BP plc BP, the British oil and gas giant, has decided to hit the brakes on the production of renewable fuels at the site of its previous Kwinana oil refinery in Western Australia. The move is believed to be part of the company’s cost-cutting initiatives.

BP had plans to construct a biofuels project in Australia, known as Kwinana Renewable Fuels (“KRF”), alongside a green hydrogen plant named H2Kwinana. The Kwinana refinery was once Australia’s largest oil refinery, with a capacity of 146,000 barrels per day (bpd). 

The KRF project was aimed at producing sustainable fuels from biomass. The cost of the project was estimated to be A$580 million. BP mentioned that even though it has decided to put a pause on this project, biofuels shall remain an important part of its strategy.

BP’s decision is likely to have stemmed from increasing costs associated with the project. Furthermore, without a proper government mandate in place, BP faced uncertainties regarding the local demand for renewable fuels. This made the company unsure of whether the project would turn out to be financially viable. The company stated that it would scale back the project and adjust its pace of development while improving capital efficiency.

BP’s KRF project was the first of five plants to convert biomass like cooking oil and vegetable fats into renewable fuels like sustainable aviation fuel and renewable diesel. The facility was anticipated to have a production capacity of 10,000 bpd. In addition to renewable fuels, BP was also planning to start the production of green hydrogen at Kwinana. The public conceptual study for the green hydrogen facility estimated the cost of the first phase of the project to be A$399 million.

Many energy giants worldwide are cutting back on their investments in renewables amid rising costs to focus on their traditional oil and gas business to enhance profits. BP has recently pulled out of several renewable projects in an attempt to reduce costs and improve returns to shareholders. The KRF project was one of the three renewable fuel projects that were set to proceed even after BP cut back on its biofuels projects, including Lingen in Germany and Cherry Point in the United States.

BP’s Zacks Rank and Key Picks

BP currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the energysector are Sunoco LP SUN, SM Energy SM and Archrock Inc. AROC. Sunoco and SM Energy currently sport a Zacks Rank #1 (Strong Buy) each, while Archrock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sunoco LP is one of the largest distributors of motor fuel in the United States. The partnership distributes fuel to independent dealers, commercial customers, convenience stores and distributors. Its current distribution yield is greater than that of the industry's composite stocks, providing unitholders with consistent returns.

SM Energy is set to expand its oil-centered operations in the coming years, with an increasing focus on crude oil, especially in the Permian Basin and Eagle Ford regions. The increased production, combined with the favorable oil price environment, is expected to positively contribute to its bottom line.

Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.

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