Global natural gas demand is forecast to recover and eclipse 2019 levels by the end this year, with liquefied natural gas (LNG) consumption set to climb in Asia, according to BP plc.
The London-based integrated energy major delivered its second quarter results on Tuesday, offering a robust outlook for natural gas and oil, even as it works to transform the portfolio toward lower carbon projects.
CEO Bernard Looney during a conference call with investors said higher commodity prices, combined with more efficiencies, pointed to better days ahead.
“We are a year into executing BP’s strategy to become an integrated energy company and are making good progress, delivering another quarter of strong performance while investing for the future in a disciplined way,” Looney said.
BP last year set a goal to become a net-zero carbon emissions operator by 2050. However, it was clear in the numbers that stronger natural gas and oil prices contributed to the quarterly performance.
‘Maxxed Out’ LNG Exports
Higher gas prices followed a cold winter in Europe and the United States, along with “unusually low storage levels,” Looney said. In addition, U.S. LNG exports, particularly to Asia, now are “maxxed out,” while hot weather continues to blast the country.
“A whole number of factors…have come together to cause gas prices to be strong. Whether they remain strong or not remains to be seen.”
BP expects the global oil market to continue to rebalance. Global stocks are expected to decline and reach “historical levels, in terms of days of forward cover, in the first half of 2022.”
Oil consumption is expected to recover this year “on the back of a bright macroeconomic outlook, increasing vaccination roll-out and gradual lifting of Covid-19 restrictions around the world.
“The expectation is that demand reaches pre-Covid levels sometime in the second half of 2022,” Looney said.
“Looking ahead to 2025, we see a significant opportunity to continue growing underlying cash flow.” BP is “taking disciplined investment decisions in support of our transition to an integrated energy company. This is, in essence, what we mean by performing while transforming.”
CFO Murray Auchincloss, who shared a microphone with Looney, said “sentiment has improved” for the macro environment.
“Oil price has continued to increase, with Brent averaging $69/bbl in the second quarter, a 13% rise. This reflects the improved demand outlook as Covid-19 restrictions were gradually lifted.”
Into the second half of 2021, BP is anticipating “global gas markets to remain tight in the second half of 2021, with additional LNG supply outages or further delays to Nord Stream 2 presenting potential price upside.”
Global oil prices should “remain firm as inventory levels decline to historical levels, driven by ongoing increases in demand and continued active supply management” by the Organization of the Petroleum Exporting Countries and its allies.
Looney noted that the “resilient hydrocarbons” business remains “the engine of our transformation.” BP has brought online eight major projects, adding around 200,000 boe/d.
Upstream output in 2021 is forecast to be lower year/year because of ongoing divestments. However, underlying production “should be slightly higher than 2020, with the ramp-up of major projects, primarily in gas regions, partly offset by the impacts of reduced capital investment and decline in lower-margin gas assets.”
The BPX unit, which houses the Texas-focused Lower 48 oil and gas operations, reported a decline in production year/year. Total output fell to 273,000 boe/d from 262,000 boe/d. Natural gas production declined to 971 MMcf/d from 1.38 Bcf/d. Liquids output fell to 106,000 b/d from 127,000 b/d.
For its U.S. natural gas, BPX fetched an average price of $3.16/Mcf in 2Q2021, compared with 96 cents in the year-ago period. Liquids prices averaged $44.84/bbl, versus $15.92 in 2Q2020.
During 2Q2021, BPX was running on average four rigs in the Eagle Ford Shale and two rigs each in the Haynesville Shale and Permian Basin. During 2Q2020, only one rig was in service in the Permian, with zero rigs operating in the Haynesville and Eagle Ford.
Demanding ‘Bespoke Solutions’
Net-zero carbon projects also are steaming forward, with BP more than doubling its renewables pipeline to 21 GW, with additions in offshore wind and electric vehicle (EV) capacity.
“We now have around 11,000 EV charging points in some of the world’s busiest markets, over 40% higher than reported at the end of 2019,” Looney noted. BP also took its “first positions” in hydrogen and carbon capture utilization and storage (CCUS).
“As the energy transition unfolds, electrification will grow, the energy mix will become more diverse, more integrated and more local, and customers will demand more bespoke solutions,” said the CEO. “While we understand the questions in some investors’ minds, we do see a compelling proposition to deliver competitive returns across these value chains.”
Notable, the “returns in hydrogen and CCUS are yet to be established, but they will need to be higher given the risk, and are likely to be stable for the first developments.”
The prospect for solid returns in EV charging and convenience/retail outlets “are even stronger. And the magic comes when we use our trading capabilities to optimize between the upstream energy flows and the different customers we interact with.”
Opportunities abound for corporate power purchase agreements, as well as “electric charging points for individuals or fleets, to blue or green hydrogen.”
More than “3,000 corporates, 300 cities and 30 regions” today are committed to net-zero carbon dioxide (CO2) emissions by 2050, Looney noted. The universe covers “nearly 25%” of global CO2 emissions and more than 50% of gross domestic product.
“This is both a huge commitment and a huge challenge, and it is where we see the opportunity for BP to step in and help our customers manage the complexity associated with their energy transition goals, and in doing so, create value for BP.”
Regarding the resurgence of the coronavirus, Looney said it was “difficult to predict when all current supply and demand imbalances will be resolved and what the ultimate impact of Covid-19 will be.” Decisions on bringing employees back to offices “are being taken with caution and in compliance” with local and national guidelines.
Net profits reached $3.1 billion (83 cents/share) in 2Q2021, reversing the year-ago loss of $16.8 billion (minus $1.98). Operating cash flow increased to $5.4 billion from $3.7 billion.
The underlying performance in the quarter and “confidence” for an improving outlook led BP to boost the second quarter dividend by 4% to 5.46 cents/share, Looney said. The increase is based on BP’s 2021-2025 average cash balance point using a forecast of $3.00 Henry Hub, $40 Brent oil and $11/bbl Refining Marker Margin.
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