Australian biofuel plant holds key to BP’s renewable energy future

A new biofuel factory in Australia was at the forefront of BP’s efforts to go green under former boss Bernard Looney.

Indeed, BP Australia’s boss Frederic Baudry describes the country as the ‘poster child’ of the FTSE 100 giant’s highly ambitious global energy transition strategy.

So what becomes of the plant in Kwinana south of Perth following Looney’s departure last week – for failing to disclose personal relationships with staff – will say much about BP’s future under new leadership.

For 65 years, the site provided a steady source of employment, and fuel, to generations living in this small industrial offshoot in Western Australia. 

But with planes grounded and cars sitting idle in driveways during the Covid-19 pandemic, demand for fuel collapsed, further squeezing profit margins.

Biofuel factory: BP’s plant in Kwinana, south of Perth, has been earmarked to make sustainable aviation fuel with raw materials such as used cooking oil or household

BP shut the plant, laying off 600 workers, and converted the site into an import terminal to ship in cheaper fuel from overseas.

Two years on, the site is on the cusp of being repurposed again to spearhead the oil major’s pivot from hydrocarbons to renewable energy. 

It has been earmarked for a new generation of fuel refinery, one which makes sustainable aviation fuel with raw materials such as used cooking oil or household waste, and renewable diesel using vegetable oils, animal fats and other biowaste products.

With construction expected to get under way next year, BP hopes it will be its first global biofuel project off the blocks, powering planes, trucks and cars.

If all goes to plan – and it’s a big if – BP reckons it will be producing hydrogen from 2026 and at a sufficient scale to begin exporting it by the end of the decade. 

With its natural bounty of sun, wind and space, Australia is seen as an ideal place to generate wind and solar power, despite its remoteness.

During Looney’s tenure, Australia moved up the pecking order, behind the US and the UK, with projects worth tens of billions of dollars in the pipeline.

Ambitious plans: BP Australia chief Frederic Baudry

Some of the projects being planned are mind-boggling in scale, and would be out of the question in smaller, more densely populated European countries. 

One of the biggest is being spearheaded by BP in the Pilbara region of North Western Australian, best known as the country’s iron ore heartlands.

In June last year BP bought a 40.5 per cent stake in the Australian Renewable Energy Hub, which envisions covering around 2500 square miles of outback, an area roughly the size of Devon, with more than 1,700 wind turbines up to 950 feet high, and 18 giant solar farms. 

And all dedicated to generating electricity to produce ‘green hydrogen’, before adding nitrogen to convert it into ammonia to make it easier to export.

The renewables push has been encouraged by Australian prime minister Anthony Albanese’s Labour government, which swept to power last year on the back of bold pledges to tackle climate change.

The firm has already received $70million in federal government funding for the hub in Kwinana.

But at an event in London earlier this year, Baudry warned the Albanese government that more government support is required to give BP the confidence to invest hundreds of millions of dollars into turning its ‘shovel ready projects’ into a reality.

But with the departure of Looney, the driving force behind the company’s green ambitions, some shareholders dismayed by BP’s focus on renewable energy, which they believe has come at their expense, have been offered a glimmer of hope.

BP has been the worst performer of all the global oil majors, with its shares rising 10 per cent since Looney became chief executive in February 2020 compared with a rise of more than 25 per cent at Shell.

David Hewitt an analyst at Liberum said the company now has the opportunity to ‘reverse the overzealous pivot to lower returning renewables’ and refocus on what BP does best.

BP has already watered down its energy transition plan to an extent, announcing earlier this year that it would aim to cut oil production by a quarter by 2030 instead of by 40 per cent.

Russ Mould from AJ Bell believes a further retreat is off the cards for now, particularly with Murray Auchincloss – Looney’s former finance chief – as interim chief executive. 

But Mould speculated that BP may temper its green ambitions if oil prices remain elevated for a long time, or if high inflation deters households and businesses from switching to more expensive, and potentially less reliable, forms of renewable energy.