BP 2011 Annual Report Download - page 73

Business review: BP in more depth
BP Annual Report and Form 20-F 2011 71
Business review
Greenhouse gas regulation
In the future, we expect that additional regulation of GHG emissions
aimed at addressing climate change will have an increasing impact on
our businesses, operating costs and strategic planning, but may also
offer opportunities for the development of low-carbon technologies and
businesses. See Regulation of the group’s business – Greenhouse gas
regulation on page 109.
To help address potential future regulation, we factor a carbon cost
into our investment appraisals and engineering designs for new projects.
We do this by requiring larger projects, and those for which emissions
costs would be a material part of the project, to apply a standard carbon
cost to the projected GHG emissions over the life of the project. The
standard cost is based on our estimate of the carbon price that might
realistically be expected in particular parts of the world. In industrialized
countries, this standard cost assumption is currently $40 per tonne of
CO2 equivalent. We use this as a basis for assessing the economic value
of the investment and as one consideration in optimizing the way the
project is engineered with respect to emissions. This helps to assess our
investments under scenarios in which the price of carbon emissions is
higher than the current market price.
Adaptation to impacts resulting from a changing climate
We have funded research into the impacts of climate change on our
operations for many years, to better understand the possible types of
climate change impacts, potential effects on the environment and on our
facilities and to develop potential responses to these impacts.
In the Beaufort Sea in Canada, for example, where BP is in the early
stages of an oil exploration project, we have collaborated with ArcticNet,
a local research organization devoted to understanding climate change
impacts in the Arctic, on a two-year environmental baseline study. For
ArcticNet the information gleaned will provide valuable data for analysis,
while for BP the data will provide a useful baseline with which to compare
future research, helping us to understand and chart the effects of climate
change in this deepwater ocean environment.
Projects implementing our environmental and social practices are
required to assess the potential impacts to the project from the changing
climate. Any significant potential impacts identified are managed via the
project’s risk management process. To support this risk assessment
process, we continually update and improve our climate impact modelling
tools. In the Caspian region, for example, we are working with meteorology
and oceanology consultants to enhance the existing modelling capability
and develop a regional climate model to provide long-term forecasts and
trends of wind speed, wave height and sea level.
We also have a guide on adapting to a changing climate which is
available for all projects and operations. This document sets out guidance
to help businesses across BP make appropriate allowance for the potential
effects of climate change.
For projects where climate change impacts are identified as a
risk, our engineers typically seek to address them like any other physical
and ecological hazard, rather than as a discrete category. We periodically
review and adjust existing design criteria and engineering technology
practices. For example, we adapt our drainage design practices based
on the frequency and severity of storms as well as rainfall and runoff
amounts; if storms are anticipated to become more frequent, or heavier,
the engineering design will accommodate this.
Water
We are taking a more strategic approach to water use and assessing
water-related risks within our businesses, including those associated with
the growing global issue of water scarcity. Our focus is on increasing
our ability to forecast, measure and manage emerging water risks and
engaging with external organizations to better understand these risks and
develop sustainable water management practices, particularly where water
is scarce.
With our industry association IPIECA, BP has also participated in the
development of a new customized oil and gas version of the World
Business Council for Sustainable Development’s Global Water Tool, which
helps oil and gas companies map their water use and assess risks of
freshwater scarcity and related biodiversity impacts, across their portfolio
of sites. BP has also invested in a water risk management tool, which is
currently being piloted at a number of BP’s operations, to investigate the
risks of water use and availability at a local level.
In the future, these tools will provide BP with a means of
consistently defining water risks and opportunities across a number of
our operations, enabling us to establish a more consistent approach to
managing water issues throughout the group.
Hydraulic fracturing
Technology helps to make it possible for BP to extract unconventional gas
resources safely and responsibly to help meet the growing global demand
for gas. Unconventional gas can be classified into three categories: tight
gas, coalbed methane and shale gas. BP is pursuing unconventional gas in
the US and in other countries such as Algeria, Oman and Indonesia.
Hydraulic fracturing, or ‘fracking’, is a process of pumping water
mixed with a small proportion of sand and chemicals underground at
high pressure to fracture the rock and release gas that would otherwise
not be accessible. Some stakeholders have expressed concerns about
the potential environmental impacts. BP recognizes these concerns and
seeks to apply responsible well design and construction, surface operation
and fluid handling practices and engages constructively with government
and industry to promote sound policies and regulation that protect water
resources and the environment. We expect that many of the jurisdictions
in which we operate will adopt stricter regulations governing ‘fracking’ and
other unconventional gas extraction technologies in the future which could
adversely affect our operations and profitability in our unconventional gas
business.
Environmental expenditure
$ million
2011 2010 2009
Environmental expenditure relating to
the Gulf of Mexico oil spill
Spill response 586 13,628 –
Additions to environmental
remediation provision 1,167 929 –
Other environmental expenditure
Operating expenditure 704 716 701
Capital expenditure 819 911 955
Clean-ups 53 55 70
Additions to environmental
remediation provision 510 361 588
Additions to decommissioning
provision 4,596 1,800 169
BP continues to incur significant costs related to the 2010 Gulf of Mexico
oil spill. Of the spill response cost of $586 million incurred in the year (2010
$13,628 million) $336 million (2010 $1,043 million) remains as a provision
at 31 December 2011.
The environmental remediation provision includes amounts
for BP’s commitment to fund the Gulf of Mexico Research Initiative,
natural resource damage (NRD) assessment costs and emergency NRD
restoration projects. In addition, during the year BP entered a framework
agreement with natural resource trustees for the United States and
five Gulf Coast states, providing for up to $1 billion to be spent on early
restoration projects to address natural resource injuries resulting from
the Gulf of Mexico oil spill. Further amounts for spill response costs were
provided during the year primarily to recognize increased costs of shoreline
clean-up, patrolling and maintenance and vessel decontamination. The
majority of the active clean-up of the shorelines had been completed by the
end of the year.
See Financial statements – Note 2 on page 190, Note 36 on page
231 and Note 43 on page 249 for further information relating to the Gulf of
Mexico oil spill.