After estimates that the demand for oil globally could be affected for the next 30 years because of the novel coronavirus pandemic hitting the world, British Petroleum (BP) has decided to cut the value of its oil and gas assets by up to $17.5bn while also possibly being forced to ditch new fossil fuel discoveries in the ground.
Since the forecast by it about oil prices for the next three decades have fallen by almost a third, therefore BP will be forced to take the one time hit which will be its highest in a decade, the British oil major told its investors.
The estimates of the company has predicted price of global oil to be at an average of $55 a barrel between 2020 and 2050 which could force the company to leave aside some oil and gas discoveries in the ground if those projects are found not to be economically viable to develop further.
Job cuts of 10,000 from its global workforce, representing about 15 per cent of its workforce of 70,000 employees by the end of the year, was announced by BP last week. The company said that the job cuts were necessary for the company to deal with the collapse of global oil prices because of the pandemic.
In light of a “growing expectation” that the global pandemic would “accelerate the pace of transition to a lower carbon economy and energy system”, the management of the company would be conducting reviews of its plans to develop new projects, BP said on Monday.
This announcement of BP, which was quite unexpected by the market, reflects the signals of the hastening of the process of a shift to cleaner energy induced by the novel coronavirus pandemic, which has caused a historic drop in demand for fossil fuel globally, predicted to be at 25-year lows for the current year.
Considering the lasting impact of the coronavirus outbreak on the global economy as well as the greater likelihood of “greater efforts to ‘build back better’ towards a Paris-consistent world” after the end of the pandemic, the company had been forced tp “reset” its oil forecasts, said BP’s boss, Bernard Looney.
“We are also reviewing our development plans,” he said. “All that will result in a significant charge in our upcoming results, but I am confident that these difficult decisions – rooted in our net-zero ambition and reaffirmed by the pandemic – will better enable us to compete through the energy transition.”
The oil price reset was long overdue, believes Charlie Kronick, a senior climate adviser for Greenpeace UK. “This huge dent in BP’s balance sheet suggests it has finally dawned on BP that the climate emergency is going to make oil worth less – something that smart investors have been warning for some time,” he said.
In recent weeks, many countries have eased down the strict lockdown measures, as non-essential businesses such as stores and restaurants reopening up in many countries. However, recovery for the global economy is expected to be slow because of time needed for reemployment of thousands of people who have lost their jobs during the pandemic, coupled with wage cuts for millions.
(Adapted from TheGuardian.com)