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Royal Dutch Shell Plc .com: BP’s sunflower is wilting

FROM THE FINANCIAL TIMES (LEX COLUMN)

Published: June 30 2006 03:00 | Last updated: June 30 2006 03:00

BP’s sunflower is wilting. Having splashed its decidedly organic logo all over the place in the past year or so, right now BP could probably use its old one: a shield.

An allegation of price-fixing in the US propane market follows other public relations disasters for BP’s American operations. The worst was a fatal explosion at its Texas City refinery in March 2005, but it also faces a criminal investigation into pipeline leaks in Alaska.

The timing is bad. The oil industry’s vast cash flows make it a tempting target for US politicians (and lawyers) when the country is fretful about energy shortages. There has already been an unsuccessful attempt to uncover price-gouging in the US gasoline market. BP, a foreign corporation, is the country’s largest producer of natural gas. Propane’s use as a heating fuel for 7m households will make it easy for critics to juxtapose images of grannies shivering in their homesteads with those of faceless commodity traders.

That said, proving manipulation in the highly volatile propane market will be difficult. The allegations against BP centre on February 2004, when the propane price spiked and appeared to disconnect from heating oil and crude oil prices, which it usually tracks. But prices also spiked much higher exactly a year before that. Similar movements occurred in the winters of 1996-97 and 2000-01.

For BP’s shareholders, there are two considerations. One is that the company must redouble its efforts to reduce exposure to such claims in its US operations, which accountfor 38 per cent of group capital employed.

The second is that, barring a meltdown on the scale of Royal Dutch Shell’s reserves scandal in 2004, high oil and gas prices, while inviting hostility, will remain the main factor moving BP’s share price.

Copyright The Financial Times Limited 2006

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