Fusion has always been a potential game changer for the energy sector, which has long been dominated by companies like BP (LSE: BP). If successful, nuclear fusion can provide practically limitless energy that’s clean, abundant, and that doesn’t produce radioactive waste.
Given that fusion doesn’t emit carbon, it would be a ‘game changer’ for the fight against global warming too.
While in the past, fusion was always ‘many years away’ and an aspirational tech, it now looks like fusion technology has a good probability of being viable sooner than expected.
Recently, scientists made public a number of research papers that showed their nuclear fusion reactor design is ‘very likely to work’. The MIT-associated scientists are already helping construct a potential fusion reactor that could come online as early as 2025. A fusion reactor that produces electricity commercially could be available as early as the 2030s.
Given fusion’s transformative impact, here’s how I think fusion will affect the energy sector and BP.
Competition will increase in the energy sector
Given its transformative potential, I think if fusion becomes commercially viable, it will increase competition for all other forms of energy that generate electricity for distribution. For BP, that means potentially more competition for its natural gas and renewable energy operations.
Just how disruptive fusion would be in the early years depends on how cheap the energy form can be and how much countries will subsidise its adoption.
Given that it’s a green energy that could help fight against climate change, I think it’s safe to say that countries will want to subsidize it to a fairly significant degree. Big countries have spent billions working on the fusion project ITER, for example. Countries around the world are also spending a lot of money on other green energy investments.
Although countries may want to subsidise it, I nevertheless think there is room for the private sector to participate. Companies run by the private sector tend to be more efficient and unlock tech advancements faster than the public sector.
What I think the news means for BP
Although fusion might mean more competition, I think there is still time for big oil companies like BP to adjust. The 2030s are still a while away and fusion won’t directly produce a transportation fuel for oil guzzling cars.
As it stands, I think fusion is actually more of an opportunity for the big oil companies that are nimble enough.
Big oil companies are already familiar with projects that take a lot of upfront investment and a long time before reaching fruition. They have world-class employees to help unlock tech advancements.
Fusion might also fit into BP’s pivot into green energy.
For BP, perhaps more investment into fusion could be a good idea. If BP makes an investment in fusion, it wouldn’t be the first big oil companies to do so. Other big oil companies like Eni already own a part of the MIT-associated scientists’ start-up, named Commonwealth Fusion Systems, for example. If BP transitions into fusion in a big way, I think its valuation could potentially benefit given that many may come to think of it as a ‘tech stock’ too.
