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BP takes £1.2bn hit on German refinery amid race to net zero

The Telegraph logo The Telegraph 3/10/2023 Rachel Millard
bernard looney - F. Carter Smith/Bloomberg © F. Carter Smith/Bloomberg bernard looney - F. Carter Smith/Bloomberg

BP has written down the value of one of its refineries by $1.4bn [£1.1bn] as it blamed a global shift to green energy which has driven a surge in demand for electric cars.

The company has taken a hit on its Gelsenkirchen refinery in north-west Germany which it said was because of “changes to economic assumptions”.

Those include an assumed cost for carbon dioxide emissions of about €70 per tonne of carbon dioxide equivalent, as well as expected lower refining margins.

In BP’s annual report, its auditors, Deloitte, warned over the threat to the value of refineries from the shift away from petrol cars, saying they may be hit by “changes in supply and demand [...] due to the adoption of electric vehicles”.

The shift towards electric vehicles is one of the reasons refining margins could fall, although they will also be affected by other factors. Margins have been particularly high this year amid Russia's war on Ukraine.

BP last month scaled back plans to cut its oil and gas output, citing concerns about energy security.

It had planned to cut production by 40pc by 2030 but will now only do so by 25pc, meaning it aims to be producing about two million barrels of oil equivalent per day in 2030.

On Friday BP disclosed it was handing boss Bernard Looney a £10m pay packet for 2022, more than double the previous year, sparking criticism from campaigners.

Global Witness, the campaign group, said people “have every right to be angry” at the payout during a cost of living crisis driven by high energy costs.

BP made record profits in 2022 of $28bn, as oil and gas prices leapt in the wake of Russia’s invasion of Ukraine.

Mr Looney’s pay package includes a £6m share award based on the company’s performance over the past three years, covering the pandemic.  

He took over in February 2020 and immediately set out a new strategy to help the company diversify from oil and gas, including by building wind farms.  

Paula Rosput Reynolds, chairman of BP’s pay committee, said the past three years had been “among the most challenging in BP’s recent history”.

She said the total paid to Mr Looney “reflects the complexity of Bernard’s job of running our global enterprise and its diverse and essential businesses”.

While the rise in oil and gas prices benefits BP, inflation has harmed the economic case for wind and solar farms.

Deloitte warned there was a risk the book value of BP's investments in low carbon energy “may no longer be recoverable”, though they are satisfied with how BP is valuing the investments.

It follows warnings in recent weeks from several wind farm developers that rising costs could derail projects, raising questions over the pace of the shift to cleaner energy.

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