BP 2012 Annual Report Download - page 79

Business review: BP in more depth
Business review: BP in more depth
BP Annual Report and Form 20-F 2012
77
through 2012 and we expect to complete construction and commissioning
by the middle of 2013.
In addition, we completed construction and started up a new, higher
efficiency naphtha reformer at our joint venture Toledo refinery in March
2013.
In addition to refined petroleum products, we also blend and market
biofuels in our FVCs. In 2012 we blended over 7 billion litres of biofuels
into finished product in our FVCs, mainly in Europe and the US.
Biogasoline (bioethanol) and biodiesel (hydrogenated vegetable oils and
fatty acid methyl esters) continue to grow in volume, primarily in Europe
and the US, as regulatory requirements demand heavier blending levels.
Our response is to continue to develop blend capabilities and to work with
regulators, biofuels supply chains and other stakeholders to improve the
sustainability of the biofuels we blend and supply.
Developing new refining technology is also an important part of our
strategy. Our refining and logistics technology team is focused on
optimizing crude oil selection, utilization and refinery processing capability.
They develop and deploy technology and apply knowledge and expertise
to support BP’s refining and logistics assets. They drive excellence in
operational and commercial performance (see Technology pages 57-59).
The London 2012 Olympic and Paralympic Games showcased BP’s
expertise and technology leadership in biofuels through the development
of three advanced biofuel formulations (lignocellulosic ethanol, diesel from
sugar and biobutanol from sugar). These new formulations blended with
BP Ultimate, fuelled the London 2012 Olympic fleet. We continue to work
proactively with governments and regulatory bodies in all the countries in
which we operate to develop practical and effective solutions to meet
local and regional biofuel mandates.
Logistics and marketing
Downstream of our refineries, we operate an advantaged infrastructure
and logistics network (which includes pipelines, storage terminals and road
or rail tankers), and seek to drive excellence in operational and transactional
processes, and deliver compelling customer offers in the various markets
in which we operate.
We supply fuel and related convenience services to retail consumers
through company-owned and franchised retail sites, as well as other
channels, including wholesalers and jobbers. We supply commercial
customers within the transport and industrial sectors. We also focus on
creating sustainable, differentiated high performance, energy efficient,
cleaner and competitive fuels through our fuels technology group. We
continue to support our partners and customers in delivering greater
energy efficiency and reduced CO2 emissions in both established and
emerging markets and we are working on new fuels that deliver improved
fuel economy and compatibility with the latest engine technology and
with biofuel components.
Our retail network is largely concentrated in Europe and the US, but also
has established operations in Australasia and southern Africa. We have
developed networks in China in two separate joint ventures, one with
PetroChina and the other with China Petroleum and Chemical Corporation
(Sinopec). These two joint ventures operate over 700 dual-branded sites
in China. We have also licensed the BP brand for use on retail sites to
Hellenic Petroleum, which operates around 1,000 BP-branded retail sites
in Greece, and to Delek, which operates around 400 BP-branded retail
sites in France.
The following table shows the number of BP-branded retail sites by
region. Some of these retail sites include a convenience store, which
offers consumers a range of food, drink and other consumables and
services in a convenient and innovative manner. The convenience offer
includes brands such as Wild Bean Café and Petit Bistro and includes
partnerships with leading retailers such as Marks & Spencer in the UK.
Number of retail sites operated under a BP brand
Retail sitesa b 2012 2011 2010
US 10,100 11,300 11,300
Europe 8,300 8,200 8,400
Rest of World 2,300 2,300 2,400
Total 20,700 21,800 22,100
a The number of retail sites includes sites not operated by BP but instead operated by dealers,
jobbers, franchisees or brand licensees that operate under a BP brand. These may move to or
from the BP brand as their fuel supply or brand licence agreements expire and are renegotiated
in the normal course of business. Retail sites are primarily branded BP, ARCO and Aral.
b Excludes our interest in equity-accounted entities that are dual-branded.
As at 31 December 2012, BP’s worldwide retail network consisted of
some 20,700 sites across the US, Europe, Australia, New Zealand and
southern Africa. This is a reduction of about 1,100 since 2011, primarily
due to a reduction in the US where we are focusing on higher throughput
sites. These retail sites are primarily branded BP, ARCO and Aral. We
expect the number of branded retail sites to fall by around 800 in 2013 in
the US south west, as we dispose of the ARCO brand as part of the sale
of the US South West FVC to Tesoro Corporation. BP intends to license
back the ARCO brand post divestment for use in the North West FVC. BP
will, however, retain ownership of the ampm convenience store brand
after the disposal and franchise it to Tesoro Corporation for use in the
south-west US.
Supply and trading
BP’s integrated supply and trading function is responsible for delivering
value across the overall crude and oil products supply chain. This structure
enables the optimization of BP’s FVCs to maintain a single interface with
the oil trading markets and to operate with a single set of trading
compliance processes, systems and controls. The oil trading business
(including support functions) has trading offices in Europe, the US and
Asia and employs around 1,800 people. This enables the function to
maintain a presence in the more actively traded regions of the global oil
markets in order to gain an overall understanding of the supply and
demand forces across this market. It has a two-fold strategic purpose in
our business.
First, it seeks to identify the best markets and prices for our crude oil,
source optimal feedstocks for our refineries, and provide competitive
supply for our marketing businesses. In addition, where refinery
production is surplus to marketing requirements or can be sourced more
competitively, it is sold into the market. Wherever possible, the group will
look to optimize value across the supply chain. For example, BP will often
sell its own crude and purchase alternative crudes from third parties for its
refineries where this will provide incremental margin.
Second, the function seeks to create and capture incremental trading
opportunities. It enters into the full range of exchange-traded commodity
derivatives, over-the-counter (OTC) contracts and spot and term contracts
(described in Certain definitions – commodity trading contracts on page 98).
In order to facilitate the generation of trading margin from arbitrage,
blending and storage opportunities, it also owns and contracts for storage
and transport capacity. The group has developed a risk governance
framework which seeks to manage and oversee the financial risks
associated with this trading activity, see Financial statements – Note 26
on page 220.
The group’s trading activities in oil are managed by the integrated supply
and trading function. In order to carry out the unique delegations from the
BP group, the integrated supply and trading function operates and
enforces a robust system of internal control. The internal control systems
operated by the regional business leads are augmented by internal
support functions that provide independent oversight, including product
control, risk, trade completion, and accounting and reporting. They are
further supported by regional and group ethics and compliance and group
internal audit.
Aviation
Our global aviation business, Air BP, is one of the world’s largest and
best-known aviation fuels suppliers, serving many major commercial airlines
as well as the general aviation and military sectors. We have marketing
sales in excess of 460,000 barrels per day. Air BP’s strategic aim is to grow
its position in the core locations of Europe, the US, Australasia and the
Middle East, while focusing its portfolio towards airports that offer