BHP says electric cars to do little to dent petroleum demand

NICK EVANS

NOVEMBER 11, 2019

The Australian

The expected explosion in electric vehicles will do little to dent demand for petroleum, according to BHP’s oil and gas boss Geraldine Slattery, with demand for oil not expected to peak until at least 2040.

Ms Slattery was to tell analysts on a briefing call on Monday that BHP sees the electrification of the global transport sector as a key theme for its petroleum business, but does not expect the growing use of electric vehicles to impact on supply and demand balance for the commodity for several decades.

She said that even the progressive decarbonisation of the global economy should not affect BHP’s view of its own business, flagging earnings margins of more than 60 per cent for BHP’s suite of oil and gas projects.

“In a decarbonising world, deepwater oil and advantaged gas close to established infrastructure can offer competitive returns for decades to come,” she said in remarks released to the ASX.

BHP’s analysis suggests global use of petroleum products in cars and other light vehicles will halve by 2050, with electric and natural gas-powered buses to make up about 70 per cent of the global fleet by the same time.

But the company sees no real replacement for diesel or other petroleum products in medium and heavy trucks, flagging about 30 per cent penetration of that market by electric and natural gas-powered engines by 2050.

While analysts have expressed concerns about whether BHP can maintain its margins from some of its ageing assets – most notably its Bass Strait and North West Shelf projects in Australia – Ms Slattery said BHP’s project pipeline could deliver annual average volume growth of up to 3 per cent between the 2020 and 2030 financial years.

Those options include BHP’s share in the Woodside Petroleum-operated Scarborough natural gas project off WA, Wildling in the Gulf of Mexico, the Trion deepwater oil development off Mexico and a deepwater gas discovery in Trinidad and Tobago.

They would need to compete for capital with other potential projects in the rest of BHP’s commodity suite, including the Jansen potash project and copper and iron ore growth projects, as well as maintaining BHP’s returns to shareholders.

But Ms Slattery said petroleum’s strong recent history of exploration success, combined with attractive margins from the growth suite, positioned the BHP unit well for growth from the mid-2020s.

The company has been under pressure to shed its oil and gas division from activist shareholders, including Elliott Management, who believe BHP shareholders would benefit from a spin-out or sale of the division.

But Ms Slattery confirmed that BHP’s leadership team still see the unit as an important diversification play.