A number of converging events has led to higher energy prices and BP is bullish on India where the company plans to expand its business, chief executive Bernard Looney said.
A surge in demand owing to a faster-than-expected economic recovery in developed markets, along with the beginning of winter in Europe and drought in Brazil, contributed to higher energy costs, Mr Looney said at the Cera Week India Energy Forum on Thursday.
“What we have is the confluence of events on the back of particularly strong, strong demand in Asia on the back of [the] pandemic,” he said.
“We had very cold winter in Europe, particularly later in the year in April and May, and storage levels dropped and we had lower rainfall than normal in Brazil, which meant that hydro-system was down and LNG was pulled out of America to Latin America.”
Brazil, which relies heavily on hydropower for energy, had to burn fossil fuels to boost power generation at plants as water levels were depleted at many reservoirs because of the reduced rainfall.
“All forms of energy are being pulled hard at this moment in time," Mr Looney said. "The real question is not about how it looks today because, in general, things are being supplied today, the question is what it would look like as we head into winter months, particularly in the north. Everybody is anxious about what may happen if we have a particularly cold winter."
A number of countries are trying to increase storage levels in anticipation of a severe winter in Russia, the UK and Europe.
“What it means in the longer term is that we must invest into things like longer-term contracts, invest into natural gas, which remains a great balancer in the system, invest into storage and invest into diversification. These are the investments that are required and that are necessary,” he said.
Brent, the global benchmark for more than half of the world’s crude, was trading at $85.24 per barrel and West Texas Intermediate above $83 per barrel at 12.25pm UAE time on Thursday. Both benchmarks have rallied more than 60 per cent this year. The price of natural gas has also doubled since the start of the year to trade at $5.13 per million British thermal units on Thursday.
Analysts including top US economist Nouriel Roubini expect oil prices to touch $100 per barrel by the end of this year because of a lack of investment in the energy sector as the world focuses on transitioning to clean energy in a bid to cut emissions.
The oil major is also bullish on India and aims to expand its business in Asia's third-largest economy in partnership with multinational conglomerate Reliance Industries, according to Mr Looney.
Last year, BP and billionaire Mukesh Ambani's Reliance Industries launched new Indian fuels and a mobility joint venture called Reliance BP Mobility. The British oil company paid $1 billion for a 49 per cent stake in the joint venture with Reliance holding 51 per cent.
Operating under the Jio-BP brand, the joint venture aims to become a leading player in India's fuels and mobility markets.
“We have 1,500 sites today, which were traditionally Reliance, have now become Jio-BP sites. We are about to open our first Jio-BP truly new site near Mumbai and will grow that to 5,500 sites between now and 2025,” Mr Looney said.
BP plans to supply 15 per cent of India’s natural gas needs with new projects, he said.
“We started up two projects and we are bringing on the third by the end of next year. It is working well and performing well and represents about 15 per cent of the total natural gas market in the country,” Mr Looney, said.
India is an important market and could represent 90 per cent of the energy growth between now and 2050 in the world, he said.
“As we look at [a] cross-spectrum of the things we do, all the way from natural gas in the upstream to providing fuel to consumers in the downstream and to moving overtime to EV charging, possibly to hydrogen to the bio, all of those things, there is an offer there that very much aligns with the strategy for the country, which I think is ambitious and it’s innovative.”
India's economy is forecast to grow 9.5 per cent this year after contracting 7.3 per cent in 2020, according to the International Monetary Fund.