As Shell posts its first ever loss BP Is making good money thanks to its alliance with Russia's Rosneft Oil

The shock announcement that Shell had lost £16 billion last year, the first time in its history the oil company has posted a loss, sent shivers down the spines of pension fund managers who have always depended on dividend payments from big oil firms to pay UK pensions, writes James Wilson.

State oil company Rosneft is continuing to pump profits into the main global partner, BP.

Over the past eight years, since 2013, when BP acquired a stake in Rosneft, the Russian company has generated 65% of BP's net profit. BP's total net profit for this period was £12.7 billion, of which Rosneft accounted for £8.26bn.

In terms of BP’s contribution to British pension funds, Rosneft has contributed £573 million in dividend payouts to shareholders in 2019.

With 99 per cent of reporting out of Russia about Russian politics, it is easy to forget the high quality of Russian science and engineering, which has to battle against a hostile environment more difficult than Gulf or off-shore extraction as Russian scientific engineers keep investing in know-how and new techniques.

In February, BP's CEO Bernard Looney signed an extensive agreement with Rosneft on low-carbon strategic cooperation to support sustainability and reduce carbon emissions, including carbon capture, utilisation, and storage (CCUS). The worldwide race to turn the oil giants into low CO2 emitters is the next frontier for all energy companies. Among major oil and gas companies, Rosneft has lower CO2 emissions lower than most of the world's largest oil and gas companies, such as ExxonMobil, Chevron, Total, Petrobras, and Shell, according to the FTSE Russel rating, which is accepted as a world benchmark on global CO2 emissions by energy firms.

Rosneft is working on the important new Vostok Oil project with a carbon footprint that is 25% of similar new global projects. Located in Northern Russia, the low CO2 emitting Vostok field will produce 2 million barrels a day, more than the entire North Sea output.

The estimated emission intensity of the project will amount to about 12KG of CO2 per barrel. This is a major factor given that according to Wood Mackenzie, this figure for new fields globally is around 50kg of CO2 per barrel today. The project will use natural gas for energy supply. Besides, it is planned to use associated petroleum gas in a sustainable way and achieve zero flaring at an early stage. The project will also deploy year-round wind generation. Appropriate weather studies have been carried out, and where possible special wind fields will be constructed. The oil itself at Vostok Oil has low sulphur content of less than 0.05%, 24 times lower than the global average. Th intensity of methane emmissions will amount to less than 0.2%, which aligns with best practices.

To be sure climate change ultra purists will dismiss these efforts as green-washing but winding down dependence on fossil fuel energy requires skilful management. Rosneft says over the next 15 years. It plans to achieve:-

• The prevention of 20 million tonnes of CO2 eq. emissions;
• a 30% reduction in direct and indirect emissions intensity in oil and gas production;
• zero routine flaring of associated petroleum gas, and;
• reduction of methane emission intensity to below 0.25%.

Rosneft is already using solar power generation to power its filling stations and is exploring the possibility of using renewable energy sources within new projects in exploration and production. Unlike the Gulf Oil producers extracting oil from the desert and without few constraints from local public opinion in the tightly controlled small populations in the kingdoms and emirates in the Gulf region, environmental consciousness is high in Russia.

Moreover, Rosneft plans to increase gas production to more than 25% of total hydrocarbon output by the end of 2022, compared to 20% in 2020. The company is making a vast USD 5 billion of "green investments" in 5 years.

So Rosneft planted a record number of seedlings in 2020 and is developing a large-scale programme for forestation, increasing tree planting to create new forest ecosystems to increase the absorbing capacity of Russia's legendary forests.

 As Shell slumps to its first-ever loss in its history, the alliance between BP and Rosneft signed precisely a decade ago is turning out to be one of the best strategic investments made by a UK oil major. Pension fund managers at least will be grateful.

The author, James Wilson, is a Brussels-based freelance journalist and regular contributor to EU Reporter.

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