In the wake of the expected growth trends set out by its energy outlook, BP plc revealed in its latest strategy update that it anticipates production to increase by an average of 5 percent per year from 2016 to 2021.
BP Group production, which includes BP’s share of production from Rosneft, is expected to be around 4 million barrels of oil equivalent per day (boepd) by 2021, the energy major said in a Feb. 28 company statement.
? six projects began production in 2016
? seven projects are scheduled to come online in 2017
? nine projects are expected to come on-stream between 2018 to 2021
The projects coming online in 2016 and 2017 are said to be on track to deliver 500,000 boepd in new production capacity by the end of this year. Production ramping up from new upstream projects is expected to deliver a material improvement in BP’s operating cash flow through the second half of 2017, BP said.
“While always maintaining our discipline on costs and capital, BP is now getting back to growth – today, over the medium term and over the very long term,” BP Chief Executive Bob Dudley said in a company statement.
Oil demand may not begin to fall until the second half of the century, according to BP plc’s Energy Outlook, which was released at the end of January.
“If, for example, global GDP growth turns out stronger than a simple extrapolation would imply, or road vehicle efficiency improves less quickly, plausible scenarios suggest oil demand may not begin to fall until the second half of the century,” BP said in its 2017 Energy Outlook.
The oil major did admit however that other scenarios were possible,ating that a “simple extrapolation” of trends would suggest that oil demand may start to decline during the mid-2040s.
“But it might peak much sooner or later,” the report said.
BP’s Energy Outlook primarily considers a base case outlining the “most likely” path for global energy markets over the next 20 years, based on assumptions and judgements about future changes in policy, technology and the economy.
According to the report, demand for oil and other liquids is expected to increase throughout the outlook, growing from around 95 million barrels per day (MMbpd) in 2015 to 110 MMbpd by 2035.
“Transport demand accounts for around two thirds of that growth but … the stimulus from transport gradually fades,” Spencer Dale, BP’s group chief economist, said in the report.
“As a result, the overall growth of oil demand slows – from annual increases of around 1 million barrels a day in the first part of the outlook to closer to 0.4 [million] by the end. A consequence of the slowing impetus from transport demand is that the non-combusted use of oil particularly within the petrochemicals sector takes over as the main driver of growth by 2030,” he added.
An anticipated increase in electric cars is also expected to dampen the growth in oil demand but the scale of that offset is projected to be relatively modest.
“An additional 100 million electric cars in 2035 equates to somewhere between 1 and 1.5 million barrels a day of reduced oil demand,” Dale said.
“Even if electric vehicles were to grow far more rapidly than expected – 2 or 3 times more quickly – this would reduce oil demand only by around 3 or 4 million barrels a day in a market which is expected to expand by 15 million barrels a day,” he added.
Global energy demand will grow by around a third by 2035, driven by a burgeoning Asian middle-class, according to BP’s base case. This increase is notably more sluggish than previous rises though, as Dale points out.
“Total energy demand is projected to average growth of around 1.3 percent per year, which … is significantly slower than that seen over the past 30 or 40 years,” he said.
In terms of the fuels meeting this increased demand, the outlook points to a continuing shift in the fuel mix, with non-fossil fuels providing half of the increase in primary energy.
“Even so, oil and gas, together with coal, continue to meet the majority of the world’s energy needs, accounting for more than three quarters of total energy supply in 2035,” Dale said.
“Natural gas grows more quickly than either oil or coal, overtaking coal to be the second largest fuel source by 2035,” he added.
Gas is projected to grow by around 1.6 percent per year, on average, over the outlook.
“Shale gas accounts for around two thirds of the increase in total production … driven by U.S. shale, which more than doubles, supported by the emergence of China as a sizeable shale gas producer,” Dale said.
Supplies of liquefied natural gas (LNG) are likely to increase rapidly over the next 20 years, according to the outlook, with LNG expected to account for over half of all globally traded gas by 2035.
“The strong growth in LNG supplies is led by the US … and Australia … Asia remains a dominant market for LNG with increasing LNG import supporting strong growth in gas consumption across much of Asia including in China and India,” Dale said.
BP is to spend about $8 billion a year on major upstream projects as it targets a 5% per annum production increase over the next five years.
The UK supermajor will invest between $13 billion and $14 billion per annum on upstream activities, with major projects to get around 60% of the total, chief executive of upstream Bernard Looney said this week during a strategy update.
This will leave less than 10% for each of exploration and integrity work and a little more than 20% for infill drilling to manage production declines.
The company is to bring on 500,000 barrels of oil equivalent per day of new capacity online by the end of this year, with its current suite of major projects set to add 800,000 boepd of new capacity by the end of this decade.
Combined with 200,000 boepd from recent acquisitions, that will see a capacity increase of 1 million boepd.
BP will start up seven projects this year — with Trinidad & Tobago, Oman and Egypt all featuring highly — while nine more will following between next year and 2021.
Total production for 2016 was 2.21 million boepd, a slight drop from 2.22 million boepd in 2015.
However, increased efficiency, projects under way and other projects set to be sanctioned are expected to boost production.
“We have the ability to be a 3 million barrel per day company through the next decade — excluding Russia,” Looney said.
Included in the figure of new production to come online is the recent renewal of the Adco onshore concession in Abu Dhabi
However, BP’s Adma-Opco concession off the emirate is not included as there is no guarantee it will be renewed.
“We don’t want to be presumptuous with our friends in Abu Dhabi,” group chief executive Bob Dudley said when asked about the status of that concession.
BP laid out a lengthy list of potential final investment decisions in the next few years, with Khazzan Train 3 in Oman, Atoll phase two and Zohr in Egypt, Tortue phase one off Mauritania and Senegal, Clair South off the UK, the Trinidad Onshore Compression project and Angelin in Trinidad & Tobago, and Atlantis phase three in the US Gulf of Mexico all name-checked.
Exploration spending will go on lower-cost plays, with BP set to invest less in oil sands and frontier exploration, as shown by its exit last year from the Great Australian Bight.
Total group capital expenditure is set to come in at between $15 billion and $17 billion per annum for the next five years, with BP expecting to be selective on acquisition targets.
“We will be very measured in our investments and we will learn as we go,” Dudley said, adding: “We are not on the hunt for big acquisitions to do, but if there are really big ones, we can do them, and defer others or divest.”
Divestments are set to hit between $4.5 billion and $5.5 billion this year before dropping to an average of between $2 billion and $3 billion a year to 2021.
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