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BP CEO: We have to look at tough frontier projects

BP chief says energy consumption to rise 40% in coming two decades

Bob Dudley gave his address at Tsinghua University in China.
Bob Dudley gave his address at Tsinghua University in China.

Bob Dudley, BP’s group chief executive officer recently gave an address at Tsinghua University in China, in which he reflected on the Deepwater Horizon tragedy, BP’s reaction and lessons from it, and outlined what the company envisages will be the largest energy challenges to overcome in the next thirty years.

Earlier this year BP published a set of projections its calls the Energy Outlook 2030. Here, Dudley emphasized some key findings.

The Energy Outlook is based on BP’s assessment of how the key drivers of demand and supply are likely to evolve - as well as economic and policy trends.

“We estimate that by 2030 the world could be consuming as much as 40 percent more energy than it does today. That is a huge number and is equivalent to adding two more Chinas to the world’s consumption of energy,” he said.

Dudley explained that this increase will be partly driven by industrialisation - but partly by sheer population growth.
“Almost all of this growth – we estimate 93% - will come from the fast growing emerging economies such as China, Indonesia, India, South America and the Middle East. At the same time, energy demand in the US and EU is expected to be relatively flat.”

The report’s findings said that over the past 40 years, rapid growth in the emerging economies outside the OECD grouping has driven global energy consumption up 2.5 times – and the balance of demand has been shifting rapidly.

In 1970, the OECD countries used around 70% of the world’s energy.

“Today, the non-OECD countries have caught up and consumption of the world’s energy is split equally between OECD and non-OECD countries. And by 2030, we expect that non-OECD countries will account for 65% of global consumption or two-thirds,” said Dudley.

This means that in the space of 60 years, the world will have seen one group of countries take over from another group as the world’s major consumers of energy.

So how will this phenomenal growth in energy demand be met?

Dudley explained that BP’s finding suggest that all forms of energy will be required, but that non-fossil fuels will likely account for a significant source of growth for the first time ever. “Between 2010 and 2030 the contribution to energy growth of renewables is projected to increase from 5 percent to 18 percent,” he said.

What about fossil fuels? Didley said hydrocarbons contribution to primary energy growth is projected to fall from 83 percent to 64 percent, with coal and oil losing market share as natural gas ramps up.

“Coal will continue to be important in emerging economies like China where resources are plentiful. And although oil demand growth will be low, given the decline in existing fields, we will need to continue to keep exploring for new sources of supply,” he said.

Over the same period, BP’s Energy Outlook finds that non-OECD countries will become more energy efficient. This will have a positive effect on energy intensity – in other words the amount of energy needed for each unit of output.

So what does all this mean for the environment?

“In the last two decades, carbon dioxide emissions have grown by nearly 2% a year. That is a high number,” said Dudley.

“Our base case assumes that countries can reduce that rate of growth by almost half by encouraging energy efficiency and lower carbon energy. However, given the sheer scale of the growth in demand, we still expect CO2 emissions to be more than 25% higher in 2030 versus today.”

Dudley explained that this is of course a projection, not a proposal. “It’s not what we want to see but what we believe is likely to happen. It should be a wake up call,” he warned.

“In BP we would like to see faster progress, including a price for carbon and targeted transitional support for renewable and low carbon technologies that are near to commercialization and have clear potential to compete.”

In addition to the clear environmental challenge, Dudley highlighted other significant challenges in meeting this energy demand growth.

“With many of the world’s major oil and gas basins in decline, our industry will have no choice but to continue to look to new and increasingly challenging frontiers. These include the Arctic, unconventional energy sources like shale gas and the very deep water.”

Deepwater Reflections

The CEO said that blazing new trails always carries risks that need to be understood and managed.

“In BP we understand this only too well after the tragic accident last year on the Deepwater Horizon rig in the Gulf of Mexico that claimed 11 of our colleagues’ lives,” he said.

Dudley outlined that the Deepwater Horizon was a complex and unprecedented accident.

“Our investigation and others have identified a series of failures that contributed to it. Among other things, these relate to cementing of the pipe in the well, the interpretation of various pressure tests of what was occurring deep in the well and something called the blow-out preventer on the seabed, which did have multiple fail-safe devices, but did not activate.”

The CEO said that the company is now taking steps to implement the lessons that have been learned from this tragedy, and that BP is sharing those lessons around the world.

“For example, we will now drill all of our oil and gas wells to the same high standards worldwide, no matter what contractor we use. We are using third parties to verify that the blow out preventers will work in an emergency,” he outlined. In addition Dudley said the company is enhancing its oversight of cementing work performed by our contractors.

“More widely, we have set up a powerful new safety and operational risk organization which has 500 new experts embedded in BP’s units worldwide to advise and - if needed - intervene. This organization also has a highly experienced central team which maintains and updates BP’s safety and risk management standards. Already the organization has intervened in a number of situations to make absolutely sure that risks are being managed properly, even if this involves delaying an operation or stopping production until we are sure it is safe to proceed or deciding not to use a particular rig.”

Dudley then outlined BP’s response to last year’s spill.

“We responded immediately to the accident by mobilising more than 48,000 people, 6500 vessels and 125 aircraft. One year later, the beaches have been cleaned and tourism and fishing have been restored. In time, I hope that it will be recognized as an act of great corporate responsibility.”

The CEO said the incident was “a shocking tragedy for BP and it caused us to ask many questions – but we believe we should continue to deploy the experience and capability we have built over the decades in deepwater drilling, while implementing the lessons that have been learned.”

He added that in light of last year’s incident it was good to see governments and partners demonstrating that they have confidence in BP.

“In the last year we have been granted new contracts in the deepwater in many places, including China. The disaster has made us determined to operate safely and steadily. We are putting more emphasis on all the factors that contribute to creating value in a long-term, sustainable, way. These factors include safety, capability, rigorous standards, advanced technology and strong relationships,” he concluded.

 

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