Exclusive-Gas crisis helps land BP 500 million windfall

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By Dmitry Zhdannikov

LONDON (Reuters) – BP’s business team earned at least $ 500 million in the third quarter of 2021, two sources with knowledge of the company’s business results said as the energy major profited from a crisis gas that has left consumers and industries perplexed.

Natural gas and electricity prices hit an all-time high in Europe and parts of Asia in August, as the global economy recovered from the pandemic and energy use grew faster than supplies.

Low gas stocks after a cold winter and hot summer as well as low production of renewable energy contributed to the recovery.

Rising electricity bills have sparked protests in Spain and put pressure on European governments to find ways to protect consumers and industry and calm markets. European Union countries https://www.reuters.com/article/eu-energy-idAFL1N2RM0FT failed to agree on a bloc-wide response on Tuesday.

In China, the government has taken steps to increase coal production and reform electricity markets to ensure homes are heated this winter.

The results of BP’s gas swaps were disclosed in an internal call with staff earlier this month, the sources said, asking not to be named because they are not authorized to speak to the media. BP declined to comment for this story.

The gains were made as customers in Europe and Asia rushed to buy liquefied natural gas (LNG) from the United States and other parts of the world to deal with the shortages – in a reversal of the situation two years ago when LNG producers faced a global glut.

RIVAUX COULD DO EVEN MORE

BP’s strong gas business results are likely to provide a first indication of how some of the other international energy companies will benefit from the global gas crisis.

BP has a smaller LNG and gas trading portfolio than its competitors, notably Shell and Equinor, which could post even higher profits.

Shell, Equinor and BP will release their results this week and next.

Energy companies typically do not disclose details of profits and losses resulting from trading their quarterly profits. They usually only indicate whether trading contributed positively or negatively to the overall financial results.

BP and Shell rely on cash flow from trading to support them in their transition to a business model less dependent on fossil fuels.

They need trades to generate profits as they focus more on the renewables and electricity markets which tend to have lower margins than oil and gas.

BP’s trading arm https://www.reuters.com/article/us-bp-trading-exclusive-idUSKBN2B30GK made nearly $ 4 billion in profit in 2020, almost matching the record trading profit of 2019.

The company has pledged to cut oil and gas production, while Shell says its oil production has peaked. Both say they are expanding trade and still make billions of dollars a year transporting oil and gas around the world.

Although BP plans to expand the electricity and renewables business, many of these markets are highly regulated and unlikely to generate the same profit margins as oil and gas.

The bulk of BP’s profit last year was in oil, with the price first falling due to the impact of global lockdowns on fuel demand, then recovering in a rally that continued until 2021 to bring oil prices to their highest level since 2014.

One of the biggest trading games in 2020 was to store oil during the recession, buy it cheap, and sell it later when prices picked up.

This year, natural gas has performed equally well due to market disruptions that have led to the power shortage in China and the gas shortage in Europe.

BP has already earned nearly $ 500 million in deals in the first quarter of 2021 after a deep freeze in Texas sent gas prices soaring, sources said.

(Reporting by Dmitry Zhdannikov; Editing by Simon Webb and Barbara Lewis)


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