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Rosneft’s massive Arctic oil push undermines BP’s green turn

NK Rosneft' OAO

Rosneft’s massive Arctic oil push undermines BP’s green turn

Russian group presses ahead with $134bn project as UK company stakes bet on producing less crude

A pumping site operated by Rosneft. The Russian company’s own climate goals are far from BP’s ambitions © Andrey Rudakov/Bloomberg

BP’s chief executive Bernard Looney has staked his leadership on the oil company producing less oil. Rosneft’s chief executive Igor Sechin is taking the opposite side of that bet, with a planned Rbs10tn ($134bn) wager on a vast new project in the Arctic.

That BP owns nearly 20 per cent of the Russian oil producer appears to make no difference to the pugnacious Mr Sechin’s faith in crude. But perhaps it should to Mr Looney.

Mr Sechin officially announced Rosneft’s Vostok Oil project was under way in November during a tête-à-tête with his old friend President Vladimir Putin. It is in many ways the antithesis of Mr Looney’s commitments to make BP a net zero company by 2050, and reduce its reliance on fossil fuel revenues.

The scale of the project is huge. Seeking to tap an estimated 6bn tonnes of crude, Rosneft will create 15 new towns to house the 400,000 people required to both build the wells and infrastructure and operate them. A fleet of ice-capable tankers is being built.

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When fully operational, Rosneft hopes to export 100m tonnes of oil a year. Trafigura, the trading house, has purchased a 10 per cent stake in the project, which is also being pitched to potential Chinese and Indian investors.

Mr Looney, who became chief executive of BP in February 2020, joined Rosneft’s board in June, one of two seats the British company holds thanks to its 19.75 per cent shareholding — the largest stake after that of Mr Putin’s government. By then, the details of the project were at a rubber-stamping stage, having that month been initially approved as “ambitious and promising” by Mr Putin.

But the jarring dichotomy between his vision of the oil industry’s future and the one on which Mr Sechin is staking the investment of BP and every other Rosneft shareholder must have been obvious.

Less than a month before Mr Looney joined Rosneft’s board, he told the Financial Times that the slump in oil demand caused by the coronavirus pandemic may have meant that “peak oil” demand had already passed. Mr Sechin appeared not to be listening: around the same time, in another meeting with Mr Putin, he was requesting tax breaks for exploratory drilling. 

BP has said that it needs to continue participating in some lucrative hydrocarbon projects to fund its investments in cleaner energy. And Rosneft certainly provides Mr Looney with strong reasons to ignore the gulf between the two companies’ outlook on their industry.

BP earned $785m in dividends from its Rosneft stake in 2019 and booked $2.3bn of pre-tax profit arising from that investment. Rosneft’s wells account for about a third of BP’s entire annual hydrocarbon production.

In its annual report, BP justifies incorporating Rosneft’s business and its vast reserves on an equity basis by arguing that it exerts “significant influence” over the Russian company, “including BP’s participation in decision-making”. But continuing to make that assertion while also preaching a business model that its partner clearly disagrees with could get tricky.

Indeed, Didier Casimiro, Rosneft’s first vice-president, said in September that BP’s new green turn was creating “an existential crisis” for the oil market, and that state-backed giants such as Rosneft would benefit from the move.

BP declined to respond to questions regarding Vostok Oil but told the FT that Rosneft was a “strategic partner” and that the shareholding “is an important part of our broader portfolio, providing us with a strong position in Russia which has some of the most resilient hydrocarbon resources in the world”.

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Rosneft did not respond to questions from the FT. Last month, it unveiled its own “climate goals”, which are far from BP’s ambitions: a plan to lower greenhouse gas emissions by 20m tonnes of carbon dioxide equivalent over the next 15 years is a slower rate of reduction than the 3.1m tonnes the company managed to shed in 2018-19.

Handily, BP has said Rosneft is exempt from its emissions pledge. In other words, the company will bank its dividends and share in its profits but overlook its carbon dioxide. 

That stance may become unsustainable, in all senses of the word. Mr Looney may struggle to rebrand BP as a sustainable energy group while a company over which it claims “significant influence” is digging up the Arctic to secure billions of barrels of oil.

Turning a blind eye to Mr Sechin’s quest to keep pumping, selling and burning more hydrocarbons is one thing. But condoning a massive new project in the Arctic, where rapidly rising temperatures and retreating ice have made it ground zero in the war on climate change, is quite another. 

henry.foy@ft.com

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