BP’s retreat from AREH reveals how hesitation and lack of advocacy can cost oil majors their place in the energy transition. Unsplash+
In the spring of 2022, oil major BP announced that it would acquire a 40.5 percent stake in the Australian Renewable Energy Hub (AREH), becoming both a major shareholder and the Hub’s operator. At the time, BP said the project “has the potential to be one of the largest renewables and green hydrogen hubs in the world.” Indeed, annual production capacity for the project has been cited at 1.6 million tonnes of green hydrogen or 9 million tonnes of green ammonia. By the end of the first quarter of 2024, BP had steadily increased its stake to 63.57 percent of the enterprise.
Then, in late July of this year, BP announced plans to exit the Hub. The news came as support for the energy transition seemed to be weakening in several parts around the world, not least in the United States, where federal support for clean energy initiatives has narrowed substantially. More accurately, BP’s decision should be understood as a failure of business strategy—not a failure of concept, but rather of commitment.
The trajectory toward the AREH investment was initiated by Bernard Looney when he became BP’s CEO in February 2020. Soon after, the company pledged bold targets to reduce its oil and gas output by 40 percent, substantially reduce its scope 3 emissions (those tied to its supply chain and consumers) and increase its production of renewable energy—all by 2030.
The strategy underlying these thrusts was clear: gain first-mover advantage in a rapidly changing market. A bedrock principle for energy transition strategies is the essential role of high-quality renewable energy resources. In this way, AREH was a strategic gem. The resources are vast and located in an isolated region in Australia, a developed-world stable democracy. The site’s remoteness was offset by proximity to an energy-intensive mining sector that could serve as a core market. They are also proximate to a handful of ports currently used to export mined commodities that can also be used to export energy commodities via high-demand trade corridors to East Asian markets. Published estimates put the overall project cost between $36 and $55 billion. For BP to take control of a renewable energy project of this magnitude could be seen as a coup that would give the company a better command of the future than its oil and gas rivals.
First-mover strategies can be compelling. But for publicly traded companies, they must be zealously promoted to the investment community. Public companies live under the pressure of shareholder expectations, where predictable, near-term returns often outweigh promises of higher but riskier long-term gains. This means that a company must highlight every factor that will help create a set of first-mover advantages.
BP’s efforts in this regard were lackluster. By mid-2023, without acknowledging a change in strategy, BP announced a partial retreat from some of its 2030 clean energy targets. Compounding the uncertainty, Looney became embroiled in scrutiny over undisclosed personal relationships with staff. In September 2023, the company announced that Looney would step down as CEO, citing these issues. His successor, Murray Auchincloss, did nothing to promote the first-mover strategy. No doubt taking note of the rising chorus of dissenting voices in the investment community, and the fact that the other oil majors were being rewarded for their laggardly approach to the energy transition with substantial increases in share prices, Auchincloss had little incentive to champion aggressive renewables growth.
The reversal accelerated. In February 2025, one year after Auchincloss took the helm, BP announced cuts to planned renewable energy investment while increasing annual oil and gas spending to $10 billion, in a significant pivot meant to enhance earnings and bolster investor confidence. Given this definitive reversal of strategy, no one should have been surprised when the AREH withdrawal announcement followed six months later.
It would be a mistake to conclude from the BP experience that oil majors should steer clear of ambitious, forward-looking strategies. On the contrary, the evolution of the energy transition since 2020 creates ever more significant opportunities to build advantage now that will enable enduring business success in the 2030s and beyond. Climate change is already upon us. It is wreaking havoc at an ever-accelerating pace. The Guardian reported in April that “the overwhelming majority of people in the world—between 80 percent and 89 percent, according to a growing number of peer-reviewed scientific studies—want their governments to take stronger climate action.” Popular sentiment at this scale will empower governments in democracies to ramp up their policy and regulatory efforts. Critically, certain authoritarian governments—starting with but certainly not ending with China—see opportunities to advance their national economic interests by aggressively promoting home-grown clean energy companies.
Every company in the global energy sector should study their situation and identify the opportunities that can enable its future success. But in case risk of failure is a more compelling motivator, here is something for the oil majors to ponder. The first stage of the information technology revolution was dominated by a cadre of “computer majors” (known at the time as “IBM and the BUNCH”) that included approximately the same number of companies as the current cadre of oil majors. These companies were as dominant in their day—the 1950s, 1960s and 1970s—as the oil majors have been over the last few decades. However, none of these companies were named Microsoft, Google or Apple. The computer majors may have been caught up in a sense of their own invincibility. By contrast, Microsoft, Google, Apple and their disruptive peers were innovative, nimble and unconstrained by the timidity of investors. IBM is the only computer major that continues as a leader in the IT field today. The rest exited information technology, got swallowed by other players or went out of business. This will perhaps serve as a word to the wise.
Oil companies today face the same fork in the road. Those willing to commit—to advocate, invest and persist—can thrive in a decarbonizing world. Those who hesitate may find themselves remembered not as leaders, but as footnotes.
