Mr. Speaker, I would like to submit the following speech that was delivered by Mr. John Browne, Group Chief Executive of Beyond Petroleum (BP) to the Washington Press Club on March 23, 2004 entitled, ``Energy--the Medium Term Outlook.''…
Mr. Speaker, I would like to submit the following speech that was delivered by Mr. John Browne, Group Chief Executive of Beyond Petroleum (BP) to the Washington Press Club on March 23, 2004 entitled, ``Energy--the Medium Term Outlook.''
The level of interest in energy issues and energy security
has grown steadily over the last three years. A whole series
of events have reminded people both of the importance of
secure energy supplies in a modern economy and of the
challenges involved in matching available supplies to growing
global demand.
Concerns have been expressed--here in the U.S., in Europe
and in many other parts of the world. BP is the largest
producer of oil and gas here in the U.S., and the second
largest private company in our sector in the world. We work
in over 100 countries--exploring for, producing, distributing
and selling oil and gas in areas ranging from Russia to
Angola from Germany to China. So we hear the concerns
expressed from many sides.
I want to try and separate the concerns which are real, and
which need to be managed--from those which are false, and
which need to be discarded before they distract us from the
serious agenda. I want in particular to emphasize the point
that ``self sufficiency'' can't be achieved through
protectionism. Trade is essential and we have to ensure that
trade can thrive. I'll talk about the U.S. position--and I'll
try and set that position in its proper context--which is the
global energy scene. And I'll focus on facts--because facts
should be the basis of good policy.
At one level this is a very simple issue. It is about
demand and supply. The demand for energy is driven by
demography and economic performance. By the number of people
who can afford to buy the energy they need. Today the world's
population is estimated at 6.3 bn. That figure grows by
almost 10,000 an hour. In ten years time there will be almost
another 1 billion people on earth. 7.2 bn by 2015 according
to the most authoritative estimates from the U.N. More and
more of those people will be able to afford to buy the energy
they need. Economic growth continues to extend prosperity to
more people every year in China and India and in other
emerging economies. The Chinese economy has quadrupled in
size over the last twenty years and China is now the 2nd
largest single consumer of energy in the world after the U.S.
Today the world will use some 190 million barrels of oil
equivalent--that is expressing all the different forms of
energy supply--natural gas, coal, nuclear and so on in terms
of a common unit of measurement. That energy is used in
homes, in industry, in offices, in power stations and in
transportation. Technology is gradually making the use of
that energy more efficient. The energy intensity of each
extra point of GDP growth has fallen over the last thirty
years and continues to fall. But the fall is gradual.
The combination of more people and more prosperity will
mean that the demand for energy will rise. The most recent
estimates of the International Energy Agency suggest that
world energy demand will rise by a third to around 240 mbdoe
by 2015.
How can that demand be met?
Some place their faith in renewable and alternative forms
of energy supply. Power from the wind and the waves. Power
from solar panels. We believe those are important sources of
future supply. We in BP are investing in research and
development work in photovoltaics--the technology which
supports solar power--and at various other forms of
alternative energy supply. One day one or more of those
new sources will provide a significant proportion of
global energy demand. But the evidence is that day is
still a long time off.
Today all the renewable and alternative forms of energy
supply provide just 2.5 per cent of world demand, the bulk of
which currently comes from biomass. Solar power provides just
0.001 per cent. Or to put it another way--all the solar power
in the world would meet Washington's energy needs for just 6
days per year. Research continues--here in the US and in many
other countries. But in every case we are still at the stage
of research and experimentation. We believe renewables will
provide material supplies of energy in the long term. But the
long term could be 20 or 30 or more years away. The estimate
from the International Energy Agency is that in 2015 they
will provide only 3.3 per cent of total demand.
What sources then will meet the demand?
Some people believe that the key lies in the potential of
nuclear power. That is certainly possible. But it seems a
remote possibility on the timescale of a decade. Nuclear
currently supplies 7 per cent of world energy demand. The
first generation of nuclear stations are reaching the end of
their natural lives. Last year only 2 new nuclear stations
were commissioned and public doubts both about safety and
about the uncertain long term costs continue to constrain new
investment. In the US, no new stations have been commissioned
for over two decades while in Europe the forecasts suggest
that on current trends nuclear capacity in Europe will
decline rather than increase over the next ten years.
And that leaves hydrocarbons--coal, oil and gas--to meet
the balance. The mix will vary from one country to another.
China for instance will no doubt continue to use large
volumes of coal but in terms of convenience, oil and gas seem
set to remain the fuels of choice. In reality, energy
security is about the supply of oil and gas to meet demand
which could grow, again taking the IEA figures, to around 93
mbd of oil and 64 mbdoe of natural gas by 2015. That would
represent a 20 per cent increase in oil demand from today's
level and a 45 per cent increase in the consumption of gas.
Can the oil and gas industry meet that demand?
In physical terms the answer is clearly yes. The resources
are there. The world holds some 1,000 bn bbl of oil which has
been found but not yet produced, and some 5500 tcf of natural
gas--also found but not yet produced. At current consumption
rates that is 40 years of oil supply and 60 years of gas. In
addition the US Geological Service estimates that some 800 bn
bbl of oil and 4500 tcf of natural gas are yet to be found.
So in terms of physical resources, energy security is within
reach.
But I believe there are two fundamental elements of risk
which we have to deal with to ensure that security. The first
is environmental--the risk that as the evidence of impact of
human activity on the world's climate mounts we will be
forced to take dramatic and potentially damaging action to
avert the danger. That is a risk for the medium and longer
term--not for today but we believe that precautionary action
now could avert the risk. We believe that it is possible to
keep atmospheric concentrations of greenhouse gases below the
level at which sustainability is threatened--which on the
currently best available scientific evidence is around 500 to
550 parts per million. There are various available paths by
which that can be achieved--and there will be no single
solution. Different countries can make different
contributions to the overall objective and if we can
establish a legitimate trusted emissions trading system--
linked regionally--I believe we can reduce the risk without
imposing a major cost on the economy. The real risk in this
area is if we do nothing until it is almost too late. At that
point the costs could be much higher.
The other element of risk arises from the fact that supply
and demand are not typically co-located. One of the key
issues of energy security over the next decade will be the
growing trade in both oil and gas which will be necessary to
match supply to demand. By 2015 there will be at least four
major energy importing regions in the world. Europe, Japan,
China and the United States. Europe will be importing around
an estimated 80 per cent of its daily needs of both oil and
gas. The US rather less--but still more than 65 percent of
its oil and around 30 per cent of its gas. By 2015 trade will
likely account for almost 70 per cent of world oil demand--
some 64 mb/d--and 20 per cent of world gas demand.
Is that trade secure? Can the US and others rely on trade
rather than retreating to a policy of self sufficiency with
all the costs which that could involve in terms of the
environment and competitiveness?
I think the answer to that is also yes, but we can't take
anything for granted. Genuine energy security needs
sustained, long term engagement and action by both the
industry and by Government. The issue of security arises not
so much from the growing volume of consumption or the
required trade growth but because the resources needed to
supply the world's growing demand are concentrated in a
relatively limited number of countries.
There are a number of sources of supply to the world
market. Let me mention just three. The Caspian, through the
Baku to Ceyhan pipeline which is now under construction, is
scheduled to be producing and exporting 300,000 barrels per
day by the end of 2005. Trinidad is now exporting some
200,000 barrels oil equivalent per day in the form of natural
gas and the expansion plans which are now being carried
through should double that figure by 2006. Indonesia is
likely to be producing 1.5 million barrels per day oil
equivalent and exporting 800,000 bdoe of that by the end of
this decade. But however important these activities and those
in other countries are, the inescapable fact is that even
with all those areas developed successfully, the bulk of
world traded supplies of both oil and gas for the future will
almost certainly come from just three regions. The Middle
East, Russia and Africa.
Going back to the estimates published by the IEA--which
represent a fair consensus of informed opinion--of the 64 mbd
of oil likely to be traded in 2015, well over 80 per cent
will come from those three areas. For natural gas the figure
is around 50 per cent.
That is the global picture. What about the US?
US energy demand is now 46 mbdoe of which two thirds is
provided by oil and natural gas. The forecasts suggest that
oil and gas demand will continue to grow so that by 2015 the
US will be using around 21 mbd of oil, mainly in
transportation and around 13 mbdoe of natural gas. In terms
of resources the US remains strong. The US has more domestic
supplies than any of the other major importing regions.
Alaska continues to produce just short of 1 million barrels
per day and though oil production is declining, technology is
progressively expanding the commercial life of Prudhoe Bay.
The real strength for the future though lies in the Gulf of
Mexico--in the deep water, which is producing 1.5 million
barrels per day and which looks set to produce as much as 2.7
mb per day from 2010 onwards.
The gas position is also strong. As well as gas in the
lower 48, and in the deep water of the Gulf of Mexico, there
are extensive supplies--perhaps as much as 100tcf in Alaska
which are ready to be brought to market once the
infrastructure is in place. That's a strong position--but the
US will still need imports and will still look to the world
market to supply the balance of its needs through the next
two decades. The forecasts suggest that the US will be
importing some 13 mbd of oil and 3 mbdoe/day of natural gas
in 2015.
What conclusions can we draw from all that? What do we need
to do today to ensure that this country and its trading
partners in Europe and Asia and elsewhere enjoy sustainable
energy security?
The first conclusion is that these are single global
markets. Oil, and increasingly gas are traded
internationally. Every area will seek to develop its own
resources rationally, but there is a competitive limit to
that--set by the cost of development. The cost of self
sufficiency for any area would be prohibitive. Trade and open
markets have the sustained development of world economy over
the last half century and I believe they can and will
continue to do so. That applies to energy as much as to any
other product. Energy prices will be set by the international
market, and prices will affect the economy and the export
markets of every country in the world. Energy security can't
be achieved in one country. To deny the reality of the global
economy would be dangerous and costly.
Secondly, the growth in trade worldwide means that everyone
has an interest in the development of the widest possible
range of available supplies to limit dependence on any single
country. It would be dangerous, economically and
strategically, to allow a situation to develop in which the
US or any other region was dependent totally or very
substantially on countries in the Middle East or any other
single producer. At the moment the US imports some 11 mbd of
oil. But those imports come from 57 different countries and
no one country supplies more than 17 per cent. That is a good
position to maintain. And to do so the US has to maintain the
open flow of investment--to ensure that the international
industry can invest with confidence in exploration and
development across a diverse set of countries.
The best estimate of the total investment required to
generate the flow of supplies necessary to match demand in
2015 is $2,000 bn. That means that investment by the oil and
gas industry will have to be even higher than the $160 bn per
annum which has been the average over the last few years. In
financial terms I don't doubt that those resources can be
found. But each individual investment by each company will be
dependent on the climate for investment in the country
concerned. That is why we are doing so much to support the
principle of transparency--to ensure that the revenues we
generate are used wisely in the interests of the long term
development of the countries in which we invest. Corruption
is an enemy of development, an enemy of business [because it
raises costs], and an enemy of energy security.
The third conclusion is that we have to ensure that the
necessary resources and infrastructure are built. That
applies here to projects such as the Alaskan gas pipeline
which could bring 1 million barrels per day oil equivalent to
market, and to the development of LNG terminals which can
open up channels of imported supply from Trinidad and West
Africa. But the same point applies internationally--because
infrastructure is necessary to bring resources to market from
areas such as the Caspian and Siberia. In all these areas
investment now will bring greater security for the future. I
want to use this occasion to thank the US Government--under
two administrations--for their sustained support for the
development of the Baku Tbilisi Ceyhan pipeline. The line
which will enhance energy security for the world as a whole
could not have been built without that support.
Fourth, we have to continue to develop technology--pushing
the edge of what can be done with the resources we have.
Extracting more, and using them more efficiently. That ranges
from the Deep water, where we and others are now producing
from fields in over 7,000 ft of water--two and a half times
deeper than was possible ten years ago; to the progressive
extension of recovery rates in Alaska; to the sort of work we
have underway with our partners in the automobile sector to
combine advances in lubricants, in fuels and in engine
technology to lift the level of productivity in vehicles.
All those steps are necessary, and many if not most of them
will start here in the US--because this is a world
technological leader.
So to summarise:
We can't take energy security for granted, and we can't
achieve it through protectionism. Demand is rising and the
substitutes for oil and gas are a long way off. There is no
physical shortage. Technological advances must be deployed
both to increase the amount of energy which can be produced
and to ensure that it is used with the maximum possible
efficiency. Finally, and most importantly, the risks to
energy security are political and cannot be resolved by the
private sector alone. The private sector has a vital role to
play--particularly international companies such as BP. We
have to explore and invest in the development of diverse
sources of supply and in the infrastructure to bring it to
market. But as companies we work within a space defined by
public policy decisions. Actions by Governments are crucial
in keeping the market open to investment, and ensuring that
trade continues to be free and open. Those actions will
determine whether those of us in the private sector can make
successful long term investments in the development of
resources and infrastructure. Diversity of supply is crucial.
If we want to avoid undue dependence on just one region such
as the Middle East, we have to invest in technology and in
trade--raising investment confidence to ensure that supplies
and infrastructure are in place to bring oil and gas from
areas such as Russia, West Africa and the Caspian. The
challenge is to align the medium and long term perspective I
have been describing with the inevitably shorter perspective
of Government. That has always been the case but the need to
achieve that alignment between the actions of the public and
the private sector has never been more important than it is
today. If we can achieve that alignment I believe we can
ensure that secure supplies of energy continue to be
available to consumers here in the US and internationally.