New World of Rivalries: Reshaping the Energy Future

11-15 March 2019 38th Executive Conference and Related Events New World of Rivalries: Reshaping the Energy Future

Dialogue: Bob Dudley, BP plc Group Chief Executive

12 March, Tuesday

Daniel Yergin, vice chairman, IHS Markit Bob Dudley, group chief executive, BP plc

Summary In prepared remarks and a Q&A to close out the 2nd day of CERAWeek 2019, Bob Dudley, group chief executive, BP plc, shared with attendees his optimistic and expansive vision of the global energy industry and its future. But at the same time, he warned that the challenge of climate change is immense, and the industry must make a deep and lasting commitment to be part of the solution. “We in the energy industry and at BP have a deep sense of purpose, and I’m proud of that,” Dudley said. “But it does not give us a blank check.” Fortunately, Dudley believes the industry is well-positioned to maintain its positive influence. “The industry is in better shape than it has been in a long time,” he said, listing achievements such as rising and less costly oil and gas production, new investments in methane capture and “disciplined cost of capital that I think is here to stay.” All of those efforts must remain intact if the industry is to meet the twin goals of reducing carbon emissions and continuing to raise living standards around the world. Dudley said that 80% of the world’s population lives in nations where “increased energy demand goes hand in hand with higher living standards,” so any forecasts of falling world demand for energy are simply unrealistic. In fact, BP has estimated that the world will use 1/3 more energy 20 years from now. But the problem is that the Paris Climate Accord is intended to hold the world’s temperature rise to 2oC, which will require a reduction of carbon emissions in the next 20-30 years and no net increase after that time, he said. One way to put that climate challenge picture into perspective is to think that the world will be able to sustain oil demand of only 70 million b/d he said.

11-15 March 2019 38th Executive Conference and Related Events New World of Rivalries: Reshaping the Energy Future

How will the world get there? Renewables are part of the answer—but only part, he said. “The most optimistic forecast is that renewables will be one-third of power generation by 2040,” Dudley said. “So natural gas will be really important. Renewables with gas can drive coal out of the energy mix.” Oil will still be the core source of energy for transport and the feedstock for petrochemicals. Dudley called on regulators to help the industry make the investment that’s needed to change the world’s energy mix. “We have been advocates for a carbon tax,” he said. BP supports a single, national carbon tax in the US, rather than a complex “patchwork” of state or regional taxes. The industry will respond to financial signals. “Low-carbon investments still have to compete for investors’ money,” he observed. Even without a carbon tax, the industry is hard at work on climate change, Dudley said. He used as one example the Oil and Gas Climate Initiative (OGCI), of which BP is a founding member and he is the current chairman. The 13 companies in the OGCI account for about 30% of world oil and gas production, and they have pledged to reduce their collective “methane intensity” from 0.32% in 2017 to below 0.25% in 2025 and on a path to 0.20%. Among their activities, the members have been holding events for small companies to showcase innovative technologies and find partners for pilot projects and investments to move further along the development path. OGCI has held two showcases last year for methane reduction and held one this month for energy efficiency projects, and Dudley said it will hold one for carbon capture utilization and storage (CCUS) technologies in the fall. Beyond OGCI, BP already spends about $500 million per year of capital on renewables projects, out of $13 billion or more in annual capital spending. But there’s a difference between how it spends that money today and 20 years ago, when it first made a big move into renewables (becoming the world’s largest solar panel manufacturer, for example). “We moved early on renewables and lost a lot of money,” he admitted. “But we did not lose our faith in renewables…. Today, we do smarter, smaller projects.” In a followup Q&A with Daniel Yergin, vice chairman of IHS Markit, Dudley offered a few short observations on key topics of the day, including: • U.S. Green New Deal. BP is talking with Green New Deal advocates, as well as others across the spectrum of carbon solutions in the United States. “Talking does a lot [to dispel]…the myths that are taking over a lot of the dialogue in many countries.” • Norway’s decision to pull some types of fossil fuel investments out of its sovereign wealth fund. “It’s a diversification issue, and I ‘get’ that, I understand… I have not heard anyone from Norway say that it’s about climate issues.”

11-15 March 2019 38th Executive Conference and Related Events New World of Rivalries: Reshaping the Energy Future

• CCUS. Dudley credited the United States with having the most progressive policies in place in the world to support CCUS, and he thanked U.S. Energy Secretary Rick Perry, who was in the audience.

--Kevin Adler, [email protected]