BP 2012 Annual Report Download - page 80

Business review: BP in more depth
BP Annual Report and Form 20-F 2012
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long-term competitive advantage. In line with this strategy, in the second
quarter of 2012, we completed the acquisition of Shell and Cosan Industria
e Commercio’s interests in significant aviation fuels assets at seven
Brazilian airports, which is an important growth market.
LPG
We are in the process of exiting our global LPG marketing business, which
sells bulk and bottled LPG products, in order to simplify our marketing
operations. We will retain focus on LPG where it is deeply integrated into
our wholesale and autogas sectors in order to optimize refinery and retail
operations. As at 31 December 2012, the sales of the LPG business in
three countries out of nine had been completed and a further three
announced and the integration of the wholesale and autogas sectors into
the FVCs is complete.
Lubricants
Our lubricants business manufactures and markets lubricants and related
products and services to the automotive, industrial, marine, aviation and
energy markets across the world. Distinctive brands, cutting-edge
technology and sustaining customer relationships are the cornerstone
of our approach. Our key brands are Castrol, BP and Aral. Castrol is a
recognized brand worldwide and we believe it provides us with a
significant competitive advantage. In technology, we apply our expertise
to create quality lubricants and high performance fluids for customers in
on-road, off-road, air, sea and industrial applications globally.
We divide our lubricants business up into five customer sectors:
automotive, marine, industrial, aviation and energy:
t The automotive sector, which accounts for more than two-thirds of our
lubricants sales, serves the needs of land-based vehicles including cars,
trucks, motorcycles, buses, tractors, earth movers and other vehicles.
We supply lubricants and other related products and services to
intermediate customers such as retailers and workshops. These, in
turn, serve end consumers such as car, truck and motorcycle owners.
t The marine sector serves users of river and sea-going vessels. BP’s
marine lubricants business is one of the largest global suppliers of
lubricants to the marine industry, with a global presence in over
800 ports.
t Our industrial sector serves customers who run or maintain plant and
equipment and it is a leading supplier to those sectors of the market
involved in the manufacturing of automobiles, trucks, machinery
components and steel.
t Our aviation sector serves aircraft operators and maintenance
industries. In the aviation industry, we estimate that we are the
lubricants supplier for around 40% of the jet engines of the world’s
commercial airlines.
t Our energy sector serves the oil and gas and power industries. In the
oil and gas industry we supply some of world’s largest production and
drilling companies.
We look to market and sell our products across the world. We sell
products direct to our customers in around 45 countries and use approved
local distributors for other geographies. Approximately 40% of our
employees are located in non-OECD markets and around 20% are located
in China and India alone. We are particularly strong in Europe and key Asia
Pacific markets including India. In 2012 approximately 50% of the
lubricants business replacement cost profit before interest and tax was
generated from non-OECD markets.
We have chosen not to participate at scale in base oil or additives
manufacturing. We are, however, one of the largest purchasers of base
oil in the market.
We participate in blending in locations where scale and competitive
advantage can be sustained, or where customer service or security of
supply are of critical importance and otherwise difficult to secure. We
have a network of 25 wholly owned and operated blending plants
worldwide and joint ownership in five others operated by third parties.
Our participation in the value chain is focused on areas of competitive
differentiation and strength. These fall into three main areas: the
development of formulations and the application of cutting-edge
technology; developing product brands and communicating the benefits
that our products provide to our customers; and building and extending
our relationships with customers so that our products and services are
delivered in a manner that best meets their needs.
In lubricants technology we apply our expertise to create quality lubricants
and high performance fluids for on-road, off-road, air, sea and industrial
applications globally. We continue to support our partners and customers
in delivering high-performance lubricants that deliver greater energy
efficiency and reduced CO2 emissions in both established and emerging
markets.
During 2012 we launched a Performance Biolubes product line, adding a
range of bio-based metalworking fluids and lubricants for use in cutting,
grinding, forming and maintenance lubrication. This new technology
underpins the Castrol brand’s commitment to developing environmentally
responsible product offers. In addition, we introduced ‘80BN’ (the BN
refers to the base number), a new product for the marine market that uses
advanced technology to optimize the performance of lubricants in
slow-steaming marine engines and further strengthens our credentials in
technology leadership. In 2012 we also introduced a co-branded product
with Ford to support their new range of environmentally friendly engines.
Our focus is on developing premium products, and we often work
alongside original equipment manufacturers in doing this. The new Castrol
EDGE professional range was launched to the franchised workshop
market in Europe and Africa in 2012.
Our lubricants businesses continued to grow the proportion of total sales
resulting from premium product sales; in 2012 the percentage of premium
sales was 39% compared with 37% in 2011 and 34% in 2010.
Petrochemicals
Our global petrochemicals business has operations in the US, Europe
and Asia. The business buys a range of feedstocks for input into our
manufacturing units, the majority of which have been built and operate
utilizing our proprietary technology. We manufacture and market four
main product lines:
t Purified terephthalic acid (PTA).
t Paraxylene (PX).
t Acetic acid.
t Olefins and derivatives (O&D).
We also produce a number of other speciality petrochemicals products.
Our strategy is to leverage our industry-leading technology in the markets
in which we choose to participate, to grow the business and to deliver
industry-leading returns. New investments are targeted principally in the
higher-growth Asian markets. We both own and operate assets, and have
also invested in a number of joint ventures in Asia, where our partners are
leading companies within their domestic market.
PTA is a raw material used in the manufacture of polyesters used in fibres,
textiles and film, and polyethylene terephthalate (PET) bottles. PTA
production requires PX as a feedstock, which we produce in the US and
Europe and buy in Asia. PTA is then reacted with glycol to produce
polyester chips or fibres, which are in turn used to produce PET bottles,
polyester fibres and various speciality products, including protective
screens for computers and TVs. PX production is primarily from the mixed
xylene stream produced in a reformer within a refinery.
Acetic acid is a versatile intermediate chemical used in a variety of
products such as paints, adhesives and solvents, as well as in the
production of PTA. In producing acetic acid, we purchase methanol and
either make or buy carbon monoxide (CO). CO can be produced from a
variety of hydrocarbon feedstocks, including natural gas, naphtha, fuel oil
and coal.
Our O&D business is based in China and is focused on serving the
Chinese market. The SECCO joint venture is between BP, Sinopec and
its subsidiary, Shanghai Petrochemical Company. BP also co-owns one
other naphtha cracker site outside Asia, which is integrated with our
Gelsenkirchen refinery in Germany and this has an associated solvents
plant at Mülheim, Germany.
At 31 December 2012, the petrochemicals business ran 15 manufacturing
sites including our joint ventures (as shown in the following table), and we
have two petrochemicals plants (Gelsenkirchen and Mülheim), which are
managed by the fuels business as they utilize feedstock from our