The global energy arena

Transcription

1 Redner: Peter Mather Veranstaltungstermin: 20. Januar 2015 Ort: Handelsblatt Energietagung, Berlin Titel: BP Regional Vice President Europe und Head of Country UK Es gilt das gesprochene Wort. Introduction Thank you for asking me to speak here today. What an interesting set of discussions we ve had so far. I hope I can bring together some of today s themes. We British love the art of understatement, so I will start by pointing out that the global energy arena is very different today than it was a year ago! Last year, common themes in the industry included: a reasonably high and stable oil price, the shale revolution in the US, and the investment needs to meet the demands of strong growth. This year, the talk is dominated by how low the oil price can go and how long it will stay there. The world is ever changing. And we have to be attuned to those changes. I have been in this industry long enough to know that. But among the day-to-day turbulence in energy pricing we should also remind ourselves of the scale of the energy industry - and of the timescales on which profound changes in the industry play out. Over the past 20 years or so global energy consumption increased by 50% and over that time span the oil price has fluctuated from down to around $10 a barrel up to above $120. Over the next 20 years we expect demand growth to slow, but we will still need an additional 40% of energy by 2045 which is the equivalent of adding the consumption of another US and another China put together. If we are to meet that demand securely, affordably and sustainably we need to consider the shorter term volatility in the context of addressing the long term fundamentals of energy security, sustainability and affordability. In my remarks I ll start with that long term context for the energy industry. And then look more specifically at what this long-term view means for Europe s energy fundamentals. Long-term outlook To start then with the long-term outlook. There is a consensus among forecasters that energy demand will continue to grow substantially. The 40% figure I mentioned is BP s own forecast from our annual Energy Outlook the next version of which we publish next month. If you are going to forecast, forecast often, as an eminent economist once said. Almost all of that growth in the region of 95% - we see coming from the non-oecd world. Energy consumption peaked in the OECD in And a third key forecast is that around 80% of demand will continue to be met by fossil fuels by Renewables may be the fastest growing form of energy, which is good news growing at over 6% a year but they are growing from a low base. Peter Mather The global energy arena 1

2 Consequently, we see four-fifths of all the world s energy needs will still be met by fossil fuels by 2035, with oil, gas and coal converging towards broadly equal shares, around 27% each. Looking at where this energy comes from today tells us something about the current oil price volatility. Last year, shale-related production increases took the US back up to being a 10 to11 million-barrels-aday oil producer, after dipping below 7 million as recently as The US saw the world s largest increase in oil production in 2013 and the prediction is for even stronger production growth last year taking the US back to being the world s largest producer for the first time since The US government has estimated that shale gas could increase the world s total gas reserves by as much as 50%. We ll see. But looking at the global picture we do see over a quarter of the world s gas and more than one in every 10 barrels of oil coming from unconventional supplies by That still leaves the lion s share of oil coming from conventional sources Fundamentally, there is no issue with resources. Over recent years we have discovered more oil than we have used. Proved reserves of oil and gas represent enough oil and gas for more than 50 years of consumption at today s rates Technology has had a profound effect in recent years not just in terms of accessing unconventional resources with directional drilling and fracking, but in many other areas too such as Enhanced Oil recovery where we can now look to recover up to 65% of in-field reserves, up from the more normal 30% or so. We are finding more oil through advances in seismic imaging and supercomputing and we are now at a point where additional recovery from known resources could exceed new discoveries given the advances being made in recovery techniques. For example, we know have one of the largest privately owned supercomputers in the world in Houston, doing calculations for our geologists that used to take 4 years, and now take 1 day! What does this mean for Europe? So what does that global context mean for European energy security, sustainability and affordability? These are all closely inter-related, but let s start by looking at security Energy security The key point here is that Europe is predominantly an energy consumer rather than an energy producer. The EU uses around 5% of the world s oil and 13% of its gas. Yet its reserves amount to only 0,4% of the oil and 0,8% of the gas. As a net consumer of energy, the current fall in the oil price has obvious positive implications for the EU economy as a whole. Globally, a fall of US$60 a barrel represents a shift approaching US$2 trillion in rent globally from producers to consumers, around 3% of world GDP changing hands. Peter Mather The global energy arena 2

3 But I want to remain focused here on the long term perspective and Europe s ability to maintain security of supply. That means giving consideration to sustaining the indigenous industry that Europe does have. But this also means ensuring a diversity of supplies adaptable to periods of global disruption. Oil of course is a global commodity traded openly on the global markets. This means that supply disruption in one part of the world can generally be met by additional supply from elsewhere. Europe s gas by contrast is delivered mainly via pipeline, with over 30% of its gas supplied by Russia. I should note, however, the significant increase in the amount of LNG supplies coming into Europe over the next few years. The recent situation to the east means that there is of course concern about the durability of that supply. I am less concerned. We should remember that Russia started to supply Europe with Gas during the Cold War, and has been delivering ever since despite many periods of political tension. The mutually beneficial energy trade is an important part of the overall Europe-Russia relationship. 80% of the $240bn of Russian exports to Europe is in the form of energy. Sustainability Turning to sustainability, this is where Europe is ahead of the long-term global picture. Renewable production in Europe now accounts for over 10% of European power supply, and is expected to grow to over 35% by The EU is also a world leader in energy intensity the energy required to generate a unit of GDP. Very roughly, in the US it requires about one barrel of oil equivalent of energy to generate $1.000 of GDP. In China it takes 2,5 barrels. In Europe we require only three-quarters of a barrel less than one third the energy consumption of China for an equivalent economic impact. This is to a great extent because Europe leads the world in the production of fuel-efficient vehicles and energy efficient buildings. Our factories and industrial plants are also relatively energy efficient. In part because of these accomplishments Europe has also become a world leader on carbon emissions. Over the last 10 years the European Union has managed to reduce its carbon emissions by half a billion tonnes of CO2 to 4bn tonnes, and is expected to reduce its emissions by a further 1bn tonnes by This means that by 2025 the world s largest trading bloc, the EU, will be responsible for well under 10% of the world s carbon emissions some 7% 3bn tonnes out of a forecast global total of 44bn tonnes. These are very admirable achievements, but they have not come about without consequences. The incentives and policy measures that have boosted efficiency and reduced emissions have also contributed to European energy being some of the most expensive in the world with consequences for European competitiveness. Peter Mather The global energy arena 3

4 Europe is in an unenviable position of having energy prices double those of the US also compounded in competitive terms by having labour costs double those of parts of Asia. This brings me to the question of affordability. Affordability Clearly the impact of the US shale boom is playing out globally at the moment, not just in Europe. But the key question for Europe, as an energy consumer, predominantly, should be one of remaining globally competitive. Interestingly, this does not have to be done at the expense of progress on sustainability. Switching 1% of world power generation from coal to gas would reduce emissions by as much as would an 11% increase in renewable generation. Given that gas power stations are cheaper to build than their coal counterparts, then gas can be seen as an affordable and sustainable proposition. The US, with less stringent environmental regulations has managed the same reduction in emissions as Europe over a 10 year period. To achieve this, the boom in indigenous US gas production has played a significant part. Over the last few years gas has replaced coal in the power mix, now accounting for 30% of the US s primary power production. This compares to 24% in the EU, where coal consumption, driven by closure of nuclear plants, has actually increased. The obvious question is can Europe replicate the shale boom in the US, or should it try? There is certainly shale under Europe. But not all shale is the same and the conditions above the ground in Europe are very different to those in the US including population densities, public opinion, fiscal incentives, mineral rights, rig availability and the proximity of pipeline systems. As a major operator of unconventional plays in the US, BP believes there is long term potential in European shale should the economic conditions become favourable and the understandable concerns that some have be satisfactorily addressed. But let s not forget that Europe is surrounded by natural gas in Norway, Algeria, Libya, Egypt, Iran, Iraq, the Caspian, as well as Russia of course, and not to mention the possible imports from the US to supplement existing Atlantic Basin supplies from places like Trinidad. There are many options to diversify the corridors of gas supply into Europe and that is something that BP and its partners are already working on. We expect by 2019 to have opened an entirely new southern corridor bringing gas from the Caspian into southern Europe for the first time as part of a $45bn project with supply contracts extending out to This project involves 7 countries, 11 partner shareholders, 11 gas buyers, and is the sort of project of such scale that no one company could do it alone. Peter Mather The global energy arena 4

5 Conclusion Let me try and bring those thoughts together While we are again seeing volatility in the oil price, we need to consider the consequences of this in terms of the long-term fundamentals of energy. Who really knows where the oil price is heading. Actually for the oil and gas industry, the volatility we are seeing is a return to normality, not a divergence from it. At the moment lower prices may bring greater competitiveness but not necessarily an enhancement of European competitiveness versus others with lower tax environments or fewer regulatory requirements. Europe must strive for the adoption of a pragmatic approach to energy policy, which in turn should be targeted towards improving the overall competitiveness of our industrial base. This means focussing on energy efficiency, natural gas, new technologies, opening up new corridors of supply and encouraging more gas-on-gas competition, greater supply diversification, and a fully functioning single market in energy within our own European borders. The challenge is on, globally, to get energy policy right and Europe is no exception. Thank you Peter Mather The global energy arena 5