BP 2011 Annual Report Download - page 101

BP Annual Report and Form 20-F 2011 99
Business review: BP in more depth
Business review
LPG
Our global LPG marketing business sells bulk, bottled, automotive and
wholesale LPG products in 10 countries, with sales of over 50 thousand
barrels per day. As noted in the Acquisitions and disposals section, BP
announced in February 2012 its intent to sell the bulk and bottled LPG
businesses in nine countries, and will retain the autogas and wholesale
LPG sales from refineries which will be integrated into the fuels value
chains.
Lubricants
Our lubricants business manufactures and markets lubricants and related
products and services to the automotive, industrial, marine, aviation and
energy markets across the world. At the end of 2011, the operating capital
employed relating to the lubricants business was approximately $5 billion
including goodwill of around $3 billion (see Financial statements – Note 10
on pages 206-207).
We organize our lubricants business into customer sectors. The
automotive sector serves the needs of land-based vehicles including cars,
trucks, motorbikes, buses, tractors, earth movers and other vehicles.
Our industrial sector serves customers who run or maintain plant and
equipment; our marine sector serves users of river and sea-going vessels;
aviation serves aircraft operators and maintenance industries; and our
energy sector serves the oil and gas and power industries.
In the automotive lubricants sector, which accounts for more than
two-thirds of our lubricants sales, we supply lubricants and other related
products and services to intermediate customers such as retailers and
workshops. These, in turn, serve end-consumers such as car, truck and
motorcycle owners.
BP’s marine lubricants business is one of the largest global
suppliers of lubricants to the marine industry, with a global presence in
over 800 ports. BP’s industrial lubricants business is a leading supplier to
those sectors of the market involved in the manufacturing of automobiles,
trucks, machinery components and steel. We are also a leading supplier of
lubricants for the oil, gas and aviation industries. In the oil and gas industry
we supply some of world’s largest production and drilling companies, and
we estimate that we supply over 30% of the world’s subsea control fluids.
In the aviation industry, we are the lubricants supplier for around 40% of
the jet engines of the world’s commercial airlines.
We look to market and sell our products across the world. We sell
products direct to our customers in around 45 countries and use approved
local distributors for other geographies. Approximately 40% of our
employees are located in non-OECD markets and around 20% of staff are
located in China and India alone. We are particularly strong in Europe and
key Asia Pacific markets including India.
Our lubricants business markets primarily through our major brands
of Castrol and BP, and through the Aral brand in specific European markets,
notably Germany. Castrol is a recognized brand worldwide and we believe
it provides us with a significant competitive advantage.
Distinctive brands, superior technology and building and sustaining
customer relationships remain the cornerstones of our long-term strategy.
Our participation in the value chain is focused on areas of
competitive differentiation and strength. These fall into three main areas:
the development of formulations and the application of cutting-edge
technology; developing product brands and communicating the benefits
that our products provide to our customers; and building and extending
our relationships with customers so that our products and services are
delivered in a manner which best meets their needs.
We have chosen not to participate at scale in base oil or additives
manufacturing. We are, however, one of the largest purchasers of base oil
in the market.
We participate in blending in locations where scale and competitive
advantage can be sustained, or where customer service or security of
supply are of critical importance and otherwise difficult to secure. We have
a network of 27 wholly-owned and operated blending plants worldwide and
joint ownership in five others operated by third parties.
Our focus is on developing premium products, and we often work
alongside original equipment manufacturers (OEMs) in doing this. The new
Castrol EDGE professional range was launched in 2011 to the franchised
workshop market in Europe and Africa.
In 2011, approximately 45% of the lubricants replacement cost profit
before interest and tax was generated from non-OECD markets.
Petrochemicals
Our petrochemicals business is global, with operations in the US, Europe
and Asia. The business buys a range of feedstocks for input into our
manufacturing units, the majority of which have been built and operate
utilizing our proprietary technology. We manufacture and market four main
product lines: purified terephthalic acid (PTA), paraxylene (PX), acetic acid,
and, through joint ventures, olefins and derivatives (O&D). We also produce
a number of other speciality petrochemicals products. At the end of 2011,
the operating capital employed relating to the petrochemicals business was
approximately $5 billion.
Our strategy is to leverage our industry-leading technology in the
markets in which we choose to participate, to grow the business, and to
deliver industry-leading returns. New investments are targeted principally in
the higher-growth Asian markets. We both own and operate 100%-owned
assets, and have also invested in a number of joint ventures in Asia, where
our partners are leading companies within their domestic market.
PTA is a raw material used in the manufacture of polyesters used
in fibres, textiles and film, and polyethylene terephthalate (PET) bottles.
PTA production requires PX as a feedstock, which we produce in the US
and Europe and buy in Asia. PTA is then reacted with glycol to produce
polyester chips or fibres, which are in turn used to produce PET bottles,
polyester fibres and various speciality products, including protective
screens for computers and TVs. PX production is primarily from the mixed
xylene stream produced in a reformer within a refinery.
Acetic acid is a versatile intermediate chemical used in a variety
of products such as paints, adhesives and solvents, as well as in the
production of PTA. In producing acetic acid, we purchase methanol and
either make or buy carbon monoxide (CO). CO can be produced from a
variety of hydrocarbon feedstocks, including natural gas, naphtha, fuel oil
and coal.
Our O&D business is based in China and is focused on serving
the Chinese and Asian markets. The SECCO joint venture between BP,
Sinopec and its subsidiary, Shanghai Petrochemical Company, is our main
O&D site and is BP’s single largest investment in China. BP also co-owns
one other naphtha cracker site outside Asia, which is integrated with our
Gelsenkirchen refinery in Germany.
The petrochemicals business runs 16 manufacturing sites in
the UK, the US, Belgium, Germany, China, Indonesia, South Korea,
Malaysia and Taiwan, including our joint ventures, and we also have two
petrochemicals plants which are managed by the fuels business as they
utilize feedstock from our Gelsenkirchen refinery.