BP CEO Says, ‘We Have A Moment And We Must Seize It’

Medium- and long-term global oil fundamentals have not changed, and the hydrocarbon-finding and -producing industry must work through this down-cycle, says Tony Hayward, group chief executive of BP Plc. “We have a moment and we must seize it,” he told attendees at the CERAWeek 2009 energy conference in Houston, presented by IHS Inc.’s CERA.

A few years ago, $40 oil was a fantastic price—and it still is. “Not that much has changed (but) we allowed our cost base to get ahead of us.”

Oilfield-service costs are already declining in response to producers’ reduced demand—the U.S. gas-directed rig count has fallen from some 1,600 rigs at work to some 1,100—since July 2008. This is an opportunity to rehabilitate producer costs to deploy sufficient capital to invest through this downturn.

“The world economy will recover,” he says. And, the balance of energy supply and demand will continue to change, fundamentally. The IEA forecasts 40% more energy demand in 2030 and double today’s rate by 2050. Some $26 trillion of producer investment—or more than $1 trillion a year—is needed by 2030 to meet that call.

“The problems are not below ground, but above ground; they are human and not geologic.” The industry has produced some 1 trillion barrels of oil to date; another 1 trillion remains unsurfaced but is producible; and 1 trillion is known but uneconomic to surface today. Meanwhile, 80% of the world’s oil supply is off-limits to extractors. “There is no shortage of hydrocarbons.” There is a shortage of access.

Satisfying future demand will require partnerships of industry, government and academia, he offered. Regulation can be bad but some can be good. He recommends seven energy-regime changes:

-- Energy companies and governments must have confidence in each other if industry is to invest $26 trillion to sustain the business, and future hydrocarbon supply.

-- A free and open energy market is the best guarantee of energy security. Increased globalization of hydrocarbon markets is an essential response.

-- Policy-makers must make energy efficiency and energy conservation a priority. “Every Btu and every dollar saved is a contribution to global energy security.”

-- Climate change must be addressed, resulting in a lower-carbon-based economy. Cap-and-trade is the best option. Global adoption of carbon-reduction programs is best, but it needs to start at least nationally and regionally. Phase I of cap-and-trade policy has not been very successful; Phase II could be better.

-- Access to U.S. oil reserves should be improved. More than 100 billion barrels are currently off-limits to producers, who can produce them safely.

-- Carbon-capture and -sequestration programs will further reduce the carbon footprint, and make low-carbon practices more competitive.

-- A step-change in investment, research and deployment is needed to create and supply better biofuels. BP is investing in ethanol made from sugar cane in Brazil and is in a joint venture in the U.S. to make cellulosic biofuel production—which has worked in the laboratory—economic in the field. During the next five years, there will be significant advances to that process, Hayward says. “Biofuels from corn is probably not a sustainable way of proceeding.”

As for electricity-powered cars, Hayward says he is aligned with auto-makers who should first develop more efficient traditional engines (internal combustion), and then improve to hybrids and electric vehicles. Yet, an electric fleet is not the most environmentally sensible solution. “If we move everything to electric cars, where is the electricity coming from? It’s coming from coal-fired power plants.” So not much is net gained.