BP: Covid-19 Will Have ‘Enduring Impact’ On Economy

Covid-19 will likely accelerate a move away from fossil fuels as countries seek to ‘build back better’, according to multinational oil and gas company bp.

With the Covid-19 pandemic having continued during the second quarter of 2020, UK-based bp said it now sees the prospect of the pandemic having an enduring impact on the global economy, with the potential for weaker demand for energy for a sustained period.

bp’s management also has a growing expectation that the aftermath of the pandemic will accelerate the pace of transition to a lower carbon economy and energy system, as countries seek to ‘build back better’ so that their economies will be more resilient in the future.

As a result, bp has revised its long-term price assumptions for oil and gas, lowering them and extending the period covered to 2050.

“In February we set out to become a net zero company by 2050 or sooner,” said Bernard Looney, bp chief executive officer. “Since then we have been in action, developing our strategy to become a more diversified, resilient and lower carbon company. As part of that process, we have been reviewing our price assumptions over a longer horizon. That work has been informed by the Covid-19 pandemic, which increasingly looks as if it will have an enduring economic impact.

“So, we have reset our price outlook to reflect that impact and the likelihood of greater efforts to ‘build back better’ towards a Paris-consistent world. We are also reviewing our development plans. All that will result in a significant charge in our upcoming results, but I am confident that these difficult decisions – rooted in our net zero ambition and reaffirmed by the pandemic – will better enable us to compete through the energy transition.”

bp’s revised investment appraisal long-term price assumptions are now an average of around US$55/bbl for Brent and US$2.90 per mmBtu for Henry Hub gas ($2020 real), from 2021-2050. These lower long-term price assumptions are considered by bp to be broadly in line with a range of transition paths consistent with the Paris climate goals. However, they do not correspond to any specific Paris-consistent scenario.

The forecast for Brent futures and Henry Hub gas prices are down nearly a third from the company’s estimates from the end of 2019.

As a result of the revision of long-term price assumptions used for investment appraisal, bp has also revised the price assumptions it uses in value in-use impairment testing and these are now aligned to bp’s revised investment appraisal price assumptions.

bp has also revised its carbon prices for the period to 2050 and these now include a price of $100/teCO₂ in 2030 ($2020 real).