The Evolving Technology Landscape of BP

Good afternoon, ladies and gentlemen. Cambridge and BP share centennial anniversaries. The University is celebrating its 800th year, and BP its mere 100th. It gives me great pleasure, as BP's Executive Sponsor for work with Cambridge, to address you on this occasion. And in so doing, I hope that you will indulge me in dwelling a little on our past and in telling some stories.

TECHNOLOGY SNAPSHOT: JAMES YOUNG

My first story begins in 1847 when a Scottish industrial chemist by the name of James Young first collected samples of a natural petroleum seepage from a colliery in Derbyshire. When he distilled the liquid, he obtained two useful products: a light oil, suitable for burning in lamps and a heavier residue for lubricating machinery.

He then had the idea that by applying a low level of heat to coal and oil shale, he could extract more fluid. And so he went on to set up the first commercial oil works in the world in 1851 in West Lothian, near Edinburgh. Using oil extracted from locally mined shale and bituminous coal, the company manufactured naphtha and lubricating oils. Then five years later they started selling paraffin as a fuel.

'Paraffin' Young as he became known, took out the first US and UK patents for the production of paraffin from the distillation of coal. By 1900, the business had grown substantially and their products were exported all over the world. Some four thousand people were employed in the extraction of 2 million tons of shale annually. You can still see the spoil tips today.

Incidentally, after he retired from the company in 1870, Young went back to his first love - science - and worked on a means of determining the speed of light. And much of the money he made from his business he gave generously to finance David Livingstone's African expeditions, quite possibly the oil industry's first foray into corporate giving.

Young's company was subsequently acquired by BP, and as far as I can tell, his work represents the earliest example of oil industry technology to which BP can lay claim.

As head of BP's research and technology portfolio, my job is to ensure that BP has the technology it needs to contribute to the world's future energy demands.

One way of addressing this challenge is to consider the past. This helps to establish who we are and what we do well. And by understanding how different technologies have made BP successful, we can project forward into the future with some degree of confidence.

A big oil company like BP is remarkable for the sheer diversity of activities it embraces. It not only searches for hydrocarbons across the globe, but it produces them in often extremely hostile environments. It then transports, refines and markets them as a range of manufactured products - everything from fuels to lubricants and chemicals. And BP is also a major player in the field of alternative energies.

All this activity generates a huge and highly varied technology agenda, drawing on multiple scientific disciplines. I cannot possibly do justice to such a diverse portfolio of technologies (and over a hundred years of history) in just 30 minutes. Instead I've selected four technology 'snapshots' from our heritage - in reverse chronological order - which are illustrative of what we do best.

Then I want to go on to consider what our technology heritage teaches us.

And finally, I will end by saying a few words on how that is relevant to our future and in particular, how we are tackling future trends in energy technology.

TECHNOLOGY SNAPSHOT: RETHINKING EXPLORATION

So to my first snapshot which concerns exploration.

Many industry observers consider exploration to be the jewel in BP's crown. Indeed, the very existence of the company stems from exploration success. In 1908, what became known as Anglo-Persian struck oil about 200 kilometres north of Abadan on the Gulf Coast. And so began the development of Middle Eastern oil - arguably the most important resource base of the twentieth century (and maybe the twenty-first).

Remarkably, BP's first discovery in Persia was a giant field. And finding giant fields was to become a defining feature of the company throughout the century. In this regard, BP enjoys an unrivalled track record amongst its peers for having participated in the discovery of ten of the largest fields ever found.

But the period of our exploration history I want to describe in my first technology 'snapshot' occurred in the 1980s and 1990s. While the 1970s had yielded massive discoveries in frontier areas such as Alaska and the North Sea, the 1980s were much less prolific. The focus then was on keeping the large production infrastructures (particularly the pipeline systems in Alaska and the North Sea) full by developing local, and inevitably smaller, reservoirs. 'Elephant' hunting - that is searching for giant oil fields in frontier areas and traditionally the company's great skill - was no longer a priority.

But the 1980s was also a time when a lot of new and exciting geoscience research was going on in the universities and particularly here in Cambridge. This was recognized by BP. Selective recruitment took place through the close ties which built up between specialists inside BP and the relevant university departments in fields such as structural geology, stratigraphy and geochemistry. Here I would like to acknowledge the fine contribution made by the two scientists with similar surnames - Andrew (Mackenzie) and Dan McKenzie - the former recruited by BP to lead its geochemistry team and the latter the professor here in Cambridge responsible for causing a fundamental rethink within BP on structural studies relating to the formation of reservoirs.

In 1989 two important next steps were taken. First of all, the exploration function within BP was reorganized - in particular barriers between teams were swept away. By then it was clear that more could be achieved by focusing on the 'joins between the disciplines' than in the disciplines themselves. Integrated teams made up of engineers and geoscientists were moved out of the research arm and into the businesses who were leading the exploration activities.

And secondly, a major refocusing of the exploration strategy took place. In future BP would focus on what had traditionally been a core skill, finding giant oil fields in frontier areas. A global study of new basins around the world led to 10 being targeted, half of which were in deep water. This was a bold step since at that time it was not universally acknowledged that giant fields existed in deep water.

But it paid off. Within 10 years, BP had a string of exploration successes in several of these frontier basins in places such as the Gulf of Mexico, Angola, Egypt, Russia and Azerbaijan.

These were enabled by advances in seismic technology. However, the strategic shift occurred 20 years earlier based on that research in geosciences. I'm not saying that BP was the only company to recognize the quality of that work, but I would suggest we acted on that knowledge quicker than our competition - in particular we built the links with the relevant departments, we recruited the best, we reorganized to accommodate a new way of thinking and we were prepared to make major investment decisions based on that work.

TECHNOLOGY SNAPSHOT: FORTIES, NORTH SEA DEVELOPMENT

For my second technology snapshot, I want to run the clock back 20 years to the early 1970s. This time I want to talk about production and in particular oil field development. By development, I mean the engineering needed to bring an oil field on stream.

In October 1970, BP discovered the Forties field, some 170 kilometres east of Aberdeen. Forties was certainly an elephant - 2.5 billion barrels recoverable - making it the largest and most profitable field in the UK sector. But from an engineering perspective, what made Forties challenging was not so much its size, but its location - the fact that the field was in a water depth of 125 meters in one of the most hostile marine environments in the world.

By 'hostile' I mean that the 100 year maximum-design wave height exceeded 28 metres. Persistent bad weather throughout most of the year meant that fatigue damage to the steel structures became an over-riding design consideration. And the summer season for offshore construction was only three to four months long - a fraction of what the industry was accustomed to in areas such as the Gulf of Mexico.

It is worth reflecting for a moment on the nature of the design challenge in a 'frontier' area like this where there are no precedents. There is usually very little available data characterizing the natural environment - for example the weather, the currents and the soils. There very often are no design rules, which therefore have to be created from first principles. And back in 1970, computing power was limited. Indeed, much of the stress analysis of both the node configuration on the jackets and the pipeline installation was conducted using physical models - essentially analogue computers.

The field was developed using four massive steel jackets, built in a specially constructed fabrication yard in Scotland. Everything about Forties was on a giant scale, often exceeding the-then current industry practice by a factor of two or three times in terms of weight and diameter. The export pipeline back to the beach also broke all industry records in terms of water depth and size. It was the first offshore pipeline to be constructed using fully automatic welding and the first to be designed to resist propagating buckles. Interestingly, much of the design work on the pipeline was done with the support of a consultant from Cambridge, Dr Andrew Palmer.

I could go on citing industry 'firsts'. All I want to convey to you is that in developing Forties in the early '70s, BP was undertaking a massive, high risk, engineering project, and it's pace remains a benchmark for a 'basin opening' development. And being an early developer of oil fields in frontier areas is also very much a core BP skill - it happened back in 1911 when BP built the first pipeline in Persia to carry oil from the discovery at Masjid-i-Suleiman to the new refinery in Abadan. It happened again in the North Sea and then in Alaska. And it is still happening today in places like Azerbaijan and in the deep -water Gulf of Mexico where BP continues to set industry records for the scale and depth of its new developments.

TECHNOLOGY SNAPSHOT: REFINING/THERMAL CRACKING

In my first two snapshots of BP's technology heritage I hope I have begun to convey to you something of the role that technology plays in the upstream activities of an oil company. It is rarely about making a single, technology discovery. It is much more about integrating a wide range of leading-edge technologies from diverse sources, combined with having the required in-house expertise to manage big risks and big projects.

But in the downstream - the world of refining and marketing - businesses are characterized by the development of new processes and products and we can more easily see the impact of revolutionary technology breakthroughs.

My next two snapshots illustrate this point. I want to talk first about refining technology - the world of organic chemistry and process engineering.

The year is 1911 and the place is Whiting, Indiana. It was on this rather barren patch of land on the southern shore of Lake Michigan, that 20 years earlier Rockefeller's Standard Oil had built the largest refinery in the world. But in 1911, one of the great events of the industry took place when Rockefeller's empire was broken up into seven companies. And thus it was that Standard Oil of Indiana - one of the seven, and subsequently to become Amoco (a BP heritage company) - found itself running the Whiting refinery that year.

This was an era of great change in the industry. In 1906 Henry Ford had launched the model T and within only five years, there were already 600,000 cars on the roads in America. But the provision of fuel had not kept pace. Prior to the advent of the automobile, gasoline was considered a by-product of distillation, since most value was derived from the production of kerosene and waxes. The challenge therefore was how to increase the yield of gasoline from the roughly 20% obtained from simple distillation.

William Burton, a PhD chemist, was made the Whiting refinery manager in 1909 and immediately set about addressing the problem. After several blind allies, his team tried subjecting gasoil to a combination of elevated temperatures and pressures. Finally at around 450ºC and 75 psi (5 bar), gasoline was produced. At a stroke, Burton had found a way of more than doubling the yield of gasoline from crude to over 40%.

Interestingly, Burton worked without the knowledge and permission of his management. It was of course highly dangerous, involving direct firing of the pressure vessel, which was of riveted construction, since welding was still a decade away.

But his success was to transform the industry, since it freed refiners from the constraints imposed by the boiling points of the different fractions in crude oil. And the gasoline obtained through cracking had superior anti-knocking properties to that obtained from distillation. From this beginning, Amoco went on to become one of the most successful refiners in North America throughout the rest of the century.

The patent was awarded in 1913 and within a couple of years the process had been licensed across the industry, a good example of the way that in the oil industry, technology is usually rapidly disseminated across all the players. It earned Amoco over $11 million - a fortune by contemporary standards.

TECHNOLOGY SNAPSHOT: LUBRICANTS

And so to my final snapshot.

During the first decade of the last century, it wasn't just the supply of fuel that failed to keep pace with a rapidly expanding automobile market - the same thing was happening with lubricants.

In 1899 a young entrepreneur named Charles Wakefield started a company in London manufacturing and selling lubricants. The oil he used was imported from America and blended at a plant in Liverpool. The principle market for his product was steam locomotives.

His business grew rapidly and then in 1906 he went on to market his first motor oil. One of his early customers was a London bus company. In those days, not just cars, but aircraft too, were regarded as toys for the wealthy. In 1909 Louis Bleriot became the first man to fly across the English Channel, in the process winning the one thousand pound prize put up by the Daily Mail. The huge amount of publicity and excitement generated by that historic flight made a great impression on Charles Wakefield.

That same year 1909, Wakefield's research chemists discovered a means of blending castor oil - a vegetable oil obtained from beans - with the finest quality mineral oil. The result was a compound oil with much improved lubricating properties over an extended temperature range. The castor oil no longer oxidised at elevated temperatures and the blend remained fluid at temperatures as low as -32ºC.

And so a wonderful marriage of technology and marketing took place.

That year, Wakefield launched a series of lubricating oils under the brand name of 'Castrol' (which is now one of BP's flagship brands). And it was no coincidence that at Britain's very first flying meeting, also held in 1909, every event was won by aviators using Castrol.

And so from the very start, Castrol lubricants were marketed by linking them to record breaking and racing - a concept that Castrol brilliantly exploited over the next century when their product would feature in just about every land-, water- and air-speed record attempt.

With hindsight, it is clear that Charles Wakefield was a brave and far-sighted man. It was a great decision to switch the principal focus of his business from industrial lubricants to what would become the new modes of mass transport - especially in an era when many people still regarded motoring and flying as dangerous and fanatical pursuits.

WHAT DOES THIS TEACH US?

Enough of the past. Fascinating as it may be, I believe its real importance lies in what it can teach us, which is what I want to discuss now.

First, we can observe that these snapshots embrace the main technology areas of the company that are still apparent today - exploration and production, and refining and marketing. More recently, one can observe a fifth strand becoming increasingly important in BP, namely alternative energy.

But perhaps more important than 'what' we do, is 'how' we do it. When I look at our technology portfolio, there are five main themes that emerge:

we always have and we continue to operate at frontiers
we are expert at integrating a breadth of technologies from different sources
we exercise 'selective leadership' in technology - that is we focus our investment in key technologies with the goal of being the industry leader
we know how to collaborate with a wide range of partners
and, lastly, it takes great people to succeed.

The first of these - operating at frontiers - is really about risk taking. It is about operating without analogues. It is about being an applier of technology in the field and about not being afraid to go first. It is about having a deep understanding of the natural environment and the hazards it contains. It demands that we learn from 'doing' and share that know-how across the company. It requires substantial in-house resources - both expertise and money - to handle the scale and complexity of the risk. And, it is worth emphasizing that throughout this period and despite the extremes of geography in which we operate, technology has continuously improved the safety and environmental footprint of our industry.

Over the last 100 years of BP's history, that frontier risk has taken many forms, all the way from the industry's first exploration programme in the Middle East in 1908, to 2008 in the Gulf of Mexico where BP brought the Thunder Horse oilfield on stream - by some margin the most technologically-advanced offshore project ever undertaken by the industry.

And so to the second theme - integration.

If my quick trawl through our technology heritage has demonstrated anything, it is surely that companies like ours embrace a huge range of pure and applied technologies. This stems from the very diversity of our businesses. But technology solutions to business problems are rarely about the application of a single discipline. The real trick lies in harnessing that diversity - having the ability to integrate different technologies from a variety of sources - to bring about real changes in our industry.

My snapshot of our exploration work in the 1980s was a good demonstration of that principle in action. And our belief in the power of integration still underpins our support for academia. A good example is taking place today at the Energy Biosciences Institute at Berkeley and Illinois. The application of biosciences to the energy industry is still in its infancy. A cornerstone of BP's funding of the centre is that it is through the integration of different disciplines in the field of biosciences that the greatest progress will be made in the development of new forms of biofuels.

Both the areas of exploration and bioscience also illustrate my third theme, which is about exercising selective technology leadership, or achieving quality through choice. Whether in our core business for today, or future energy value chains, we target key technology areas where we seek to be the industry leader. If you like, we focus on a few big technology bets - and there are around 20 of these inside BP at the moment. By definition they won't all succeed - some will fail, and we may miss some technologies. But what matters, is that we have a tough selection process for choosing which are our preferred technologies and then we are prepared to back them at scale. Consequently we can reasonably claim industry leadership today within some of our focus areas such as enhanced oil recovery, seismic technology, lubricants and biofuels.

Fourthly, and fittingly, since I am addressing our partners at Cambridge today - I believe passionately that our technology past demonstrates the benefits that come from my fourth theme - collaboration. Unlike some of our competitors, BP does not always regard ownership of technology for its own sake as essential. This is tremendously liberating, because it leaves us free to focus on excellence - to select and build the best possible technology partnerships to solve a business problem - even to the extent of working with firms who could be potential competitors.

But collaboration also plays a very important role in our links with academia. Within BP, we can't possibly track the immense body of innovation which is a feature of today's world - no one company could do that. Therefore our preferred strategy, for areas of emerging science, is open innovation - that is to be in close collaborative relationships with centres of excellence such as yourselves, MIT, Berkeley, Princeton and the Chinese Academy of Sciences to name but a few - so that in effect you can be our technological eyes and ears. And to date the BP Institute established here through BP's endowment in 2000 has arguably been the most successful of these relationships in recent history.

We believe this dual strategy - selective technology leadership in a few key areas, combined with open innovation garnered from a wide variety of sources - is the best way, and arguably the only way, of making progress in a rapidly changing technology landscape.

Last but by no means least are the people themselves. The big leaps in technology have occurred when teams of great scientists and engineers, both inside and outside BP, have been supported by enlightened management with the courage to provide unwavering support in the pursuit of a massive business opportunity.

FUTURE TRENDS FOR ENERGY TECHNOLOGY

And finally, a few words about the future for energy technology.

It is reasonable to expect that the global demand for energy will continue to grow, driven in particular by developing countries. Energy consumers everywhere in the world want secure and affordable energy which does not damage the environment. Their actions and those of their governments are causing an unstoppable tide towards a more sustainable energy landscape, enabled by new technology.

You will be aware that President Obama recently announced Federal funding of $150 billion over 10 years in energy research and development to transition to a clean energy economy in the USA. We welcome this opportunity and stimulus to our industry. The transition to a sustainable energy system is being driven by political forces such as these but note that it will in any case take a long time - that is the nature of our industry and the investments required are huge, at around $1 trillion per annum.

It is not possible to predict the future 50 to 100 years out - just look at the change which has occurred over the past 100 years. But we can already see aspects of our history repeating itself.

Information technology continues to change the way in which we operate and is enhancing our ability to learn.
Oil and gas companies are making equity investments in cleantech start-up companies, and creating joint ventures with companies in this sector.
New scientific discoveries, generated within and outside our industry, continue to be integrated rapidly where relevant.
Opportunities are emerging at the intersection between previously disconnected fields of science.

So where is BP investing in new energy technologies? Currently we spend around $600 million a year on research and development. That money is directed at three main targets:

First of all, at improving the discovery, development and recovery of fossil fuels. And of these objectives, it is probably the latter goal - improving recovery factors - where I believe technology can make the most profound difference. To put the prize in perspective, just within BP's existing portfolio, another 30 billion barrels of oil equivalent could be produced if we could increase recovery factors from 35 to 50%. And the goal of 50% is not an unrealistic target - in some of our reservoirs, such as Prudhoe Bay in Alaska, we already exceed that number.
And our second major target is conversion. That is the conversion of diverse sources of hydrocarbons in whatever form - natural gas, conventional crude oil, heavy oil, coal, biomass - into different fuels and products such as chemicals and lubricants, using conversion processes such as hydroprocessing and partial oxidation
And thirdly we are targeting low-carbon energy, in particular biofuels, solar, wind power, and carbon management - for example carbon capture and storage.

So let me leave you with a couple of snapshots of the kinds of things we're doing within these programmes, in areas which excite me the most.

In terms of recovery factors, oil and gas reservoir management over the past 100 years has been largely about physics - of drilling wells and fluid displacement in porous media. The ability to observe and measure actions and reactions on a molecular scale is comparatively new and is opening up a whole range of new possibilities, some of them being studied here in the BP Institute. BP's Bright Water(tm) technology (developed in partnership with Nalco and Chevron) is one example.

The injection of water into reservoirs is a standard technique for recovering more oil. But the problem is how to make sure that the water passes uniformly through the porous reservoir and doesn't channel along a few high permeability pathways. Bright Water(tm) is a polymer added to injection water which will expand and block pore throats in existing swept zones, thereby diverting the water into unswept zones. BP has led the industry in the application of these polymer treatments. The initial field trials were in Alaska, but the technology is highly transferable and we have now performed more than 25 treatments in waterflood operations in Alaska, Argentina and Pakistan. So far these have delivered an increase of more than 6 million barrels of reserves at a development cost of less than $6 per barrel.

And my second technology snapshot concerns biofuels, which is the renewable energy opportunity closest to BP's core competencies in oil and gas. Biofuels are a real alternative for transportation fuels, although there is a danger that this emerging industry will be damaged by misunderstanding. We believe that the global case for biofuels can and should be made. In BP, we have a three-part strategy:-

The establishment of a sugarcane to ethanol business in a joint venture established with Brazilian companies Santelisa Vale and Maeda Group;
Development in a joint venture with DuPont of the technology to convert sugars to biobutanol, which is in many ways a better fuel molecule than ethanol; and
The development of lignocellulosic conversion technology in a joint venture with Verenium in the USA.

Our focus is on biofuels done well - using feedstocks that minimize any impact on food production and technologies that lead to material greenhouse gas reductions. Both biobutanol and lignocellulosic ethanol are leading-edge advanced biofuel technologies and BP plans to be the first to produce commercial quantities over the next few years.

It is time to wrap up.

In summary, BP is a part of a hugely diverse industry which today embraces everything from geoscience to genetic engineering. While the industry has made a number of technological breakthroughs, its real strength lies in the ability to identify, integrate and apply technology from a variety of sources to the business of making money from energy. While we are not afraid to place a few big technology bets we also work closely with a handful of excellent centres of technology, of which Cambridge is definitely one, to keep us plugged into the fast-changing world of science and technology.

And so if our technology heritage demonstrates one thing, it is that while BP may be universally known as an oil company, one of its core values is innovation. It always has been and always will be. We push the boundaries today and create tomorrow's breakthroughs through our people and technology. This requires a broad innovation ecosystem from the most advanced research institutions globally to the engineers in BP who apply that scientific knowledge to practical problems.

Let me end by saluting the role that this great university has played in our development. You have an unrivalled heritage of academic excellence in research and higher education on which BP has drawn liberally over the last century. Long may this continue. And for that, on behalf of the company, please accept my profound gratitude and best wishes for your next 800 years.

Thank you.