Afaiac, this is a rather good idea. BP could probably maximize third-party funding for basic research projects if it sets up centers in both the US and the UK (i.e. in the EU). Depending on BP's corporate philosophy, these could either compete fiercely or collaborate closely.

Rafael Seidl: It seems to me, that you are quite naiv. What does that mean "basic research projects"? Because nobody on BP really hopes, that this alternative fuels come true. Iogen in Canada is about to build a commercial scale cellulosic ethanol plant. there they use common straw to produce ethanol. The same with Abengoa in Spain. Why do those guys want to do basic research. That's just a marketing matter.

Jan -

don't forget that investors assess oil companies on their so-called proven reserves. In a nutshell, that is the amount the company expects it can bring to market at a profit in the future. US law is very conservative in how these complex estimates are computed. Shell got dinged severely (the CEO had to resign etc.) when it transpired that they had been more aggressive, extrapolating innovation trends in recovery technology and such. The other oil majors took note, of course.

As a result, all of them are now harder pressed than ever to replace reserves they are using up at a faster rate than ever. Exxon is in better shape than most, with significant domestic reserves. BP's domestic reserves (in the North Sea) are declining, and its bets in Russia are perceived as riskier. Therefore, it makes perfect sense for BP (and Shell, btw.) to invest heavily in alternatives to oil, especially natural gas and biofuels. Shareholders want to see dependable future revenue streams, so saying that BP and others involved in biofuels are just greenwashing for the sake of PR may not be accurate. They are simply not in as comfortable a position as say, Exxon.

Btw, Shell, VW and Iogen have announced they intend to set up cellulosic ethanol production in Germany. BP is similarly interested in securing a share of the alternatives market created by the EU's alternative fuels directive (20% by 2020). To get there, there is still a lot of basic research to be done in fuel crop genetics, fermentation / syngas processes etc. For example, algal oil is promising but still very much at the laboratory stage.

Moreover, GBP 500 million is nothing to sneeze at, and BP clearly indicates the proposed center will be staffed primarily by academics rather than in-house researchers. That suggests a focus on basic research, much like that of Bell Labs and Xerox Parc in their respective areas. If governments are unable or unwilling to fund such research, corporations have to, for their own long-term survival. Normally, this takes the form of project-oriented co-operation and funding for selected universities. Here, BP is proposing something larger and more permanent, no doubt hoping to employ the best and the brightest after they complete their PhDs.

Of course, BP has left itself a back door for diverting funds to proprietary applied R&D should the basic research yield insights that lead directly to patentable IP and a competitive advantage. They are not a charity, after all.