The Changing Energy Market

I thought it would be interesting to share the view point of the CEO of one of the worlds largest oil companies on the future of energy.  On 27 February 2006, Lord Browne, BP's Group Chief Executive, delivered a speech "The changing energy market."  The following are a few brief excerpts from the speech.  It is suggested that you read the whole speech to totally understand his perspective.

.... So let me offer you four facts, and one conclusion.

The first and most fundamental fact is that the demand for energy continues to increase, driven by population growth and by the gradual spread of prosperity.

Over the last twenty four hours, the world’s population has risen by almost a quarter of million – as it does every day, week in, week out. 10,000 new citizens every hour. ....

The second fact is that the United States, Europe, Japan and now China and India, are all significant importers - of both oil and natural gas.

And in each case the requirement for imports is likely to grow.

The forecast for ten years from now is that, worldwide, 70 per cent of total oil consumption and 40 per cent of all natural gas demand will be supplied through trade.

The third fact is that on the other side of that trading relationship are a very limited number of suppliers.

There’s no physical shortage of the necessary resources. There are many decades worth of available supplies of both oil and gas.

But the resources are concentrated in a very limited number of places.

Within ten years, if nothing changes eighty per cent of all traded oil will come from just three areas of the world – West Africa, Russia and the Middle East and, in particular, from Saudi Arabia, Iran and Iraq.

The Saudis will remain the key swing producers, but by then they will have to be exporting around 15 million barrels a day, and even that figure assumes that both Iran and Iraq are producing and exporting at full capacity. ....

And then there is a fourth fact which represents another longer term reason for insecurity.

That is the fact that the emissions of carbon into the atmosphere are growing by 1.5 to 2 per cent a year.

The science of climate change is incomplete, but the evidence is mounting.

The concentration of carbon in the atmosphere is rising, and moving steadily towards the level at which, on the basis of the best scientific analysis, the balance and sustainability of the climate is at risk. ....

What then is the practical answer?

I think it’s the same as that expressed by a young British government minister 101 years ago. Winston Churchill, an Elder Brother of this organization, said that the key to security of energy supply lay in diversity.

By diversity the only thing Lord Browne really mentioned was more natural gas. He dismissed renewables as being unable to contribute significantly and said that energy independence was not really possible because so much of our economy depended on imports of products derived from fossil fuels. He claims their are no shortage of suppliers, but it is troubling, to say the least, for him to remind us that the world will have to depend on some of the most unstable parts of the world, West Africa, Russia, Saudi Arabia, Iran and Iraq for the majority of its imports.  In the US we also depend on Venezuela as a major supplier.  But we are fortunate to have reliable supplies from Canada and Mexico. "no shortage of suppliers" seems to mean that he doesn't buy in to the peak oil concept.  I also think we have large untapped supplies that will become available as the price of oil increases to the $100/bbl price.  The oilsands of Canada are now competitive as should be heavy oil in Venezuela and Russia.  By the time oil reaches $100/bbl shale oil should be competitively priced.  But what environmental price are we willing to pay for these resources?  I believe we will favor oil over the environment, as our standard of living will dictate our choice.  I certainly hope that we will impose greater environmental standards than we have imposed on coal mining.

Resource: "The Changing Energy Market", Speech by Lord Browne, BP Group Chief Executive, Trinity House, London, Feb. 27, 2006

Technorati tags: oil, natural gas, energy policy, energy, technology

Comments

[Thomas]

Of course Lord Browne dismisses renewables. That is his job, to talk up the value of his company's natural gas reserves.

But he's hardly the right person to ask, whether renewable energy will be able to make a significant dent in global consumption of fossil fuels. Even if BP does stand for beyond petroleum...

As you rightly put, Jim, there are huge fossil resources that will be commercially viable at a stable oil price of $100/bbl. But so will most developed renewable energy sources. At those (sustained) prices, plug-in-hybrids fueled by wind and solar starts to look really interesting.

In energy terms, one barrel of oil is approx. 1,700 kWh. But few cars turn more than 20% of the chemical energy in to power (mechanical/electrical), which means that one barrel of oil is worth 340 kWh. That gives a cost in the car of approximately 30 cents/kWh (not including tax and cost of refinery). Electricity retails for about 9 c/kWh. Well-sited, modern wind turbines can produce electricity at 5-6 c/kWh. This looks feasible to me...

Of course the fuel savings are offset by added initial cost of the hybrid drivetrain.

About natural gas. I seems to me that everyone wants natural gas these days. If we are going to use it for both power generation and motor fuel, it will deplete much faster than oil fields. Remember, tapping a natural gas field is like letting air out of a balloon! Drill a big enough hole, and it flows out very fast in the beginning, only to decline exponentially. And there is no such thing as enhanced recovery.

Betting on renewable may not be 100% safe in monetary terms, but in terms of energy security, you could do a lot worse!

-Thomas

[bean]

If we magically replaced all gasoline consumption (at an assumed 20% efficiency) with electricity consumption by plug-in hybrids or pure electric vehicles (at an assumed 50% efficency) U.S. electric consumption would increase by about half (from 10.9 million MWh/day to 16.5 million MWh/day). Clearly this won't happen, but it's worth bearing in mind the magnitude of increased electricity consumption. To support widespread electric vehicle adoption our present generation and transmission system would require very substantial reinforcement (even assuming off-peak charging of vehicles), and fuel consumed by generators would increase proportionately. All this to say that we should expect only incremental progress in improving our energy situation, and that diversity (of supply and of appurtenant system types) is indeed critical.

[JesseJenkins]

Note, bean, that the issue of new infrastructure required to reinforce the electric grid and supply to transition to electric vehicles is also true of a transition to hydrogen fuel cell vehicles: a large infrastructure investment is required there as well, except that with electric vehicles, you only need to upgrade an existing infrastructure (the grid) and one that is significantly more efficienct (on a well-to-wheels basis) than a 'hydrogen economy'.

[Jason Makansi]

The job of a CEO of a huge conglomerate like Lord Browne isn't to "dismiss renewables" but to protect current sources of revenue while finding new ones. In fact, BP is probably the most aggressively "green" International oil company (IOC) and not just in advertising and PR. But by necessity, a "big ship" like BP doesn't just turn on a dime. It makes incremental moves based on a very dynamic forecast of future trends. When you really dig into the company, they have very clever ideas for extracting better environmental performance. Two are: (1) A complete redesign of LNG liquefaction facilities to reduce emissions and boost output (I am not a fan of LNG imports into this country but at least they are thinking the right way) and installing large wind turbine/generators on thier existing energy production and brownfield sites.

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