BP share price: could the company profit from this nearly limitless energy?

As BP expands in this nearly limitless energy sector, Jay Yao writes what he thinks BP’s expansion could mean for BP share price.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Green energy is the rage these days. Tesla has a higher market cap than BP (LSE: BP) and Royal Dutch Shell combined. Given its position as a leading energy provider, BP is joining the movement and trying to go green as well. BP recently decided to further invest in this practically limitless energy sector. Here’s more on the oil giant’s move and what I think it could mean for BP share price.

Nearly limitless energy

BP recently participated in a $40m investment round for a startup named Eavor Technologies. Eavor has an ambitious plan to generate enough power to meet the needs of around 10m homes by 2030 using geothermal technology.

Geothermal takes heat from under Earth’s surface and converts it into electricity. Given that the heat under the Earth is so huge, it’s practically limitless and thus considered ‘renewable’. If done correctly, geothermal generation emits very little to no greenhouse gases as well. Unlike wind turbines or solar, which don’t produce energy if there is no wind or sun respectively, geothermal can also always be on if done correctly.

Many analysts think geothermal energy has a lot of growth potential given the right tech improvements, which could make the process of finding, accessing, and managing geothermal resources more economical. In an optimistic case scenario, for example, the US Department of Energy estimated that US geothermal power generation could increase almost 26-fold from 2019 levels to 60 gigawatts-electric capacity by 2050. Under a ‘business as usual’ scenario, US geothermal power generation could increase to around 6 GW of capacity by 2050.

By investing in Eavor through its venture arm, BP is in effect giving the company more resources to potentially make technological breakthroughs that could promote more geothermal adoption in the future.

BP Share price: what I’d do

Given that it isn’t investing very much into Eavor, I don’t think the investment will matter much for the BP share price in the near term. But given how much geothermal energy can grow in the future, there is the chance that BP can make a substantial profit from its investment if the right tech breakthroughs occur.

I think it could be a good thing that management is investing in other energy companies with potentially promising technology. Although it has a world-class R&D operation and immense financial resources, BP doesn’t have a monopoly on energy innovation. Sometimes startups and smaller companies make meaningful innovations that BP or other supermajors have missed. By investing in promising energy startups, BP can in effect diversify its exposure to energy technology more. (Although it may or may not happen, I’d personally like to see the oil giant invest more into fusion startups as well).

As a whole, I am optimistic about BP’s potential in the green sector. I think there are many opportunities to create value and I reckon the company will successfully transition into a greener future. Given the current BP share price, I’d buy and hold the company’s shares.

With this said, BP shares also have risk. Many believe oil production will decline over time, making BP’s green transition more urgent. If BP management were to invest in the wrong green areas or not deliver the results the market expects, the stock could decline. If oil prices fall meaningfully as well, BP might not make as much profit as some expect. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jay Yao has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »