"The world is growing fast," said Robert Dudley, group chief executive for BP. "And it is calling for more from us every day -- not just for energy but for energy that's better, cleaner and helps toward the Paris goals."
This reality presents a dual challenge, Dudley said: the need to deliver about onethird more energy by 2040 to power growing prosperity, lifting 2.5 billion people out of low incomes while simultaneously producing energy that cuts greenhouse gas emissions by half of the current levels.
"Some might think there is no way that can be done with oil and gas," Dudley said. "They think our industry has had its day, and now it's time for different forms of energy to take over. I don't think that is the best answer. Our industry can and must be part of the solution, and the world is depending on all of us to do it."
Dudley noted the oil and gas industry has proven its ability to adapt and change with the passing years, just as demands have changed.
"We have overcome many big challenges along the way," Dudley said, addressing delegates at CERAWeek by IHS Markit, held recently in Houston. "In fact, we just recovered from one of the most protracted price downturns there has ever been in our industry by changing how we do business."
Dudley pointed out the industry has become much more disciplined on costs, making dramatic improvements in efficiency through the use of digital-era technology and data.
"As a result, we are leaner, we are fitter, and we are better balanced at $60 than we were at $100 [per barrel of oil]," Dudley said, adding the industry has become more "modern and agile" and, as a result, is better positioned for the energy transition currently taking place.
Dudley shared BP's most recent energy outlook report indicates "we could be heading for the most diverse fuel mix there's ever been on our planet, with roughly one-quarter shares each for oil, gas and coal, and the other quarter coming from hydro, renewables and nuclear by 2040."
One implication of the transition is a declining share for oil, he said.
"There is a common misconception about that," Dudley continued. "If you believe some of the things you read, the way to a low-emissions world is through electric vehicles and killing off the oil industry. That has generated a lot of talk about oil demand peaking but, importantly, this does not imply a steep decline. Think 'plateau' and not 'peak.'"
At some point, oil will stop growing, Dudley admitted, but then added the pace of any subsequent decline is likely to be very slow.
"The world will need a lot of oil for a long time to come," he said. "You can see that is the case when you look at a really extreme scenario."
Citing BP Chief Economist Spencer Dale's February 2018 outlook, Dale's team modeled what would happen if there were a worldwide ban on all new sales of traditional combustion engine cars by 2040.
"Even in that extreme case, oil demand overall could still be higher in 20 years' time than it is now, up over 100 million barrels per day," Dudley said.
There is another "remarkable side" to that calculation, Dudley said.
"It shows even a worldwide ban like that barely moves the dial on greenhouse gas emissions," he said. "Emissions would still go up by 7 percent by 2040, which is not far off the 10-percent rise projected if the world continues on the course that it is today, and is much higher than the near 50-percent fall thought necessary to be on course for the Paris climate goals."
Dudley does not discredit the development and implementation of electric vehicles (EVs).
"They have a very important role to play, particularly in urban areas where they could improve air quality," he said. "We see tremendous business opportunities for BP, like other companies do as well, not just in EVs but in the broader evolution in mobility that's underway."
BP's retail markets are positioning themselves to become "fast-charging EV stations, and BP currently offers charging sites at approximately 70 of its retail sites in the U.K. and in northern Europe," Dudley said.
Dudley noted BP's downstream business effectively funds the company's annual dividend pays, which translates to $7 billion a year.
"The teams have done amazing things combining retailing of fuels with convenience foods in the United Kingdom, the Netherlands and Germany, and the market share continues to rise," he said.
No silver bullet
The important point, Dudley said, is while EVs are important in addressing the emissions challenge, they are not the "silver bullet" that eliminates the problem altogether.
"If you want to really make a serious difference on carbon emissions from energy, start by talking about the power sector," he said. "Then go on talking about the power sector. And if you have time, talk some more about the power sector."
Dudley observed replacing coal and gas with power generation has helped reduce U.S. emissions levels to where they were in the early 1990s.
"That is remarkable, and it shows what natural gas can do," Dudley said. "The same needs to happen in the power sector more widely, particularly in Asia. Carbon capture use and storage (CCUS) can also drive emissions down in the power sector and elsewhere, and we're seeing more support for that from both sides of the Atlantic."
Insisting he is not "just an apologist for oil and gas," Dudley offered another projection from BP's outlook report.
"Renewables are growing faster than any fuel in history. It is growing five times faster than natural gas, and that makes them a really exciting investment prospect, particularly where you can partner wind and solar with gas to counter the intermittency issues," he said. "Yet, even in one of the most aggressive growth scenarios for renewables, a course consistent with the Paris goals, the world will still be sourcing around 40 percent of its energy from oil and gas."
Dudley said BP's more than two decades of low carbon experience indicates a race to renewables will not solve the aforementioned "duel challenge."
"Instead, we need to be agnostic about fuels and focus on our race to lower emissions," he said.
RIC leads to low-carbon mindset
The oil and gas industry can make alternative energy work, Dudley insisted, noting BP's combination of wind power generation in the U.S. and its production of biofuels makes it one of the largest operators in renewables of any oil and gas companies.
"And now we are back in solar in a big way," Dudley said. "But to really help make a difference on this important issue, we need to do more than that, so we're infusing a low-carbon mindset in everything we do across BP."
BP has implemented what Dudley calls "a really simple, but not simplistic" framework to engage the company's approach to that mindset, called "RIC."
"The 'R' is for reducing emissions in our operations, which means producing oil and gas more efficiently and clamping down on methane leaks," Dudley explained. "We are targeting sustainable reductions aggressively across our company. We're looking at new designs on big projects that minimize the potential for leaks in processing gas at each of the well sites."
The "I" stands for improving products in ways that help customers limit their emissions.
"That means producing more natural gas as an alternative to coal in the power sector, producing more renewable fuels and developing more advanced fuels and lubricants that help engines run more efficiently with less friction," Dudley said.
Finally, the "C" stands for creating new low-carbon businesses and "making a wide range of smart investments in promising technologies and ideas with the potential to be big breakthroughs."
The RIC approach, Dudley said, "is the right approach for us, our customers, our partners and our investors."
It takes a village to reduce emissions
Dudley noted a multitude of companies across the oil and gas sector are actively engaged in addressing the energy transition.
"Statoil is doing great things in wind and in carbon capture, and TOTAL has invested in solar and batteries and electricity," he noted. "Exxon is pursuing algae and carbon capture. Shell is working hard on wind, biofuels and electric power. Eni [an Italian multinational oil and gas company] is working on solar power. Saudi Aramco is working on multiple technologies. These are just a few examples. We are all trying lots of new and exciting things and partnering together in different ways."
There is "no one solution," Dudley reiterated, saying he is "personally really encouraged" by the level of engagement throughout the industry.
"But as much as we are doing, we need others to act as well," he said. "We need all sectors of the economy to bring emissions down and consumers as well. We need a big drive on energy efficiency in all kinds of areas. That's where the greatest reduction is going to come from."
It is also necessary, Dudley believes, that governments put a price on carbon.
"When you do that and you incentivize lower carbon activities of all kinds all right across the economy, including energy efficiency and carbon capture, that would enable us to do a whole lot more," he said. "But we are not waiting for that. We are busy preparing low carbon right now."
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