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Businessreview
Business review
ReningandMarketing
OurReningandMarketingbusinessisresponsibleforthesupplyand
trading,rening,manufacturing,marketingandtransportationofcrudeoil,
petroleum,petrochemicalsproductsandrelatedservicestowholesaleand
retailcustomers.WithinReningandMarketing,BPmarketsitsproductsin
morethan70countries.WehavesignicantoperationsinEuropeand
NorthAmericaandalsomanufactureandmarketourproductsacross
Australasia,inChinaandotherpartsofAsia,AfricaandCentraland
SouthAmerica.
Ourorganizationismanagedthroughtwomainbusinessgroupings:
fuelsvaluechains(FVCs)andinternationalbusinesses(IBs).TheFVCs
integratetheactivitiesofrening,logistics,marketing,supplyandtrading,
onaregionalbasis,recognizingthegeographicnatureofthemarketsin
whichwecompete.Thisprovidestheopportunitytooptimizeouractivities
fromcrudeoilpurchasestoendconsumersalesthroughourphysical
assets(reneries,terminals,pipelinesandretailstations).TheIBsoperate
onaglobalbasisandincludethemanufacturing,supplyandmarketingof
lubricants,petrochemicals,aviationfuelsandliqueedpetroleumgas(LPG).
Our market
The2010operatingenvironmentimprovedoverallalongwiththeglobal
economybutwasneverthelessstillchallengingincertainmarkets.Global
oildemandgrewby2.8millionb/d,withgrowthintheOECDfortherst
timesince2005.However,aggregateOECDoildemandin2010remained
3.8millionb/dbelowthe2005peak.
AnnualBPglobalindicatorreningmarginsin2010wereslightly
higherthan2009levelsalthoughthequarterlyvariationwaswithina
smallerrange.Withintheyear,marginsfollowedthepatternofatypical
year,withapeakinthesecondquarter.However,fourth-quartermargins
deedhistorictrendstoexceedthird-quarterlevelsbecauseofearlywinter
weatherintheNorthernHemisphere.Asaresult,theBPglobalindicator
reningmargin(GIM),asdenedinfootnote(e)onpage56,averaged
$4.44perbarrelin2010.From2011,wewillbereportinganewrening
indicatormargin,replacingtheGIM,whichwecallthereningmarker
margin(RMM).Thisadoptsabasisthatwebelieveismorecloselyrelated
totheapproachusedbymanyofourcompetitors.RMMsaresimplied
regionalmarginindicatorsbasedonproductyieldsandarepresentative
crudeoildeemedappropriatefortheregion.TheRMMusesregionalcrack
spreadstocalculatethemarginindicatoranddoesnotincludeestimatesof
fuelcostsandothervariablecosts.Asaresultitisnumericallylargerthan
theGIMandusesamuchsmallerproductrange.
InEurope,wheredieselaccountsforalargeproportionofregional
consumption,reningmarginsincreasedasdemandforcommercial
transportimprovedwithstrongereconomicactivity.IntheUS,where
reningismorehighlyupgradedandthetransportmarketismoregasoline
oriented,reningmarginswereslightlyaheadof2009.Reningmargins
improvedthemostinAsiaPaciccomparedto2009,butstillonlyaveraged
$1.63/bblbecauseofcontinuedadditionstoreningcapacityintheregion.
Relativelywiderfueloiltocrudedifferentialsandlight-heavycrude
spreadsbenetedourhighlyupgradedreneriesandhadapositiveimpact
onournancialperformancein2010comparedwith2009.
Althoughoildemandgrew,2010wasalsocharacterizedbyverylow
marketvolatilityintheoilmarkets.Abalancedmarketincrude,together
withrecordinventorylevels,ledtheoilpricetoremainstablethroughout
2010.Afterreachingrecordaveragelevelsin2009,thevolatilityofdated
Brentpricesdeclinedin2010tothelowestaveragelevelinpercentage
terms,since1995.Thiscontrastinthelevelofmarketvolatilitybetween
early2009and2010,ledtoasignicantlyweakersupplyandtrading
contributiontothenancialperformanceofReningandMarketing.
InourIBs,demandforourpetrochemicalsproductshasimprovedfromthe
lowlevelsinlate2008andearly2009causedbytheglobalrecession.This
hasresultedinanimprovedenvironmentoverall,despiteincreasesin
industrycapacity.Intheaviationindustrypassengernumbersappearto
haverecoveredfromthedepthsofthenancialcrisisin2008and2009.We
haveseenarecoveryindemandforlubricantsfromthelowsofthepast
twoyearsintheautomotivesectorandmoststronglyintheindustrial
sectorofthemarketfollowingamarkeddeclinein2009.Withinthecontext
ofoveralldemand,wecontinuetoseeagradualshifttowardshigher-
qualityandhigher-marginpremiumandsyntheticlubricants.Baseoilprices
haverisenthroughouttheyear.
Our strategy
ReningandMarketingistheproductandservice-ledarmofBP,focused
onfuels,lubricants,petrochemicalsproductsandrelatedservices.Weaim
tobeexcellentinthemarketswechoosetobein–thosethatallowBPto
servethemajorenergymarketsoftheworld.Weareinpursuitof
competitivereturnsandsustainablegrowth,underpinnedbysafe
manufacturingoperationsandtechnology,asweservecustomersand
promoteBPandourbrandsthroughqualityproducts.
WebelievethatkeytosuccessinReningandMarketingisholding
aportfolioofquality,integratedandefcientpositions.TheFVCstrategy
globallyfocusesonfeedstock-advantaged,upgraded,well-locatedreneries
integratedintoadvantagedlogisticsandmarketing.Inpursuitofthis,inthe
US,weintendtodivestourTexasCityreneryandsouthernpartofour
WestCoastFVC,includingtheCarsonrenery,roughlyhalvingourUS
reningcapacitybytheendof2012,subjecttoallnecessarylegaland
regulatoryapprovals.BPwillensurethefullmentofthecurrent
regulatoryobligationsassociatedwiththeTexasCityreneryisreected
inanytransaction.
InourremainingUSFVCs,aswellasinournon-USFVCs,we
believewehaveaportfolioofwell-locatedreneries,integratedwithstrong
marketingpositionsofferingthepotentialforimprovementandgrowth,
eitherthroughmarketgrowth,margingrowthornewaccess.
WithintheIBs,ourstrategyistocontinuetogrowthese
businesses,whicharemateriallyexposedtogrowthmarkets.
Overtimeweexpecttoshiftthebalanceofparticipationandcapital
employedfromestablishedtogrowthregions.
Ourobjectivehasbeentoimproveourperformancebyfocusingon
achievingsafe,reliableandcompliantoperations,restoringmissing
revenuesanddeliveringsustainablecompetitivereturnsandcashows.
Weintendtoimproveournancialperformanceabyatleast$2billion
between2009and2012,primarilyunderpinnedbyidentiedefciency
opportunities.Weexpectgrowthtoresultfromthepursuitoffurthercost
efciencies,improvedportfolioqualityandcapturingintegrationbenetsas
wellasmarginsharegrowth.Inaddition,post2012weplantogrowour
marginthroughthecompletionoftheupgradetoourWhitingrenery,
whichisalreadyunderway.
Webelievethattheseoutcomeswillenableustobealeading
playerineachofthemarketsinwhichwechoosetoparticipate.
T hisperformanceimprovementwillbemeasuredbycomparingReningandMarketing’s
replacementcostprotfor2009withthatof2012,afteradjustingfornon-operatingitems,fair
valueaccountingeffectsandtheimpactofchangesinthereningmarginenvironment,foreign
exchangeimpactsandprice-lageffectsforcrudeandproductpurchases.
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