The BP (LSE: BP) share price is in mortal peril. We have known for years that climate change poses a threat to the oil majors, but now they are living on borrowed time.
This week, a Hague court ordered FTSE 100 rival Royal Dutch Shell to cut its emissions in half by 2030. Shell plans to appeal, but this looks set to trigger a wave of climate law suits by emboldened activists. The days of green washing and vague corporate pledges are over. Big Oil now has to deliver, and it’s not going to be easy. I fear for the BP share price.
That wasn’t the only piece of news to shake the oil industry. On Wednesday, shareholders of US oil giant Chevron voted in favour of cutting its emissions. Exxon Mobil recently lost two director seats to Engine No. 1, a tiny activist hedge fund that has a mere $50m stake in the $250bn company. It wants Exxon to hit net zero emissions by 2050. This is a huge move, given how Exxon has resisted the green revolution. It recently fell out of the Dow Jones Industrial Average after posting $22bn of losses. Could BP suffer a similar fate? It’s possible.
Climate change could kill BP
I expected the BP share price to plunge on recent developments, but it ends the week trading just 1.21% lower. That either means I’m wrong about the threat, or investors are already pricing it in.
In the short run, things look promising for BP. Its share price has climbed by 50% to 305p since November’s Covid-19 vaccine breakthrough, fuelled by oil hitting nearly $70 a barrel.
In an ironic twist, the charge to renewables could drive up the oil price, by deterring exploration and shrinking supply. It won’t last. Solar and wind just keep getting cheaper. With US President Joe Biden pouring money into renewables, we may have hit the fossil fuel tipping point.
The BP share price is in danger
The BP share price will tank unless CEO Bernard Looney pulls off the transition from fossil fuels to renewables. Last year, Looney said he was aiming for net zero by 2050. Many were sceptical, and his job is only getting harder.
The good news is that FTSE 100-listed BP and Shell have taken the threat more seriously than the Americans, and made a concerted push into renewables. The bad news is that it’s nowhere near enough. BP currently offers generous dividend income of 6.54% a year. That may prove hard to sustain as it must now invest heavily in renewables.
The BP share price may have recovered lately but it is still down 45% over three years. Like big bad tobacco, big bad oil can still generate cash and pay dividends despite going into long-term decline. But nobody is planning to ban smoking by 2030, in contrast to carbon. I have stood by BP but now I’m beginning to think the writing is on the wall.