The global oil and gas industry is in better shape overall than it has been in some time, with big data proving transformational, but it has evolved beyond only producing fossil fuels and is embracing a low carbon future, BP CEO Bob Dudley said Tuesday night.

Speaking to a Houston audience at CERAWeek by IHS Markit, Dudley urged his peers to work on energy systems that are “cleaner, better and kinder to the planet.”

The industry, he said, can only play its part with the “trust of society and the confidence of our shareholders...Being part of a conversation much wider than one among ourselves -- showing we are not only listening but hearing. We need to demonstrate that we share the common goal of a low carbon future and that we are in action towards it. The stakes are too high not to.”

He said digital improvements and big data have proven to be transformational.

“We’re getting even better at finding resources and producing them in ways that were once unimaginable. And we’re doing it all faster and safer than ever.” The industry has also developed a level of discipline on costs and capital “that I think is here to stay,” improving returns and reassuring stakeholders.

“On top of that, demand for our products is growing. On current trends, the world’s need for energy is set to rise by around one-third over the next two decades. So, in many respects, the industry is in a stronger position today than it has been for many years.”

However, as bright as the future may appear, the industry has challenges, with climate change priority No. 1.

“A few days from now there will be a major global event that exemplifies what I’m talking about,” Dudley said of a rally expected to be held worldwide on Friday. “Around the globe, tens of thousands of young people, maybe even hundreds of thousands, will take part in what is being called ‘a youth-led climate strike.’

“These are young people on the cusp of being able to vote. They are tomorrow’s legislators, regulators, jurists -- and consumers, of course.”  U.S. policymakers are talking about the Green New Deal, which in part proposes 100% of power demand to be met from renewables and zero-emission energy sources as soon as in 10 years.

Energy company shareholders are also increasingly asking how company strategies relate to the United Nations’ climate accord reached by nearly 200 nations in late 2015.

“There is a rising tide of concern on many fronts about the lack of progress on climate issues --  not just concern, anger,” Dudley said. “I think we can all understand those frustrations. It may not always come across as clearly as we’d like it to, but we also want the world on a more sustainable path.”

Dual Challenges Ahead

Where the roads diverge is the ways and means to get there, he said. The dual challenge is the need to provide more energy to emerging economies, but with fewer emissions. To do both will require “energy of all kinds, but done cleaner and better.”

Renewables have a big role to play, Dudley said, and they may in fact account for one-half of the growth in global energy supplies over the next 20 years and be the largest source of electric power by 2040.

“But the reality is that renewables will likely make up only a third of the total fuel mix by 2040, even by some of the most optimistic and ambitious projections. That means two-thirds have to come from elsewhere.”

Natural gas “will be important for the mix given its abundance and affordability, its cleaner-burning properties and its compatibility with renewables. Renewables with gas can drive coal out of power and industry. We’ve all seen the impact that can have here in the U.S. and it needs to happen in Asia especially.”

Still, oil is going to remain a big part of the mix, particularly for transport and petrochemicals.

Dudley said he wasn’t highlighting the importance of natural gas and oil to protect their share of the market, but “simply quoting the math…”

“Of course, the speed of the transition could be different,” as the pace of growth in renewables “has been regularly underestimated,” and their share of the market may grow even faster than they already are propelled by new technologies and a push by consumers.

Lawmakers could impose more and higher carbon pricing, incentivize innovation and help crack commercializing carbon capture technologies, too, for which many industry leaders, including BP, have long advocated.

BP was in fact an early mover into renewables, and until it sold the arm in 2013, it owned one of largest wind businesses in the United States. However, the UK-based major found itself ahead of the market and policymakers.

“We lost a lot of money, but we didn’t lose our faith in renewables,” Dudley said. In fact, an estimated 5,000 BP employees today work in the supermajor’s solar, wind and biofuels businesses, and the company invests about $500 million a year into the low carbon technology sector.

5% Directed to Renewables

BP has committed around 5% of capital expenditures (capex) a year on average to the sector, an amount that some critics have said is too little. “I get criticism for saying if I had $10 billion to spend on low carbon businesses, I wouldn’t know what to invest it in,” Dudley said. “That’s not for any lack of commitment. It’s because low carbon has to compete for investors’ money.

“We get our license to operate from society, but we get our capital from investors...It’s our duty to spend it wisely and deliver the returns they expect, both shorter-term and long term. In other words, we have to be progressive for society and pragmatic for investors.”

At the same time, he said, BP has to be ready to adapt as the market changes.

“We’re not the big hulking ocean liners that some see us as. As an example, BP’s capital employed is roughly $145 billion, and we invest around $15-17 billion in capital each year. So we effectively turn over the balance sheet in around nine years.” Developed reserves are produced in under eight years, with undeveloped reserves moved to production in under five years.

“That’s why I’m confident that we can readily reshape BP however fast the energy transition unfolds,” and it’s a similar story for the other oil majors, the CEO said. “The market and policy signals in areas like solar and electrification are already becoming much stronger, and we are starting to lay down some bigger bets.”

BP advanced into solar in late 2017 with an investment in Lightsource BP. It also acquired stakes in Chargemaster, a UK-based vehicle fast-charging company.

“I’m really optimistic about our future, but it is by no means guaranteed,” Dudley said. Providing more low and zero carbon energy in the future “will rely on energy companies today incubating new ideas, adopting new innovations and integrating them into their business models and consumer offers. We have the relationships, the financial acumen and the engineering know-how to do that at scale and be pivotal in the energy transition.

“But in order for us to play that role, we have to continue to evolve. We have to move from being pure-play oil and gas companies into broader energy businesses.”