BP Annual Report and Form 20-F 2011 - Company Reporting

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Business reviewThe table below summarizes BP’s petrochemicals production capacity, at 31 December 2011.Petrochemicals production capacity a bGroup interest%BP share ofcapacitythousand tonnesper yearGeographical area Site ProductUSCooper River Purified terephthalic acid (PTA) 100.0 1,345Decatur PTA 100.0 1,026Paraxylene (PX) 100.0 1,101Naphthalene dicarboxylate 100.0 29Texas City Acetic acid 100.0 c 583 cPX 100.0 1,271Metaxylene 100.0 1235,478EuropeUK Hull Acetic acid 100.0 544Acetic anhydride 100.0 157Ethylidene diacetate 100.0 4Belgium Geel PTA 100.0 1,330PX 100.0 631Germany d Gelsenkirchen Olefins and derivatives 50.0 to 61.0 1,837 b eMülheim Solvents 50.0 130 b4,633Rest of WorldChina Caojing Olefins and derivatives 50.0 3,230 bChongqing Acetic acid 51.0 217 bEsters 51.0 52 bNanjing Acetic acid 50.0 274 bZhuhai PTA 85.0 1,564 fIndonesia Merak PTA 50.0 253 bSouth Korea Ulsan Acetic acid 51.0 267 bVinyl acetate monomer 34.0 65 bMalaysia Kertih Acetic acid 70.0 391 bKuantan PTA 100.0 610Taiwan Kaohsiung PTA 61.4 847 bTaichung PTA 61.4 474 bMai Liao Acetic acid 50.0 181 b8,425Total BP share of capacity at 31 December 2011 18,536a Petrochemicals production capacity is the proven maximum sustainable daily rate (MSDR) multiplied by the number of days in the respective period, where MSDR is the highest average daily rate everachieved over a sustained period.b Includes BP share of equity-accounted entities, as indicated.c Group interest is quoted at 100%, reflecting the capacity entitlement which is marketed by BP.d Due to the integrated nature of these plants with our Gelsenkirchen refinery, the income and expenditure of these plants is managed and reported through the fuels business.e Group interest varies by product.f BP Zhuhai Chemical Company Ltd is a subsidiary of BP, the capacity of which is shown above at 100%.OutlookIn 2012, we expect the overall economic environment to be challenging,with below-average growth. Emerging economies are likely to drivegrowth, while developing countries are expected to lag behind. We expectthat refiners will continue to operate with excess capacity globally, despitethe announced shutdown of refineries in the US East Coast and Europe.The RMM in 2012 is expected to remain in a range of $8-12 per barrel. Weexpect the differential between WTI and Brent crude to eventually return tolower levels as additional US pipeline capacity is brought online. The levelof BP’s refinery turnaround activity is expected to be broadly similar in 2012compared with 2011.We expect the marketing environment for lubricants to remainchallenging given the outlook for global economic growth. Longer termhowever, we expect to see growth in global lubricants demand through to2020 as a result of continued growth in the number of vehicles, continuingindustrialization in emerging markets, and expanding world trade. Thisgrowth is expected to be concentrated in non-OECD markets. Lubricantsdemand is also expected to continue to shift towards higher quality,premium products as new vehicles adopt advanced, smaller, more efficientengines placing greater demands on lubricant performance.In the petrochemicals industry, we expect significant new capacity to comeonstream in acetic acid and PTA in 2012, 7% and 15% of global capacityrespectively. Demand is expected to remain robust in 2012, but notsufficient to absorb the additional capacity, hence we expect the marginenvironment to be weaker in 2012 than in 2011.Our priorities in 2012 remain consistent with those in 2011 and2010. We will continue to focus on delivering safe, reliable and compliantoperations, improving the performance of our integrated FVCs, and drivingfurther cost efficiencies across all our businesses. We intend to increaseour investment levels slightly in 2012 versus 2011 and 2010, focusingon key safety and operational integrity priorities, maintaining our qualitymanufacturing and marketing portfolio, strengthening our US East ofRockies FVC business through the Whiting refinery modernization project,and continuing to grow our advantaged petrochemicals business in China.We intend to continue to upgrade our portfolio through investments inadvantaged assets and the completion of our divestment programme,including the US southern west coast FVC and the Texas City refinery,announced in February 2011.100 BP Annual Report and Form 20-F 2011
Business reviewOther businesses and corporateOther businesses and corporate comprises the Alternative Energybusiness, Shipping, Treasury (which includes interest income on thegroup’s cash and cash equivalents), and corporate activities worldwide. Italso included the group’s aluminium business until its disposal in 2011.The replacement cost loss before interest and tax for the yearended 31 December 2011 was $2,478 million, compared with $1,516million for the previous year. 2011 included a net charge for nonoperatingitems of $822 million. (See page 58 for further informationon non-operating items.) The primary additional factors affecting 2011’sresult compared with that of 2010 were significantly higher functionaland corporate costs; loss of aluminium contribution following disposalof the group’s aluminium business in 2011; impacts of restructuring inthe Alternative Energy business; higher Shipping losses, partly offset byimproved foreign exchange hedging results.The replacement cost loss before interest and tax for the yearended 31 December 2010 included a net charge for non-operating items of$200 million.The replacement cost loss before interest and tax for the yearended 31 December 2009 included a net charge for non-operating items of$489 million.The primary additional factors reflected in 2010’s result comparedwith that of 2009 were improved business performance, more favourableforeign exchange effects and cost efficiencies.Key statistics$ million2011 2010 2009Sales and other operating revenues a 2,957 3,328 2,843Replacement cost (loss) before interestand tax (2,478) (1,516) (2,322)Capital expenditure and acquisitions 1,853 1,234 1,299a Includes sales between businesses.Alternative EnergyAlternative Energy comprises BP’s low-carbon businesses and futuregrowth options outside oil and gas, which we believe have the potential tobe a material source of low-carbon energy and are aligned with BP’s corecapabilities. These are biofuels, wind and a range of strategic investments.Our marketA more diverse mix of energy will be required to meet long-term futuredemand. BP’s own estimates suggest that global primary energy demandwill increase by around 40% between 2010 and 2030. Supported bygovernment policies, renewables’ global share of power generation,is expected to be 11% by 2030. Between 2010 and 2030, biofuels areexpected to account for 23% of transport energy demand growth a .Our performanceIn 2011, our biofuels business acquired the Brazilian sugar and ethanolproducer Companhia Nacional de Açúcar e Álcool (CNAA) for $705 million.Our wind business added 401MW of gross generation capacity during2011 (274MW net), with the commercial start-up of the Cedar Creek 2 andSherbino 2 wind farms. At the end of 2011, BP began winding down itsremaining solar operations as it prepares to exit the solar business.Alternative Energy continues to make progress against itscommitment to invest $8 billion in low-carbon businesses by 2015. Ourinvestment since 2005 is $6.6 billion b .a BP Energy Outlook 2030.b The majority of costs have been capitalized, some were expensed under IFRS.BiofuelsBP believes that it has a key technological role to play in enabling thetransport sector to respond to the dual challenges of energy security andclimate change. We have embarked on a focused programme of biofuelsdevelopment based around the most efficient transformation of sustainableand low-cost sugars into a range of fuel molecules. BP continues to investthroughout the entire biofuels value chain, from sustainable feedstocksthat minimize pressure on food supplies through to the development of theadvantaged fuel molecule biobutanol, which has a higher energy contentthan ethanol and delivers improved fuel economy. See Technology –Alternative Energy on page 76 for further information.BP has production facilities operating, or in the planning andconstruction phases, in the US, Brazil and the UK.The 2011 CNAA acquisition included mills located in Goiás andMinas Gerais states that supply both Brazilian and international marketswith ethanol. We have also increased our share in the Brazilian biofuelscompany, Tropical BioEnergia S.A., to 100%, by acquiring the remaining50% for cash consideration of approximately $71 million. The acquisitionincluded an operating ethanol mill, located in Goiás state. BP now ownsand operates three producing ethanol mills in Brazil, with a total crushcapacity a of 7.2 million tonnes per annum. The blending and distributionof biofuels continues to be carried out by our Refining and Marketingsegment, in line with regulation.a Crush capacity represents a maximum capacity to process biofuels feedstock.WindIn wind power, BP has focused its business in the US, where we havedeveloped one of the leading wind portfolios.During 2011, full commercial operations commenced at the CedarCreek 2 wind farm in Colorado with a gross capacity of 251MW (BP 50%)and in Texas at the 150MW Sherbino 2 wind farm. Construction is nearlycomplete at a further Texas wind farm, the 225MW Trinity Hills facility,and construction has commenced at the 141MW Mehoopany wind farm inPennsylvania, and at the 470MW Flat Ridge wind farm in Kansas.BP increased its net wind generation capacity to 1,048MW during2011, an increase of 35% over the prior year.2011 2010 2009Wind – net rated capacity atyear-end (megawatts) a 1,048 774 711a Net wind capacity is the sum of the rated capacities of the assets/turbines that have entered intocommercial operation, including BP’s share of equity-accounted entities. The equivalent capacitieson a gross-JV basis (which includes 100% of the capacity of equity-accounted entities where BPhas partial ownership) were 1,763MW in 2011, 1,362MW in 2010 and 1,237MW in 2009. Thisincludes 32MW of capacity in the Netherlands which is managed by our Refining and Marketingsegment.SolarBP has been involved in solar for more than 35 years and in the last twoyears the industry has changed radically into a low margin commoditymarket. At the end of 2011, BP began winding down its remaining solaroperations as it prepares to exit the solar business. BP will take thenecessary steps to transfer its obligations and assets to its affiliates or tothird parties.Emerging business and venturesOur emerging business and ventures unit brings together BP’s venturingand carbon markets expertise with extensive carbon capture and storagecapability. Through venturing we have 29 separate venturing investmentsspanning three broad areas: bioenergy, electrification and carbon solutions.We are able to deploy specialist carbon capture and storage capabilities onour own operations and to monitor CO 2storage opportunities, such as theIn Salah gas field where we have injected almost 4 million tonnes of CO 2since 2004.In September 2011, SCS Energy, an independent power producerinvolved in clean power projects, acquired the Hydrogen Energy Californiajoint venture project from BP and Rio Tinto.Separately, the 400MW Hydrogen Power Abu Dhabi projectwith CCS is awaiting further decisions, including arrangements for CO 2Business review: BP in more depthBP Annual Report and Form 20-F 2011 101
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Cover imagePhotograph of DeepseaSta
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Cross reference to Form 20-FPageIte
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Miscellaneous termsIn this document
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6 BP Annual Report and Form 20-F 20
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Chairman’s letterCarl-Henric Svan
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Business review: Group overviewBP A
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SafetyDuring the year, we reorganiz
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In detailFor more information, seeR
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Technology will continue to play a
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In detailFind out more online.bp.co
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BP Annual Report and Form 20-F 2011
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Below BP has asignificant presencei
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What you can measure6 Active portfo
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