Rosneft’s Green Pledge With BP Challenged by Its Arctic Plans

(Bloomberg) -- As Rosneft PJSC and its largest foreign shareholder BP Plc join efforts to reduce carbon emissions, the specter of the Russian oil giant’s Arctic development threatens to make this task far more challenging.

The two producers have agreed “to cooperate in identifying and developing new low carbon solutions and programs that will support their shared sustainability goals,” they said in a joint statement Thursday. Rosneft and BP will look into production of cleaner fuel, trading of forest carbon offsets, as well as launching carbon capture, utilization and storage projects.

The agreement’s goal “to develop low-carbon solutions and drive down emission” aligns with the green plan BP revealed last year yet Rosneft’s strategy, which includes long-term climate goals, is still focused on expanding hydrocarbon production. BP’s stake in Rosneft has often drawn criticism from investors and environmental groups who say it’s at odds with BP’s climate goals.

Under its energy transition plan, BP’s Chief Executive Officer Bernard Looney has promised to cut 40% of its own oil and gas production and to increase low-carbon investments to $5 billion a year by the end of the decade. BP also pledged it won’t explore for oil in any new countries.

In contrast, Rosneft’s most ambitious new project, Arctic Vostok Oil, which is valued at $85 billion, envisions production of some 25 million tons per year, or around 500,000 barrels a day, in 2024, and twice as much in 2027. At its peak, Vostok Oil is set to produce as much as 100 million tons per year, according to Rosneft. Russia’s total crude oil and condensate production in 2020 reached some 513 million tons.

To be sure, Rosneft’s climate goals until 2035 envision zero routine flaring of associated petroleum gas and prevention of greenhouse gas emissions of 20 million tons in CO2 equivalent. The producer also aims for a 30% cut in intensity of upstream emissions to less than 20 tons of CO2 equivalent per thousand barrels of oil equivalent. Oil companies have been touting aims to reduce carbon intensity per barrel, but under these scenarios absolute emissions can still rise if production increases.

BP’s Looney has gone to great lengths to defend its 19.75% shareholding in Rosneft, which analysts and investors have criticized for being at odds with the low-carbon ambitions. In a call with analysts on Tuesday, Looney claimed that “Rosneft’s greenhouse gas intensity per barrel of oil produced is below 30. In fact, it’s below many of the majors, including BP.”

Rosneft’s lifting costs of $3 per barrel also fit with BP’s focus on “resilient hydrocarbons,” Looney said, adding that the company has received $4 billion in dividends since 2013. “So it’s a good financial investment.”

The emissions agreement with Rosneft is not moving BP closer to its carbon goals, according to Greenpeace. “Unless Rosneft finds the courage to actually cut oil production, it’s going to be a millstone for BP’s own plan,” said Mel Evans, head of Greenpeace UK’s oil team. “BP will need to do more with Rosneft to make its climate plan convincing, or ditch them.”

©2021 Bloomberg L.P.