply as gas does today. In order for that to be possible and hit the Paris accord, we need to find a way to decarbonise,
But isn’t it all going in the wrong direction, given the new government has just slashed funding for CCS?
We have to continue to work on the projects that will help decarbonise the gas. We’re not at the stage of final investment approval, and we need to continue to engage the governments in that, but we’re continuing to support the decarbonisation of the North West Shelf.
Do you think there’s a bit of over-optimism about how soon hydrogen could contribute to decarbonisation?
Hydrogen, especially green hydrogen, when you consider the plentiful availability of natural resources, wind and solar, will absolutely be part of the energy transition. Whether we’re looking at it from the environmental and sustainability standpoint, the technology standpoint or an ethical standpoint, hydrogen and green hydrogen in particular, will be part of the transition. At the point of production, this is really cheap energy, really competitive.
In every industrial revolution, the initial cost of the technology looks uneconomic. And then the first set of investors actually benefits from that experience curve, and becomes advantaged in broadening that set of investments.
That’s why we want to be early in hydrogen. That’s why we fundamentally believe that Australia is advantaged and has the ability to turn those investments into economic investments down the line.
But for that, we need to build the experience curve. There’s an element of risk that as a company we’re willing to take. That’s why we’ve backed ourselves with targets to 2030 and we’re pursuing those investments even though, prima facie, they do not look economic right now. We’re backing ourselves that the technologies and the fact that we’re in conversation in the right places, with the right partners, with the right government, that will enable us to get competitive.
In the meantime you are keen on Browse LNG if you are able to decarbonise the gas, even though Browse has struggled for many years to be economic even without CCS?
I realise it’s challenged, but we are keen to establish whether we can indeed proceed or not. Having witnessed how important continuity of gas supply to North Asia is and seeing the engagement that we’re having with Japanese and Korean companies … there definitely is a very strong demand to make this happen, but it will have to be decarbonised.
So as we look to bp’s transition investments what will go forward first – sustainable fuels, early-stage green hydrogen?
I hope all of it. So there are things that are proceeding solar, EV and AREH, and then we have the things that are currently ready to go forward. Currently, we’re not yet anywhere near FID [final investment decision], but we are developing the projects, in AREH and Geraldton, for both domestic and export. And these require commercial feasibility, confirmation on transmission and port infrastructure in order to decarbonise the global customer base.
You have probably for Geraldton heard [WA hydrogen] minister [Alannah] MacTiernan, reference starting construction in 2024. We’re trying to work towards those timelines. For AREH we’re committed to producing green hydrogen in the form of power before 2030 also.
The Kwinana renewable fuel facility… we’re ready to proceed to front end engineering design a billion dollars of investment. That’s the one that is most imminent, but it does require collaboration. Our customers are ready to engage on that, with us as a manufacturer, and indeed with Canberra on policy settings. This is such an exciting opportunity to build energy security, Seven hundred million litres of additional fuels locally, that helps towards stock obligations, but also to build the economy, to help our customers differentiate in their own market.
This is about securing their future in their own markets, and sustainable aviation fuel, given the lack of alternative for the aviation industry, we’re really excited about. Just to give you an example, to try to build a project on the basis of putting 700 million litres on a ship to Europe so that Qantas, and others can then bring it back to Australia doesn’t make a lot of sense for the planet, doesn’t make a lot of sense for the economics of our projects.
So we might see a FEED decision on the fuels project next year, depending on policy?
I want to get to FID as fast as possible. Because, 43 per cent is great, but it will look very small relative to what we need in 2035. But 2030 is just eight years away, we believe we’ve got such a unique role to play, not just because we’re willing to put investment behind it, but we have the experience of developing really complex energy projects and of building value chains.
Eight years away seems a long time: it’s incredibly short. Because we know how long it takes to get those things off the ground. We know that if we get ]to FID next year, we can’t have renewable fuels until a couple of years after, and hydrogen will take even longer. So we need to get started now. But that model of investment needs to be derisked for our investors to support us.
Is the 43 per cent is even achievable by 2030 without more policy settings to support it?
I’m absolutely certain that the government wouldn’t have committed 43 per cent without some comfort and confidence that they could get there. It does set the right target for industry, and we’re prepared to get behind it. It can’t just be achieved by EV OEMs pointing all of their EVs towards Australia. We need to decarbonise power at scale, and we need to decarbonise those sectors that can’t be abated at scale also, which is why to hit the 43 per cent we need to get some of these projects to FID over the next couple of years, absolutely.
Thanks Frederic.
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