Summary

  • Oil majors BP & RDSA have vowed to reduce carbon footprint by 2050
  • Supermarket operators SBRY & TSCO are likely to become carbon neutral in the next few decades
  • There are some sectors where reducing carbon footprint still seems difficult

The oil sector has been under severe pressure during the recent months of the carnage caused by the coronavirus pandemic. The global oil demand tumbled to steep lows due to the lockdowns imposed by governments across the globe, to curb the spread of the deadly pandemic, which has claimed nearly 50 thousand lives across UK. The lockdowns resulted in seizing economic activities, which drove the demand for transport fuels to all-time lows. Worldwide oil prices collapsed on lowering demand and rising supply, as well as soaring uncertainty about the economic future, resulting in a crash in financial markets as well.

Amid all this, BP Plc (LON: BP.), a leading oil, and gas company, which had announced earlier that it was selling its petrochemical business to Sir Jim Ratcliffe's Ineos Group for $5 billion (£4.1 billion). A move made by the company would not just reduce the carbon footprint but also bolster the financial position of the company. Also, it marks the largest deal by an oil major since the coronavirus outbreak hit the nations across the globe. The global oil business, BP Plc operates in nearly 80 countries with a representative base of more than 70 thousand.

Also read: BP's New CEO Targets to Make the Company Carbon Neutral By 2020

Ineos is a chemical business, established in 1998. It manufactures petrochemicals, speciality chemicals and oil products globally. Ineos has a footprint in 25 plus countries and is headquartered in the UK. The chemical business comprises of 30 plus businesses spread across more than 180 sites.

Ineos Group agreed to pay $5 billion in three instalments. The first instalment would be of $400 million, followed by $3.6 billion on the completion of the deal. The last and final instalment of $1 billion to be paid by June 2021 has been further put under three separate instalments of $100 million each in March, April, and May and $700 million finally in June 2021.

BP's aromatic division produces chemicals for polyester used in clothing, films, and packaging, along with BP's acetyls business, which produces products used in food flavourings, paints and glues is being acquired by Ineos as per the deal entered between the two parties. The company produced 9.7 million tonnes of petrochemicals. The deal includes stakes in manufacturing plants in the UK, the US, Trinidad and Tobago, China, Malaysia, Indonesia, and Belgium.

The Covid-19 pandemic had a destructive effect on the oil prices, which plunged drastically, in turn creating financial pressure on the oil-producing companies. Selling off the petrochemical business would accelerate BP's need to reduce cost and restructure its finances, though it came as a surprise for many.

A move that could drive BP towards lesser carbon emissions

Environmental campaign group Greenpeace acknowledged that it was required for BP to invest in renewable energy. To free up some cash, the oil company sold its business, but it remains a question as to how BP will invest this money.

Bernard Looney, BP's Chief Executive, expressed its belief that the climate would be adversely affected by the burning of oil and gas. Therefore, BP is likely to drive the change by investing in transition mechanisms to renewable energy.

In February 2020, BP had set a target to reduce its carbon footprints to net-zero by 2050. This is likely to be done by reducing the emissions of greenhouse gases produced in the UK every year. Environmentally friendly measures such as tree-plantation and carbon capture technologies could help in offsetting 360 million tons of greenhouse gases. The aim to achieve the net-zero target is the next major move towards a greener future.

Stock Performance: BP. & RDSA

BP Plc

Royal Dutch Shell Plc

Last close (GBX)

306.65 (as on 5 Aug 2020)

1,198.60(as on 5 Aug 2020)

M-cap (£ Million)

60,654.03

48,517.66

52-week High (GBX)

524.60

2,408.50

52-week Low (GBX)

233.70

970.80

BP with this deal has met its agreed divestment target of $15 billion for a full year ahead of schedule. The deal is going to serve two purposes for the company, on the one hand, it will help the company reduce a debt pile, while on the other it would bolster its plan to sharply cut carbon emissions by 2050.

On the same time, the British-Dutch oil and gas company, Royal Dutch Shell Plc (LON: RDSA) has embarked upon a journey to turn itself into a net-zero carbon company by the year 2050. For this, the company is preparing to sell more green energy to support the reduction of carbon emission. The company wishes to eliminate carbon discharge & industrial effluents by creating carbon capturing and storing facilities.

Supermarket operators are also not far behind

J Sainsbury Plc (LON: SBRY), the largest supermarket operators in the United Kingdom, had announced earlier this year that it had pledged £1 billion in spending to make itself carbon neutral by 2040. Leading supermarket chain Tesco Plc (LON: TSCO) is likely to remove shrink-wrapped multipacks of tinned food from its stores and wants to reach carbon neutrality by 2050.

Stock Performance: SBRY & TSCO

J Sainsbury Plc

Tesco Plc

Last close (GBX)

191.25 (as on 5 Aug 2020)

221.70(as on 5 Aug 2020)

M-cap (£ Million)

4,242.16

21,780.74

52-week High (GBX)

235.80

258.90

52-week Low (GBX)

174.95

211.20

Also read: SBRY, MKS To Discourage Disposable Culture and Promote Refillable Packaging

Utility companies in the United Kingdom and elsewhere in the European Union are also being asked to increasingly source their energy requirements from renewable resources and shun the use of coal and crude and gas for energy production. The steel sector, cement sector and thermal energy sector, which use significant amounts of coal are now being asked to substitute or significantly reduce their use of coal or attract significant penalties.

However, there are some sectors in which it is difficult to reduce the carbon footprint. For instance, it is difficult to enforce environmental regulations in the aviation sector. Through technological improvements, the industry has by itself brought about significant fuel economy and lower greenhouse gas emissions in the past four decades. Although the road ahead seems difficult given the time constraints being stipulated by the various regulatory authorities.

 

 


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