SPE Offshore Europe Conference
Speaker: Katrina Landis
Speech date: 08 September 2009
Venue: Aberdeen
Title: CEO BP Alternative Energy
Speech date: 08 September 2009
Venue: Aberdeen
Title: CEO BP Alternative Energy
Introduction
Good afternoon everyone and thanks for the opportunity to contribute to today’s discussion.
As the US representative on the panel, let me share with you something that happened just over 100 years ago in the States.
In 1905, American football was in crisis. That year, 18 players were killed, 160 were seriously injured on the playing field and there was talk of banning the game altogether.
However, President Theodore Roosevelt intervened, demanding instead that the rules be reformed to preserve the sport - but to make it less dangerous.
The result was a major overhaul in which new rules were created, including the forward pass which revolutionised the way football was played. All the teams had to rethink their strategies and adjust to playing within these new parameters.
Agenda
Today the energy industry faces a similar adjustment in order to make the progress it needs to make. The current rules are not sustainable and we are at the start of a great transformation in the way that energy is produced and provided. In my remarks I want to cover three questions:
Good afternoon everyone and thanks for the opportunity to contribute to today’s discussion.
As the US representative on the panel, let me share with you something that happened just over 100 years ago in the States.
In 1905, American football was in crisis. That year, 18 players were killed, 160 were seriously injured on the playing field and there was talk of banning the game altogether.
However, President Theodore Roosevelt intervened, demanding instead that the rules be reformed to preserve the sport - but to make it less dangerous.
The result was a major overhaul in which new rules were created, including the forward pass which revolutionised the way football was played. All the teams had to rethink their strategies and adjust to playing within these new parameters.
Agenda
Today the energy industry faces a similar adjustment in order to make the progress it needs to make. The current rules are not sustainable and we are at the start of a great transformation in the way that energy is produced and provided. In my remarks I want to cover three questions:
- What is driving the shift to renewables and alternative forms of energy?
- How are governments supporting that transformation?
- And how might the industry evolve?
World primary energy will grow
The starting point for considering future energy trends is the fact that under any circumstances, the world’s demand for energy is projected to grow rapidly and significantly in the next two decades.
On a business-as-usual basis, with policies remaining as they are now, the International Energy agency projects that energy demand will grow by 45% between now and 2030.
This scenario would be largely driven by demographic and economic growth in major emerging markets, led by China and India, along with increasing urbanisation. Already, non-OECD countries use more energy than OECD ones.
The business-as-usual scenario also envisages coal making up a third of energy growth and greenhouse gas emissions rising in a way that is estimated to push the average global temperature up by six degrees eventually. The IEA describes this scenario as ‘patently unsustainable’ and as a baseline against which the need for change can be measured.
So this is the equivalent of American football in 1905 – an unsustainable situation that requires major reform.
Security, climate and jobs
In fact there are a number of forces that are driving change. The threat of climate change is one. The sheer level of demand growth is another, because it obliges governments and producers to look for new sources of supply. Energy security is another powerful influence as oil and gas reserves become increasingly concentrated in specific regions and governments look for ways to reduce dependency on a small number of suppliers.
The starting point for considering future energy trends is the fact that under any circumstances, the world’s demand for energy is projected to grow rapidly and significantly in the next two decades.
On a business-as-usual basis, with policies remaining as they are now, the International Energy agency projects that energy demand will grow by 45% between now and 2030.
This scenario would be largely driven by demographic and economic growth in major emerging markets, led by China and India, along with increasing urbanisation. Already, non-OECD countries use more energy than OECD ones.
The business-as-usual scenario also envisages coal making up a third of energy growth and greenhouse gas emissions rising in a way that is estimated to push the average global temperature up by six degrees eventually. The IEA describes this scenario as ‘patently unsustainable’ and as a baseline against which the need for change can be measured.
So this is the equivalent of American football in 1905 – an unsustainable situation that requires major reform.
Security, climate and jobs
In fact there are a number of forces that are driving change. The threat of climate change is one. The sheer level of demand growth is another, because it obliges governments and producers to look for new sources of supply. Energy security is another powerful influence as oil and gas reserves become increasingly concentrated in specific regions and governments look for ways to reduce dependency on a small number of suppliers.
Policy frameworks
So the case for transformation is clear. And governments are now stepping up the pace and scope of their policies to reduce greenhouse gas emissions and diversify energy supplies.
These policy frameworks include: direct government investment in energy efficiency measures and low-carbon energy; emissions trading systems; taxation; regulation; and mandates that provide for certain proportions of energy to come from particular sources such as renewable power or biofuels.
The EU, for example, has targets to reduce greenhouse gas emissions by 20% on 1990 levels and increase the share of renewables by 20% by 2020. It has a well-established cap-and-trade system for greenhouse gas emissions from heavy industry and individual countries have various policies designed to meet their own targets, such as the Renewables Obligation in the UK.
The US has a wide range of policies being pursued at state and federal level such as a production tax credit that incentivises wind power investment. A bill to provide for a cap-and-trade system is now passing through Congress. The US aims to provide 10% of its electricity from renewable sources by 2012 and 25% by 2025.
Meanwhile China has a target to provide 15% of its energy capacity from wind, solar and other renewable sources by 2020.
These policies are currently being driven by individual governments, or in the EU’s case, a group of governments. But world leaders will meet in Copenhagen this December where they are due to sign a new international agreement on emissions reduction, providing a new long-term global target and mechanisms for cross-border collaboration.
At BP, we support this process. We have called for such frameworks to be created. We want to work within the new rules. We are prepared to adjust our game. In fact we already are.
So the case for transformation is clear. And governments are now stepping up the pace and scope of their policies to reduce greenhouse gas emissions and diversify energy supplies.
These policy frameworks include: direct government investment in energy efficiency measures and low-carbon energy; emissions trading systems; taxation; regulation; and mandates that provide for certain proportions of energy to come from particular sources such as renewable power or biofuels.
The EU, for example, has targets to reduce greenhouse gas emissions by 20% on 1990 levels and increase the share of renewables by 20% by 2020. It has a well-established cap-and-trade system for greenhouse gas emissions from heavy industry and individual countries have various policies designed to meet their own targets, such as the Renewables Obligation in the UK.
The US has a wide range of policies being pursued at state and federal level such as a production tax credit that incentivises wind power investment. A bill to provide for a cap-and-trade system is now passing through Congress. The US aims to provide 10% of its electricity from renewable sources by 2012 and 25% by 2025.
Meanwhile China has a target to provide 15% of its energy capacity from wind, solar and other renewable sources by 2020.
These policies are currently being driven by individual governments, or in the EU’s case, a group of governments. But world leaders will meet in Copenhagen this December where they are due to sign a new international agreement on emissions reduction, providing a new long-term global target and mechanisms for cross-border collaboration.
At BP, we support this process. We have called for such frameworks to be created. We want to work within the new rules. We are prepared to adjust our game. In fact we already are.
All of these developments take us towards a world where carbon has a price. And we are now taking steps in BP to build the cost of carbon into everything we do; every project we consider, whether that be in exploration, refining or retail. We now explicitly assume that carbon will be priced, so that alters the very way our products are engineered in the first place.
In terms of the American football analogy, carbon pricing can be seen as the equivalent of the forward pass – the major game-changing reform.
In terms of the American football analogy, carbon pricing can be seen as the equivalent of the forward pass – the major game-changing reform.
Global stimulus in clean energy
This year, direct fiscal stimulus has emerged as a key element in many countries’ frameworks as they seek to combine support for clean energy with investment that will create jobs and revive economic growth.
Out of a total of nearly $3 trillion of fiscal stimulus announced by G20 nations for the next 2 to 5 years, New Energy Finance calculate that around $163 billion or 5%, represents so-called ‘green’ investments. These investments cover transport, research and development, grid infrastructure, renewable energy and energy efficiency.
The US and China are leading this trend, devoting roughly $67 billion and $47 billion to green stimulus packages respectively. Both packages prioritise support for clean energy, efficiency and grid transmission. Japan has provided $22bn for what it calls the ‘low-carbon revolution’, including resources for solar power, electric cars and energy efficiency. South Korea’s stimulus contains $7bn for similar investments, as well as around $30bn for associated areas such as river restoration and mass transit.
Some countries have at the same time stepped up other forms of support for renewables. For example in the UK’s Budget in April, the Chancellor, Alistair Darling, announced a re-banding of the Renewables Obligation which will favour wind power projects that are financed between now and 2011.
A study by the UN’s Environment Programme and others last year estimated that the sustainable energy sector could account for at least 20 million additional jobs by 2030, including two million in wind power and six million in solar power.
This year, direct fiscal stimulus has emerged as a key element in many countries’ frameworks as they seek to combine support for clean energy with investment that will create jobs and revive economic growth.
Out of a total of nearly $3 trillion of fiscal stimulus announced by G20 nations for the next 2 to 5 years, New Energy Finance calculate that around $163 billion or 5%, represents so-called ‘green’ investments. These investments cover transport, research and development, grid infrastructure, renewable energy and energy efficiency.
The US and China are leading this trend, devoting roughly $67 billion and $47 billion to green stimulus packages respectively. Both packages prioritise support for clean energy, efficiency and grid transmission. Japan has provided $22bn for what it calls the ‘low-carbon revolution’, including resources for solar power, electric cars and energy efficiency. South Korea’s stimulus contains $7bn for similar investments, as well as around $30bn for associated areas such as river restoration and mass transit.
Some countries have at the same time stepped up other forms of support for renewables. For example in the UK’s Budget in April, the Chancellor, Alistair Darling, announced a re-banding of the Renewables Obligation which will favour wind power projects that are financed between now and 2011.
A study by the UN’s Environment Programme and others last year estimated that the sustainable energy sector could account for at least 20 million additional jobs by 2030, including two million in wind power and six million in solar power.
Share of primary energy demand
So with such policies helping to drive change, how might the energy industry evolve over the coming decades?
The spectrum of energy options ranges all the way from the heaviest carbon molecules such as coal through to zero-carbon electrons such as those generated by wind power. We believe there will be room in the future landscape for all the options on that spectrum, although the mix will change.
However we need to be frank about the continuing role of hydrocarbons. Today fossil fuels provide 80% of all the world’s energy and by most forecasts fossil fuels will still provide the majority of primary energy in 2030.
Clearly the precise mix depends on several factors, including the direction of future policies and progress in advancing technology. Under the IEA’s business-as-usual or Reference Scenario, overall energy demand rises 1.6% a year to 2030. Demand for oil increases by 1% a year to 2030, while gas increases by 1.8% and coal by 2%.
Demand for renewables such as wind and solar power increases by 7.2% but from such a low base that they only make up 2% of the total energy demand in 2030. Fossil fuels still make up 80% of the primary energy mix in 2030.
Under an alternative trajectory put forward by the IEA, in line with efforts to stabilize greenhouse gas emissions at 550 parts per million, the growth rates of gas, coal and oil are all slower, while renewables grow at a faster rate of 8.6% a year. Nuclear energy also grows at just under 1% in a business-as-usual scenario, but at 1.7% under the tougher emissions reduction projections.
However even under this so-called ‘550 policy scenario’, fossil fuels remain dominant. Oil remains strong as a major source of motor transport fuel. Gas is critical as a bridge to the low-carbon economy of the future because it has only half the carbon footprint of conventional coal when burned for energy.
So with such policies helping to drive change, how might the energy industry evolve over the coming decades?
The spectrum of energy options ranges all the way from the heaviest carbon molecules such as coal through to zero-carbon electrons such as those generated by wind power. We believe there will be room in the future landscape for all the options on that spectrum, although the mix will change.
However we need to be frank about the continuing role of hydrocarbons. Today fossil fuels provide 80% of all the world’s energy and by most forecasts fossil fuels will still provide the majority of primary energy in 2030.
Clearly the precise mix depends on several factors, including the direction of future policies and progress in advancing technology. Under the IEA’s business-as-usual or Reference Scenario, overall energy demand rises 1.6% a year to 2030. Demand for oil increases by 1% a year to 2030, while gas increases by 1.8% and coal by 2%.
Demand for renewables such as wind and solar power increases by 7.2% but from such a low base that they only make up 2% of the total energy demand in 2030. Fossil fuels still make up 80% of the primary energy mix in 2030.
Under an alternative trajectory put forward by the IEA, in line with efforts to stabilize greenhouse gas emissions at 550 parts per million, the growth rates of gas, coal and oil are all slower, while renewables grow at a faster rate of 8.6% a year. Nuclear energy also grows at just under 1% in a business-as-usual scenario, but at 1.7% under the tougher emissions reduction projections.
However even under this so-called ‘550 policy scenario’, fossil fuels remain dominant. Oil remains strong as a major source of motor transport fuel. Gas is critical as a bridge to the low-carbon economy of the future because it has only half the carbon footprint of conventional coal when burned for energy.
Coal, like gas, can be used sustainably in power stations and industrial plants where the carbon dioxide it produces is captured and stored.
Experts have of course produced many other projections, envisaging different policies and trajectories. For example, last year’s Energy Technology Perspectives study by the IEA looked at a more demanding scenario which involves halving greenhouse gas emissions by 2050 in order to keep the global temperature rise closer to two degrees. This is a target that has been endorsed by the G8 and is now under discussion in the run-up to the Copenhagen meeting.
One might expect oil demand to collapse in such a situation, but interestingly under this scenario, the IEA estimated that oil demand would fall by only a quarter on the 2005 level. Or to put it the other way round, oil demand would still be around 75% of 2005’s level in 2050, even if the world meets what is widely regarded as a tough but desirable target for reducing emissions . However, the power industry would see a major shift away from hydrocarbons and the same scenario envisaged that renewables would make up 46% of global electricity production by 2050.
The potential growth rates for renewables therefore range from modest to meteoric depending on the nature of the policies adopted and the associated technological progress. However renewables are set to benefit under all scenarios as their technologies mature and are brought into the mainstream.
If oil demand remains robust, then we may expect to see increasing partnership between national and international oil companies to help ensure adequate supplies in the long term. National companies control most of the world’s reserves, but in some cases need extra technology, capital or skilled personnel to develop them efficiently.
Experts have of course produced many other projections, envisaging different policies and trajectories. For example, last year’s Energy Technology Perspectives study by the IEA looked at a more demanding scenario which involves halving greenhouse gas emissions by 2050 in order to keep the global temperature rise closer to two degrees. This is a target that has been endorsed by the G8 and is now under discussion in the run-up to the Copenhagen meeting.
One might expect oil demand to collapse in such a situation, but interestingly under this scenario, the IEA estimated that oil demand would fall by only a quarter on the 2005 level. Or to put it the other way round, oil demand would still be around 75% of 2005’s level in 2050, even if the world meets what is widely regarded as a tough but desirable target for reducing emissions . However, the power industry would see a major shift away from hydrocarbons and the same scenario envisaged that renewables would make up 46% of global electricity production by 2050.
The potential growth rates for renewables therefore range from modest to meteoric depending on the nature of the policies adopted and the associated technological progress. However renewables are set to benefit under all scenarios as their technologies mature and are brought into the mainstream.
If oil demand remains robust, then we may expect to see increasing partnership between national and international oil companies to help ensure adequate supplies in the long term. National companies control most of the world’s reserves, but in some cases need extra technology, capital or skilled personnel to develop them efficiently.
International companies, meanwhile, have fewer reserves, but have the finance and management skills, as well as the technology, to help national companies develop their reserves.
Skills in reservoir management and enhanced oil recovery, such as those pioneered in the North Sea, will become increasingly critical to delivering continued supplies.
Case study – biofuels /1
Biofuels provide a useful case study to illustrate some of the most important factors involved in developing renewable sources of energy.
While demand for oil is projected to remain strong in most scenarios, there is no doubt that biofuels will play an increasing role in fulfilling demand for transport fuels.
The growth of biofuels is being driven by the forces I mentioned earlier – reducing emissions, increasing energy security and finding alternatives to oil.
The share of biofuels in the total supply of road transport fuels worldwide is projected to rise from around 3% today to between 11% and 19% or more in 2030, with most of the growth occurring in the United States, Europe and China. We believe that, with the right policies in place, this growth can occur without unacceptable negative impacts on food security or other resources.
However, in order for growth to be maximised and for biofuels to fulfil their potential, there must be both industry leadership and regulatory support. Biofuels need to be produced in the most efficient and sustainable way. As time goes by, an increasing share of the total market will be made up of such advanced biofuels.
This is why in BP we have focused on the best biofuels for environmental and energy performance, both in terms of those available now and those which we can develop for the future. This has led us to focus on three major types of biofuel.
Skills in reservoir management and enhanced oil recovery, such as those pioneered in the North Sea, will become increasingly critical to delivering continued supplies.
Case study – biofuels /1
Biofuels provide a useful case study to illustrate some of the most important factors involved in developing renewable sources of energy.
While demand for oil is projected to remain strong in most scenarios, there is no doubt that biofuels will play an increasing role in fulfilling demand for transport fuels.
The growth of biofuels is being driven by the forces I mentioned earlier – reducing emissions, increasing energy security and finding alternatives to oil.
The share of biofuels in the total supply of road transport fuels worldwide is projected to rise from around 3% today to between 11% and 19% or more in 2030, with most of the growth occurring in the United States, Europe and China. We believe that, with the right policies in place, this growth can occur without unacceptable negative impacts on food security or other resources.
However, in order for growth to be maximised and for biofuels to fulfil their potential, there must be both industry leadership and regulatory support. Biofuels need to be produced in the most efficient and sustainable way. As time goes by, an increasing share of the total market will be made up of such advanced biofuels.
This is why in BP we have focused on the best biofuels for environmental and energy performance, both in terms of those available now and those which we can develop for the future. This has led us to focus on three major types of biofuel.
First we have established a joint venture which makes ethanol from Brazilian sugarcane, this being the most efficient and sustainable form of biofuel available today.
Second we are working with DuPont to produce biobutanol, which is in many ways a better fuel molecule, with a higher energy content, than the ethanol which dominates today’s market. A technology demonstration plant for biobutanol is currently under construction in Hull.
Finally we are developing lignocellulosic conversion technology in a joint venture with Verenium in the US, planning to develop one of the US’s first commercial-scale cellulosic ethanol facilities, in Florida, expected to produce around 36 million gallons a year from 2012. The facility will use purpose-grown energy grasses as feedstock – these energy grasses contain large amounts of energy in the sugar held in their cell walls. These sugars can be difficult to extract, but using new advanced technologies we can now turn this energy into liquid fuel.
Second we are working with DuPont to produce biobutanol, which is in many ways a better fuel molecule, with a higher energy content, than the ethanol which dominates today’s market. A technology demonstration plant for biobutanol is currently under construction in Hull.
Finally we are developing lignocellulosic conversion technology in a joint venture with Verenium in the US, planning to develop one of the US’s first commercial-scale cellulosic ethanol facilities, in Florida, expected to produce around 36 million gallons a year from 2012. The facility will use purpose-grown energy grasses as feedstock – these energy grasses contain large amounts of energy in the sugar held in their cell walls. These sugars can be difficult to extract, but using new advanced technologies we can now turn this energy into liquid fuel.
Case study – biofuels / 2
If we look at the effect of growing biofuel consumption on US motor fuel in general we see that it is expected to displace more gasoline than diesel. Diesel use is growing in the US, following the trend set by Europe, and biodiesel is expected to provide around 8% of the fuel for diesel powered engines by 2030.
However biomass-sourced fuels are expected to take the place of around a quarter of the gasoline market by the same date. US production of biofuels is expected to grow from less than half a million barrels per day in 2007 to 2.3 million barrels a day in 2030.
Conclusion
So we are entering a phase of profound change. But for BP as for many operators, change itself is nothing new.
I opened with a reference to events of a century ago so I’ll also close with one. BP began its life after its founders struck oil in the Persian desert 100 years ago. That strike followed years of exploration that had taken the enterprise almost to the point of folding – teaching us that achievements are often hard-won after years of persistence. Since then BP has operated in many different political and regulatory contexts – including making the major shift to becoming an international oil company after the wave of nationalisations 30 years ago.
Today we are in the throes of another rapid wave of change as the rules of the industry are rewritten to address the issues of sustainability. Once again, we relish the challenge. It’s a privilege to be involved in the industry at this time of transition and in BP we look forward to playing our part in meeting the world’s demand for secure, diverse, affordable and sustainable energy.
If we look at the effect of growing biofuel consumption on US motor fuel in general we see that it is expected to displace more gasoline than diesel. Diesel use is growing in the US, following the trend set by Europe, and biodiesel is expected to provide around 8% of the fuel for diesel powered engines by 2030.
However biomass-sourced fuels are expected to take the place of around a quarter of the gasoline market by the same date. US production of biofuels is expected to grow from less than half a million barrels per day in 2007 to 2.3 million barrels a day in 2030.
Conclusion
So we are entering a phase of profound change. But for BP as for many operators, change itself is nothing new.
I opened with a reference to events of a century ago so I’ll also close with one. BP began its life after its founders struck oil in the Persian desert 100 years ago. That strike followed years of exploration that had taken the enterprise almost to the point of folding – teaching us that achievements are often hard-won after years of persistence. Since then BP has operated in many different political and regulatory contexts – including making the major shift to becoming an international oil company after the wave of nationalisations 30 years ago.
Today we are in the throes of another rapid wave of change as the rules of the industry are rewritten to address the issues of sustainability. Once again, we relish the challenge. It’s a privilege to be involved in the industry at this time of transition and in BP we look forward to playing our part in meeting the world’s demand for secure, diverse, affordable and sustainable energy.
