The oversupply that has gripped the energy complex may be moving into balance, but the massive transition by producers continues in the age of surplus oil and natural gas, which has forced all energy companies "to quickly adapt or perish," BP plc Group CEO Bob Dudley said Thursday.
Dudley, who is based in London, spoke to an audience at the Economic Club of Washington, DC, on the day that Great Britain voters were voting to exit the European Union (see related story). These are uncertain times, he said.
In past years, global market instability like that seen since oil prices collapsed would have caused prices to skyrocket. But credit the unconventional oil and natural gas revolution, which has "forced all energy companies to quickly adapt or perish...
"Roughly two years after prices began declining, I'm happy to report that global supply and demand recently have moved toward a better balance, and we expect this trend to continue in the second half of 2016. But we're not expecting the days of $100 oil to return anytime soon, so we must maintain our discipline and continue to improve our productivity."
Beyond prices, BP and its peers also face a slow transition to a lower-carbon future.
"The challenge for all of us is to balance two competing obligations," said the CEO. "We must curb greenhouse gas emissions to protect our environment, while also providing the safe, reliable, affordable energy that fuels economic growth in the developed world and lifts hundreds of millions of people out of poverty in the developing world." BP for nearly 20 years has publicly recognized and addressed the threat of greenhouse gas emissions, widely seen as the first major international oil company to do so. In the years since, it has funded independent research, piloted technologies and built low-carbon businesses ranging from wind farms in the United States to biofuels in Brazil.
BP currently has the largest operated renewables business of any major oil and gas company. However, even though renewables are the fastest growing form of energy and they hold "great promise, they are not yet ready to assume the burden of powering the world, which is expected to need a third more energy by 2035."
In fact, in BP’s recently issued Statistical Review of World Energy, economists project that under the "most likely" scenario non-hydro renewables will account for only 9% of global energy consumption in 2035 (see Daily GPI, June 8).
"In other words, it simply is not feasible to rapidly abandon fossil fuels," Dudley said. "You can't flip a switch to a world powered by renewables. It's going to take time, and it must be done smartly. Even under its most ambitious lower-carbon scenario, the widely respected International Energy Agency still sees oil and gas making up 45% of the energy mix in 2040." (see Daily GPI, June 9). "For these reasons, BP supports a stable, orderly transition to a lower-carbon future."
The transition is to include not only an expansion of renewables by BP, but also improved energy efficiency, enhanced carbon mitigation technologies and increased production of natural gas. BP has been North America's top gas marketer for years, according to NGI's quarterly marketerrankings.
However, the most important element of a global energy transition, said Dudley, "will be the introduction of a price on carbon," which BP and many other top oil and gas producers in the world advocate.
"After investing $8 billion in low-carbon energies over the past decade, we've learned the hard way that carbon pricing is crucial to helping renewables compete on a global scale. But it must be done in a way that doesn't favor particular ways to reduce emissions, doesn't discourage the development of still-unknown technologies and doesn't disadvantage the U.S. in global competition. We should let the market drive the best solutions."
Although it is transitioning, BP's commitment to the United States is not wavering, said the CEO. He said BP, with headquarters in England, nevertheless remains the largest U.S. energy investor, with more than $90 billion over the past 10 years. The company's investments support almost 190,000 U.S. jobs, directly and indirectly, and they contributed $135 billion to the U.S. economy in 2014, according to Dudley.
"However, we also have noticed some disturbing trends lately, and we're not the only ones," he said. "All around the world, I meet with CEOs, government officials and others who raise concerns about the growing risk of doing business in America. There are three concerns in particular that come up time and again. First, the U.S. has an increasingly tangled web of government regulations, many of which seem redundant and needlessly burdensome. Second, it seems increasingly litigious, and the tort system allows for costly abuses," which BP understands "better than most" following the Macondo blowout in 2010.
"And third, the U.S. political system is demonstrating an increasing inability to come together and get things done, and that's making it harder for policymakers to think long-term and plan for the future, both of which are essential to solving the problems we face. I say all this not only as an energy executive, but also as a concerned American who hopes that our next president -- whoever that may be -- will work with Congress to pursue sensible reforms and focus on long-term solutions."