Keynote address - Hart 6th Annual World Fuels Conference

Today, we have been discussing some of the key concerns which face our industry - namely, how to reconcile our customers demand for mobility with their desire for a cleaner world.

Some people maintain that these two demands represent an inherent contradiction. I disagree. I believe it is possible to have both. And by the time I sit down, I hope I will have justified this assertion.

I am certainly very grateful for the opportunity to make this presentation on a subject which is of genuine interest to me. And I am glad to be making it on the day when we are considering, as our main theme, ‘Global Policy Change' - because I don't think this is anything which a company can do by itself. We are all in this together - government, regulators and industry.

I hope I will be forgiven, however, if I draw largely from BPs experience. Not because we have all the answers - we don't. But I always think it is sensible to talk about what one knows best. That is perhaps what distinguishes a businessman from a journalist or politician

I suppose the first question we must consider is why the oil and gas industry has any right to be heard on this matter. After all, there are plenty of people who see us as the cause of the problem, rather than its solution. They regard us as preoccupied with the interests of our shareholders - and I make no apology for that.

But leaving this aside, I don't believe this critique stands up to analysis. Successful businesses only remain successful by satisfying their customers. If our customers demand a cleaner product, it is in the interests of our shareholders that we should satisfy it.

Such as satisfying the demand for energy, and the growing desire for a higher quality of life - which only the development of plentiful energy supplies can guarantee. To listen to some of our critics, you might think it was possible to achieve this by an almost instantaneous transition away from fossil fuels to renewable sources. But it is not that simple.

For the foreseeable future, hydrocarbons - and particularly oil and gas - will continue to satisfy the bulk of the world's energy needs.

I say this because it is just not realistic or desirable to believe that energy demand can be arrested - to do so would be to consign millions of people to poverty and to deny them the amenities, particularly mobility, which we all take for granted. And hence, in terms of meeting energy demand, we have to run faster and faster just to keep where we are. In this scenario, to rely excessively on renewables would be to put us in the slow-lane.

Let me illustrate why.

The worlds population is growing - rising by 90 million a year which means that enough people are born every forty eight hours to populate a city the size of San Francisco.

Every one of these people is going to need energy. At present, a mere 15% of the global population consumes some 60% of the worlds current oil production. But the remaining 85% are entitled to the benefits of energy, too.

When it comes to mobility - and this perhaps is what our customers want most - fuels from crude oil and, increasingly, fuels derived from natural gas are the most convenient and plentiful. There is no substitute for them in the short-term -I say this for technical, as much as for economic, reasons.

And, despite their being theoretically finite, there is really no shortage of conventional fuels either. The world has enormous reserves of crude oil. We have estimated that the industry has discovered and produced about 800 billion barrels of crude and natural gas liquids to date. In addition, there are identified reserves not yet produced of around 950 billion barrels. Beyond that, we think that there are a further 500 billion barrels that can come from discoveries yet to be made, and from existing fields using enhanced recovery techniques yet to be developed.

Moreover, we estimate that only 20% of the worlds total gas supplies have been discovered and produced. BP, along with other major oil companies, is seeking to realise the full potential of this valuable fuel through the development of "gas to liquid” technologies which will give us enormous supply capability well into the future.

Against this must be set expected demand. Today we are consuming about 75 million barrels of oil per day - a figure which we believe will continue to grow, on a conservative estimate, to beyond 90 million barrels a day by 2010. And while there are abundant supplies of gas, they are not always in the most convenient locations and much needs to be done to develop the products and infrastructure to bring them to wider markets.

But that's not the problem. It is not because of their availability, but their characteristics, that fossil fuels are under pressure. And while gas has advantages over oil, both are environmentally suspect.

Essentially, therefore, we have three choices.

The first is to take draconian steps to reduce energy demand - I have explained why I think this is impractical and undesirable.

The second is to reduce significantly the environmental disadvantages of using current fossil fuels.

And the third is to develop substitutes for fossil fuels.

In the long run, I suppose that all of us hope this last option will be the answer.

But it is not the only answer - and BP is committed to both renewables, and cleaning up fossil fuels.

I'd like to take them in turn., and I'll start with renewables as although they can't solve the immediate problems, they do present some of the most exciting possibilities.

In our view, Hydrogen will become "the” clean fuel of the future - at least so far as mobility is concerned. The only consequence of burning Hydrogen is to produce water - and pretty clean water at that.

BP is already committed to developing this source of energy.

There is one snag, however. Most hydrogen today is made from natural gas. While Hydrogen will effectively eliminate harmful emissions from the vehicle, we still need to account for the energy and emissions expended in making and transporting the Hydrogen fuel itself - the "well-to-wheels” assessment.

There are benefits in transferring the emissions away from centres of population. However, on a global basis the overall "well-to-wheels” impact should be the true determinant. We have been participating with auto companies and some of our major competitors in studies aimed at accurate assessment of the "well-to-wheels” energy and emissions performance of various power train options.

Hydrogen, however, is not the only alternative fuel.

We are also working energetically with a number of the major auto manufacturers to develop fuel options in support of emerging power train technology. In particular we are looking at the development of fuels for hybrid vehicles, which is involving us in an extensive programme of field and laboratory testing. On-board vehicle production of hydrogen from gasoline or methanol is another exciting possibility for accelerating the advance of fuel cell vehicles.

Which of these technologies will emerge as the ultimate winner is much less clear. Perhaps none of them will - perhaps they will all have a role to play, or perhaps something else will be discovered which renders them obsolete too.

We don't know the answer - but we do know that it is in our shareholders interests to be a key player in this process, and to play a full part in developing each of the viable options.

As always, the billion-dollar question is not ‘whether', but ‘when'. It is so easy to back the wrong process prematurely, in the understandable enthusiasm to find a solution quickly. The trouble is, however, that a major mistake can set back the search for a substitute for a number of years. Moreover, it is only businesses, which are profitable and successful in their existing operations which can afford the necessary resources, capital and time to discover something different.

I'm not suggesting we should do nothing. Indeed, some of the new technology is already in production. But this is not a zero-risk game, and we should not be pressured by enthusiasts into denying the enormous potential which is also offered by cleaner fossil fuels.

So, that leads me to the second of the two options I mentioned earlier: what are we doing to improve our conventional business?

The economics of supply are also easier in cities, where our volumes are higher and our supply infrastructure is best developed.

In the event, we managed by the end of last year to introduce cleaner fuels not to 40 cities, but to 59. And this will have increased to 90 by the end of 2001.

Our priority has been to reduce the sulphur content of fuel. In common with others in the industry, we are expecting the effective elimination of sulphur from our road fuels, to less than 10 ppm.

There is a good reason for concentrating on sulphur elimination as a first objective. It gives immediate emissions benefits to vehicles fitted with exhaust catalysts and enables the development of new engine technologies which can cut CO2 and NOx emissions - and as a consequence we establish a direct link between measures designed to reduce local pollution and the wider issue of Climate Change. Significant reductions in greenhouse gas can be achieved as a result of eliminating sulphur.

To cite one example from a BP refinery - the conception and development of the OATS Process, enables us to desulphurise gasoline with improved performance, so that both costs are reduced and energy needs are minimised. We still have investments to make but this novel way of producing clean fuels might enable the phasing in of so-called "sulphur-free” fuels to take place more quickly, because the CO2 penalties at the refinery are minimised.

But, quite frankly, there has been a commercial benefit as well. True, our customers still mention the price of fuel as their first and major consideration. But with this proviso, our market research had indicated some fundamental shifts in customer preference, and there appears to be a genuine desire amongst our customers to purchase the next generation of fuels.

That is why the theoretical commercial conflict between price and quality of fuel is largely a figment of the imagination. Price is important, but it is not the sole consideration, and there are competitive advantages in delivering cleaner products to market - because this is what our customers want.

Up to now, I have been discussing what our industry can do for its customers - in terms of new fuels, and cleaner conventional fuels.

But we can also respond to the environmental challenge through improvements in our own operations and activities. It is worth emphasising this aspect as well.

BP within its own operations has voluntarily committed to reduce greenhouse gas emissions and we have already achieved a 5% reduction versus a 1990 base. We have also identified another 5% which could be delivered over the next 3 years.

Our success in doing so is due to an incentive-driven approach - the carrot rather than the stick - in the form of an internal trading system for emissions. This can be best explained as an internal financially driven market involving mandatory internal targets. By putting a monetary value on each unit, this program has encouraged the whole internal team to cooperate in delivering the target at the lowest cost.

I would like to conclude with one final thought. I have described briefly some of the practical things we are doing to reduce the detrimental impact of our business.

We do not apologise for our business. Energy in general - and mobility in particular - produce great benefits in mankind. We have a responsibility to continue our work.

But our customers - and indeed our employees - want us to do so in different ways from the past. The key to making this possible lies in technology - technology to develop new sources of energy and technology which improves existing sources of energy. The debate is really over how fast this can be achieved.

There is, however, a further dimension. The human dimension.

No company can progress towards these objectives without the enthusiasm and commitment of the people who work for us. It's fair to say that in the early days, there were some who were concerned that our environmental stance might weaken the company - that we could not meet our aspirations. We faced the same concerns that some our competitors faced - perhaps still face.

But this quickly gave way to a new problem-solving mentality. As our CEO expressed it recently, "The progress we've made hasn't come from the use of a single magic bullet” but through dozens and dozens of initiatives, most of them undertaken at local level by our business unit leaders and their teams.

Another example is overcoming the logistical challenges presented by the Clean Fuels City Programme.

In both these cases, the human element was vital. Technology made new things possible. But they couldn't have been realised without managerial improvisation, commitment and ingenuity.

Nor could they have been achieved in isolation. The cooperation between the oil and auto industries for example - a true and equal partnership - has been vital to delivering clean mobility for people. The drive to introduce these cleaner fuels today supports the efforts of the major auto manufacturers as they introduce new power train technologies.

Companies are not always identically placed to make a maximum contribution, particularly when denied logistical advantages which are available to others. In some areas, for example, BP is able to take the lead. In others, some of our competitors are ahead of us in some markets, particularly where they have the logistical advantages.

But the important point to emphasise is this should be an industry commitment. We all stand to benefit from each others progress. The reputations of our companies suffer if the industry as a whole is seen to under-perform.

We can't expect to be congratulated. No sooner have we satisfied one objective that another will be established -even to the extent of what constitutes a ‘clean' fuel. No sooner has lead been eliminated, for example, that we move onto sulphur. And as I said earlier, sulphur elimination will assist us to tackle greenhouse gases head-on.

The future is unknowable. In BP we believe that it is our responsibility to our customers, to our shareholders, and to our employees to be a major force in understanding and developing the full range of possibilities.

There are perhaps two certainties.

And technology will produce the ultimate solution.

We can choose to be active enthusiastic players - and help shape the future - or, we can be passive, allowing new players to come in and make the changes for us. I say, let's be part of it - let's rise to the challenge - let's make a difference.