[Congressional Record Volume 150, Number 103 (Thursday, July 22, 2004)]
[Extensions of Remarks]
[Pages E1481-E1482]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  REMARKS BY JOHN BROWNE, GROUP CHIEF EXECUTIVE, BEYOND PETROLEUM (BP)

                                 ______
                                 

                           HON. RALPH M. HALL

                                of texas

                    in the house of representatives

                        Thursday, July 22, 2004

  Mr. HALL. Mr. Speaker, I would like to submit the following speech 
that was delivered by Mr. John Browne, Group Chief Executive of Beyond 
Petroleum (BP) to the Washington Press Club on March 23, 2004 entitled, 
``Energy--the Medium Term Outlook.''

       The level of interest in energy issues and energy security 
     has grown steadily over the last three years. A whole series 
     of events have reminded people both of the importance of 
     secure energy supplies in a modern economy and of the 
     challenges involved in matching available supplies to growing 
     global demand.
       Concerns have been expressed--here in the U.S., in Europe 
     and in many other parts of the world. BP is the largest 
     producer of oil and gas here in the U.S., and the second 
     largest private company in our sector in the world. We work 
     in over 100 countries--exploring for, producing, distributing 
     and selling oil and gas in areas ranging from Russia to 
     Angola from Germany to China. So we hear the concerns 
     expressed from many sides.
       I want to try and separate the concerns which are real, and 
     which need to be managed--from those which are false, and 
     which need to be discarded before they distract us from the 
     serious agenda. I want in particular to emphasize the point 
     that ``self sufficiency'' can't be achieved through 
     protectionism. Trade is essential and we have to ensure that 
     trade can thrive. I'll talk about the U.S. position--and I'll 
     try and set that position in its proper context--which is the 
     global energy scene. And I'll focus on facts--because facts 
     should be the basis of good policy.
       At one level this is a very simple issue. It is about 
     demand and supply. The demand for energy is driven by 
     demography and economic performance. By the number of people 
     who can afford to buy the energy they need. Today the world's 
     population is estimated at 6.3 bn. That figure grows by 
     almost 10,000 an hour. In ten years time there will be almost 
     another 1 billion people on earth. 7.2 bn by 2015 according 
     to the most authoritative estimates from the U.N. More and 
     more of those people will be able to afford to buy the energy 
     they need. Economic growth continues to extend prosperity to 
     more people every year in China and India and in other 
     emerging economies. The Chinese economy has quadrupled in 
     size over the last twenty years and China is now the 2nd 
     largest single consumer of energy in the world after the U.S.
       Today the world will use some 190 million barrels of oil 
     equivalent--that is expressing all the different forms of 
     energy supply--natural gas, coal, nuclear and so on in terms 
     of a common unit of measurement. That energy is used in 
     homes, in industry, in offices, in power stations and in 
     transportation. Technology is gradually making the use of 
     that energy more efficient. The energy intensity of each 
     extra point of GDP growth has fallen over the last thirty 
     years and continues to fall. But the fall is gradual.
       The combination of more people and more prosperity will 
     mean that the demand for energy will rise. The most recent 
     estimates of the International Energy Agency suggest that 
     world energy demand will rise by a third to around 240 mbdoe 
     by 2015.
       How can that demand be met?
       Some place their faith in renewable and alternative forms 
     of energy supply. Power from the wind and the waves. Power 
     from solar panels. We believe those are important sources of 
     future supply. We in BP are investing in research and 
     development work in photovoltaics--the technology which 
     supports solar power--and at various other forms of 
     alternative energy supply. One day one or more of those 
     new sources will provide a significant proportion of 
     global energy demand. But the evidence is that day is 
     still a long time off.
       Today all the renewable and alternative forms of energy 
     supply provide just 2.5 per cent of world demand, the bulk of 
     which currently comes from biomass. Solar power provides just 
     0.001 per cent. Or to put it another way--all the solar power 
     in the world would meet Washington's energy needs for just 6 
     days per year. Research continues--here in the US and in many 
     other countries. But in every case we are still at the stage 
     of research and experimentation. We believe renewables will 
     provide material supplies of energy in the long term. But the 
     long term could be 20 or 30 or more years away. The estimate 
     from the International Energy Agency is that in 2015 they 
     will provide only 3.3 per cent of total demand.
       What sources then will meet the demand?
       Some people believe that the key lies in the potential of 
     nuclear power. That is certainly possible. But it seems a 
     remote possibility on the timescale of a decade. Nuclear 
     currently supplies 7 per cent of world energy demand. The 
     first generation of nuclear stations are reaching the end of 
     their natural lives. Last year only 2 new nuclear stations 
     were commissioned and public doubts both about safety and 
     about the uncertain long term costs continue to constrain new 
     investment. In the US, no new stations have been commissioned 
     for over two decades while in Europe the forecasts suggest 
     that on current trends nuclear capacity in Europe will 
     decline rather than increase over the next ten years.
       And that leaves hydrocarbons--coal, oil and gas--to meet 
     the balance. The mix will vary from one country to another. 
     China for instance will no doubt continue to use large 
     volumes of coal but in terms of convenience, oil and gas seem 
     set to remain the fuels of choice. In reality, energy 
     security is about the supply of oil and gas to meet demand 
     which could grow, again taking the IEA figures, to around 93 
     mbd of oil and 64 mbdoe of natural gas by 2015. That would 
     represent a 20 per cent increase in oil demand from today's 
     level and a 45 per cent increase in the consumption of gas.
       Can the oil and gas industry meet that demand?
       In physical terms the answer is clearly yes. The resources 
     are there. The world holds some 1,000 bn bbl of oil which has 
     been found but not yet produced, and some 5500 tcf of natural 
     gas--also found but not yet produced. At current consumption 
     rates that is 40 years of oil supply and 60 years of gas. In 
     addition the US Geological Service estimates that some 800 bn 
     bbl of oil and 4500 tcf of natural gas are yet to be found. 
     So in terms of physical resources, energy security is within 
     reach.
       But I believe there are two fundamental elements of risk 
     which we have to deal with to ensure that security. The first 
     is environmental--the risk that as the evidence of impact of 
     human activity on the world's climate mounts we will be 
     forced to take dramatic and potentially damaging action to 
     avert the danger. That is a risk for the medium and longer 
     term--not for today but we believe that precautionary action 
     now could avert the risk. We believe that it is possible to 
     keep atmospheric concentrations of greenhouse gases below the 
     level at which sustainability is threatened--which on the 
     currently best available scientific evidence is around 500 to 
     550 parts per million. There are various available paths by 
     which that can be achieved--and there will be no single 
     solution. Different countries can make different 
     contributions to the overall objective and if we can 
     establish a legitimate trusted emissions trading system--
     linked regionally--I believe we can reduce the risk without 
     imposing a major cost on the economy. The real risk in this 
     area is if we do nothing until it is almost too late. At that 
     point the costs could be much higher.
       The other element of risk arises from the fact that supply 
     and demand are not typically co-located. One of the key 
     issues of energy security over the next decade will be the 
     growing trade in both oil and gas which will be necessary to 
     match supply to demand. By 2015 there will be at least four

[[Page E1482]]

     major energy importing regions in the world. Europe, Japan, 
     China and the United States. Europe will be importing around 
     an estimated 80 per cent of its daily needs of both oil and 
     gas. The US rather less--but still more than 65 percent of 
     its oil and around 30 per cent of its gas. By 2015 trade will 
     likely account for almost 70 per cent of world oil demand--
     some 64 mb/d--and 20 per cent of world gas demand.
       Is that trade secure? Can the US and others rely on trade 
     rather than retreating to a policy of self sufficiency with 
     all the costs which that could involve in terms of the 
     environment and competitiveness?
       I think the answer to that is also yes, but we can't take 
     anything for granted. Genuine energy security needs 
     sustained, long term engagement and action by both the 
     industry and by Government. The issue of security arises not 
     so much from the growing volume of consumption or the 
     required trade growth but because the resources needed to 
     supply the world's growing demand are concentrated in a 
     relatively limited number of countries.
       There are a number of sources of supply to the world 
     market. Let me mention just three. The Caspian, through the 
     Baku to Ceyhan pipeline which is now under construction, is 
     scheduled to be producing and exporting 300,000 barrels per 
     day by the end of 2005. Trinidad is now exporting some 
     200,000 barrels oil equivalent per day in the form of natural 
     gas and the expansion plans which are now being carried 
     through should double that figure by 2006. Indonesia is 
     likely to be producing 1.5 million barrels per day oil 
     equivalent and exporting 800,000 bdoe of that by the end of 
     this decade. But however important these activities and those 
     in other countries are, the inescapable fact is that even 
     with all those areas developed successfully, the bulk of 
     world traded supplies of both oil and gas for the future will 
     almost certainly come from just three regions. The Middle 
     East, Russia and Africa.
       Going back to the estimates published by the IEA--which 
     represent a fair consensus of informed opinion--of the 64 mbd 
     of oil likely to be traded in 2015, well over 80 per cent 
     will come from those three areas. For natural gas the figure 
     is around 50 per cent.
       That is the global picture. What about the US?
       US energy demand is now 46 mbdoe of which two thirds is 
     provided by oil and natural gas. The forecasts suggest that 
     oil and gas demand will continue to grow so that by 2015 the 
     US will be using around 21 mbd of oil, mainly in 
     transportation and around 13 mbdoe of natural gas. In terms 
     of resources the US remains strong. The US has more domestic 
     supplies than any of the other major importing regions.
       Alaska continues to produce just short of 1 million barrels 
     per day and though oil production is declining, technology is 
     progressively expanding the commercial life of Prudhoe Bay. 
     The real strength for the future though lies in the Gulf of 
     Mexico--in the deep water, which is producing 1.5 million 
     barrels per day and which looks set to produce as much as 2.7 
     mb per day from 2010 onwards.
       The gas position is also strong. As well as gas in the 
     lower 48, and in the deep water of the Gulf of Mexico, there 
     are extensive supplies--perhaps as much as 100tcf in Alaska 
     which are ready to be brought to market once the 
     infrastructure is in place. That's a strong position--but the 
     US will still need imports and will still look to the world 
     market to supply the balance of its needs through the next 
     two decades. The forecasts suggest that the US will be 
     importing some 13 mbd of oil and 3 mbdoe/day of natural gas 
     in 2015.
       What conclusions can we draw from all that? What do we need 
     to do today to ensure that this country and its trading 
     partners in Europe and Asia and elsewhere enjoy sustainable 
     energy security?
       The first conclusion is that these are single global 
     markets. Oil, and increasingly gas are traded 
     internationally. Every area will seek to develop its own 
     resources rationally, but there is a competitive limit to 
     that--set by the cost of development. The cost of self 
     sufficiency for any area would be prohibitive. Trade and open 
     markets have the sustained development of world economy over 
     the last half century and I believe they can and will 
     continue to do so. That applies to energy as much as to any 
     other product. Energy prices will be set by the international 
     market, and prices will affect the economy and the export 
     markets of every country in the world. Energy security can't 
     be achieved in one country. To deny the reality of the global 
     economy would be dangerous and costly.
       Secondly, the growth in trade worldwide means that everyone 
     has an interest in the development of the widest possible 
     range of available supplies to limit dependence on any single 
     country. It would be dangerous, economically and 
     strategically, to allow a situation to develop in which the 
     US or any other region was dependent totally or very 
     substantially on countries in the Middle East or any other 
     single producer. At the moment the US imports some 11 mbd of 
     oil. But those imports come from 57 different countries and 
     no one country supplies more than 17 per cent. That is a good 
     position to maintain. And to do so the US has to maintain the 
     open flow of investment--to ensure that the international 
     industry can invest with confidence in exploration and 
     development across a diverse set of countries.
       The best estimate of the total investment required to 
     generate the flow of supplies necessary to match demand in 
     2015 is $2,000 bn. That means that investment by the oil and 
     gas industry will have to be even higher than the $160 bn per 
     annum which has been the average over the last few years. In 
     financial terms I don't doubt that those resources can be 
     found. But each individual investment by each company will be 
     dependent on the climate for investment in the country 
     concerned. That is why we are doing so much to support the 
     principle of transparency--to ensure that the revenues we 
     generate are used wisely in the interests of the long term 
     development of the countries in which we invest. Corruption 
     is an enemy of development, an enemy of business [because it 
     raises costs], and an enemy of energy security.
       The third conclusion is that we have to ensure that the 
     necessary resources and infrastructure are built. That 
     applies here to projects such as the Alaskan gas pipeline 
     which could bring 1 million barrels per day oil equivalent to 
     market, and to the development of LNG terminals which can 
     open up channels of imported supply from Trinidad and West 
     Africa. But the same point applies internationally--because 
     infrastructure is necessary to bring resources to market from 
     areas such as the Caspian and Siberia. In all these areas 
     investment now will bring greater security for the future. I 
     want to use this occasion to thank the US Government--under 
     two administrations--for their sustained support for the 
     development of the Baku Tbilisi Ceyhan pipeline. The line 
     which will enhance energy security for the world as a whole 
     could not have been built without that support.
       Fourth, we have to continue to develop technology--pushing 
     the edge of what can be done with the resources we have. 
     Extracting more, and using them more efficiently. That ranges 
     from the Deep water, where we and others are now producing 
     from fields in over 7,000 ft of water--two and a half times 
     deeper than was possible ten years ago; to the progressive 
     extension of recovery rates in Alaska; to the sort of work we 
     have underway with our partners in the automobile sector to 
     combine advances in lubricants, in fuels and in engine 
     technology to lift the level of productivity in vehicles.
       All those steps are necessary, and many if not most of them 
     will start here in the US--because this is a world 
     technological leader.
       So to summarise:
       We can't take energy security for granted, and we can't 
     achieve it through protectionism. Demand is rising and the 
     substitutes for oil and gas are a long way off. There is no 
     physical shortage. Technological advances must be deployed 
     both to increase the amount of energy which can be produced 
     and to ensure that it is used with the maximum possible 
     efficiency. Finally, and most importantly, the risks to 
     energy security are political and cannot be resolved by the 
     private sector alone. The private sector has a vital role to 
     play--particularly international companies such as BP. We 
     have to explore and invest in the development of diverse 
     sources of supply and in the infrastructure to bring it to 
     market. But as companies we work within a space defined by 
     public policy decisions. Actions by Governments are crucial 
     in keeping the market open to investment, and ensuring that 
     trade continues to be free and open. Those actions will 
     determine whether those of us in the private sector can make 
     successful long term investments in the development of 
     resources and infrastructure. Diversity of supply is crucial. 
     If we want to avoid undue dependence on just one region such 
     as the Middle East, we have to invest in technology and in 
     trade--raising investment confidence to ensure that supplies 
     and infrastructure are in place to bring oil and gas from 
     areas such as Russia, West Africa and the Caspian. The 
     challenge is to align the medium and long term perspective I 
     have been describing with the inevitably shorter perspective 
     of Government. That has always been the case but the need to 
     achieve that alignment between the actions of the public and 
     the private sector has never been more important than it is 
     today. If we can achieve that alignment I believe we can 
     ensure that secure supplies of energy continue to be 
     available to consumers here in the US and internationally.

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