BP’s Group Chief Executive Bob Dudley said the words that many in the crowd at CERAWeek by IHS Markit have longed to hear, “Lower for longer, but not forever,” he told moderator Daniel Yergin.
Dudley. Images from IHS Markit.
Yergin joked that Dudley coined the phrase that has been on the lips of many within the oil and gas industry since the downturn rocked the industry as we knew it.
Dudley told the crowd that the industry got too comfortable, and too used to high oil prices, but insisted that the moves the industry has underwent since the price of oil dropped in 2014, must be lasting changes.
“The industry always seems to forget its lessons that this is a commodity and it feels high. Three years of high prices makes you feel like, ‘oh, this is the way it is,’” he said. “What we are seeing (today) is a really tough re-wrenching of the cost structure.”
Dudley advocated not just slashing costs, but taking the time to sit down with suppliers.
“They (suppliers) often have great ideas on how to bring costs down,” he told the CERAWeek audience.
Statoil’s CEO Eldar Sætre told CERAWeek on Monday afternoon that the downturn offered an opportunity to make changes and “reset the cost space.”
“[Statoil has] reworked solutions, increased efficiency from the reservoir to the market, we have brought down the breakeven prices from our next-gen portfolio to well below $30/bbl,” he said. “We are capable of thinking and acting low cost when we have to. However, to me, the ultimate test of our ability to learn is not in the crisis, but in the recovery.
“Now is not the time to relax and repeat our own mistakes from the past,” he said. “Now is the time to fundamentally change how we run the industry, learning from others, introducing lean manufacturing methodologies, and making simplification, standardization, and then industrialization words that the oil and gas industry can be recognized for. In short, seizing the opportunity to strengthen the long-term competitiveness of oil and gas in an increasing complex energy space.”
Demand for energy
Dudley discussed the BP Statistical Review and whether there is an impending supply gap awaiting the industry with Yergin. The BP Statistical Review shows that 2 billion more people and 2 billion more cars will be on the road by 2035, Dudley said.
“There’s US$1.5-2 trillion in investment that has been cancelled or deferred. We’re going to pay a price for that,” he warned. “I will tell you BP is not planning on that. We’re going to plan as if the price of oil is not moving up for the next five years ($55-60/bbl).”
Also on Tuesday, Saudi Arabia’s Minister of Energy, Industry, and Mineral Resources HE Khalid A. Al-Falih said during his session with Yergin, “there’s an insatiable thirst for oil around the world.”
He continued: “If we look at global demographic and economic trends there is little doubt that global energy demand will grow significantly, despite advances in technology and gains in energy efficiency leading to lower energy intensity,” Al-Falih said.
He noted that the evolution of the global energy mix, including renewables and electric vehicles, will contribute, however, he said energy transformations are complex phenomena that take considerable time to unfold.
“Indeed, demand for petroleum imports will continue to grow steadily in the developing world, especially with the decline in their indigenous oil and gas production,” he said.
But, Al-Falih expressed dismay about the current lack of investment. “I am concerned that misguided projections of peak demand and stranded petroleum resources may discourage the trillions of dollars in investments needed to underpin essential oil and gas supplies, during the long transformation of our global energy system.
“The risks of underinvestment driven by such theories amount to nothing less than compromising the world’s energy security by squandering staggering quantities of our planet’s natural energy endowment.”
Al-Falih said that it would create heightened market volatility including damaging price spikes, and more acute energy poverty in the developing world. He expressed his concern about worldwide investments falling behind supply development needs.
Low carbon future
There was also discussion around carbon reduction goals, and Dudley – who is part of the Oil and Gas Climate initiative (OGCI) – said the industry cannot hide from the low carbon future.
“We recognize that we are in a long wavelength transition to a lower carbon world. It’s going to happen,” he said. “We need to think about how we can talk about policy, monitor our mission, for example, understand natural gas, and the impact of leakages of natural gas or methane have – and coordinate – not just getting together and writing reports but making commitments like the no flaring initiative with the UN. [OGCI] put together a fund, a $1 billion fund, and that’s the beginning. We will share technologies on methane leakage, and carbon sequestration storage. We’re going to set up a center in London in April, to lay out what we’re going to do.”
On carbon sequestration, Dudley said: “There’s big storage projects. Reservoirs are a great place to put carbon dioxide… There is interesting technology in capturing and using CO2. There is a lot of work going on in the world. The energy industry shouldn’t keep its head in the sand. That’s why we want to be involved in it.”
Sætre, whose company is also part of OGCI, echoed similar statements in his address to CERAWeek. “A low carbon future will reshape the energy space. Some see this a threat, but we should look for and act on the opportunity it offers,” he told the crowd.
“We all know that oil and gas will be a significant part of the energy mix for many decades to come,” he said. “But, we have to respond more forcefully to the challenges of climate change: reducing CO2, methane emissions. We believe that such emissions should and will come with a price tag. Carbon efficiency will become a competitive advantage in the industry. How we run our industry matters.”
Al-Falih, whose former company – Saudi Aramco – is part of OGCI, also discussed environmental issues, and the carbon footprint of fossil fuels.
“As an industry, we must invest more to minimize the environmental impact and carbon footprint of fossil fuels,” he said. “Such investments will make petroleum use more acceptable and more sustainable in a period of significant technology shifts and growing concern over climate change.”
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