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BP Says Russia Fits Its Strategy

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Targeting carbon neutrality by 2050, BP remains attracted by Russia’s vast, high-quality and low-cost oil and gas reserves. One of the parts of BP’s new strategy adopted last year is focused on "resilient hydrocarbons," and Russian reserves tick that box, according to BP’s chief in Russia David Campbell. But there is a principle difference between the international major and its Russian partner state-controlled Rosneft, in which BP holds 19.75%, on the way they see their production prospects. BP plans to cut its oil and gas output by 40% by 2030. Rosneft, on the other hand, intends to grow its production, anticipating a looming supply crunch because of underinvestment and the energy transition. The refusal to reduce production is one of the main reasons why Russian companies refrain from taking commitments to become carbon-neutral by 2050, Campbell believes. "Companies here are not going to do that yet. So, that is why I absolutely understand why they are being honest in saying "not yet" but they are committed to making carbon emissions from their own production less," Campbell told Energy Intelligence in an exclusive interview at the recent St. Petersburg International Economic Forum (related). A common desire to make production cleaner and more efficient prompted BP and Rosneft to sign an agreement earlier this year on joining forces to reduce their carbon footprint (NC Feb.11'21). The document includes five streams, covering the “harmonization of definitions and measurements,” looking at projects to decide which ones could further cut emissions, fighting methane leaks, new technologies and social investments. A growing demand for cleaner energy is to play a bigger role and any new investment decision by BP will also have to take into consideration the carbon price which the company applies to all projects globally, including Russia. In 2021, for example, the carbon tax amounts to $50 per metric ton of carbon dioxide on operational emissions, according to Campbell. The first project to feel this challenge could be the Turonian gas of the Kharampurneftegas joint venture (JV) with Rosneft that is to start producing Cenomanian gas next year (NC May 20'21). According to Campbell, “investment targets are a little harder now because we are assuming a lower oil price scenario right across the world" and “we also have a higher price assumed for carbon.” If the project to develop the more complex Turonian gas meets BP’s investment targets, the decision to proceed could be taken in a couple of years. Gas and low-carbon energy are another part of BP’s strategy. The international major would like to develop significant gas reserves of another JV with Rosneft, Taas-Yuryakhneftegas, but this seems to have a low probability at this stage as gas from the acreage could only be evacuated via Gazprom’s Power of Siberia export pipeline to China. Gazprom has no plans to share its export rights for piped gas with anybody else. As for oil production, Taas-Yuryakh is producing at slightly above its plateau of 100,000 barrels per day and is planning to drill more to support that level. With oil and gas still to remain “a big part of the mix,” BP continues to invest in exploration in Russia. But the international major wants to invest only in “the best opportunities,” which explains the review of the licenses held by Yermak Neftegas, its exploration JV with Rosneft. As a result, BP decided to return some licenses to Rosneft, but that wouldn't stop it applying for new ones as well, Campbell said. “We’ve cut our exploration budget but it still has a role for us," Campbell explained. Yermak earlier this year completed drilling a well at the Verkhne-Kubinsky prospect in West Siberia and is planning to spud a well next year at West-Yarudeisky (NC May 12'21). Investments in Yermak have been relatively small and still haven't exceeded $150 million. Commenting on the recent International Energy Agency report saying that no new oil and gas exploration is needed to reach net zero by 2050, Campbell said: “It’s consistent with how we see a 1.5°[C] scenario could play out. But there isn't anything at the moment to replace oil and gas at scale. Without such fuels there would be danger of widespread energy blackouts,” he said. “We cannot just reduce production when the world needs all that energy." He declined to answer a question about BP’s possible participation in Rosneft’s Vostok Oil megaproject in the Russian Arctic, although emphasized that his company supports the project as being of strategic significance for Russia and as one that is planned to be of low-carbon intensity. Nelli Sharushkina, Moscow

Topic:
Corporate Strategy
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