By Andy Inglis There is a feeling that the world is unstable and in flux, whether that is the political fall-out in the energy markets due to the recent events in the Caspian or the 25% fall in oil prices in the last 8 weeks.
But maybe it has always been that way.
Some things, however, remain constant - the need for energy to support the development of nations and their economic progression - and the role that BP and others play as international oil companies - IOCs.
In the upstream, where I focus, IOCs work at the frontiers of geology, geography and technology. Year by year, the frontiers change - new locations, new technical challenges, new geological strata - but our role remains the same, which is to push back those frontiers and by doing so, help the world meet its ever increasing demand for energy.
Recent years have seen unprecedented high oil prices - in real and nominal terms.
A fierce debate is raging about the cause of this. I contend that prices are not being driven by a lack of resource, because there is plenty of oil and gas around. Neither, do I believe, are they being driven by speculators or hedge funds out to make a quick dollar.
In fact prices are being driven by a confluence of factors, which combined, represent a 'perfect storm'. The first of these is the recent trend of exceptional economic growth. We may be seeing a downturn in some markets today, but the global trend of the past few years, which is continuing in many places where energy prices are subsidized, is one of unprecedented development. That trend is linked to enormous growth in energy demand from large developing countries, notably China and India.
Fundamentally the high prices are telling us that supply is not responding adequately to rising demand.
Let's look a little closer at the changes in demand. These are happening because we have entered a new phase in global industrialization.
When Europe industrialised, it involved 50 to a 100 million people moving from a rural to an urban way of life. The US industrialisation involved 150 to 200 million people. And those changes took centuries. But in the next decade, in China and India alone, over 1 billion people will be moving from a rural to an urban way of life. This will result in a dramatic increase in energy consumption - to provide light, heat and mobility.
According to the IEA, by 2030, world energy demand will be 50% higher than today and non-OECD countries are expected to contribute 85% of the total world energy demand growth between 2005 and 2030.
Demand may be growing, but there are more than enough resources to meet it.
At the end of 2007 total remaining proved reserves stood at around 2.3 trillion barrels of oil equivalent. At today's consumption rates, we believe we have around 40 years of proven oil reserves, 60 years of natural gas, and 130 years of coal.
The task facing the world is to bring this oil and gas to market. These resources are found in increasingly challenging environments - in the deserts of the Middle East and North Africa; in the deepest waters of the Gulf of Mexico, West Africa and Brazil; and in the Alaskan and Russian Arctic.
Turning these resources into reserves and then production is going to require ingenuity, innovation and technology. Indeed I believe that capability is now the industry's greatest challenge. Many experienced people are retiring; there are fewer graduates with the right qualifications, and not enough of them are joining the industry. This is why we are increasing the scale of our graduate recruiting, and upskilling the capability of our current employees through the establishment of BP academies for operations and projects in partnership with leading universities.
Personally I believe that there has never been a more interesting and exciting time to work in energy, particularly for an IOC that's involved in a diverse range of projects. The days of the IOC are far from over because we play a distinctive role that is vital today.
We operate at the frontiers of geology, geography and technology. We take risks which many NOCs and governments have historically been reluctant to take. We have a wide range of technical experience which we have developed over many years, and we can integrate different capabilities as needed - something that NOCs and service companies cannot easily replicate. And we have large scale project management expertise. These are the capabilities that are very much needed to explore, develop and produce the reserves of today and tomorrow.
Of course the determination to push back frontiers is nothing new to BP. We made our first discovery 100 years ago; several times since then doubts have existed whether we would be around this long. Forty years ago virtually all of BP's production was from the Persian Gulf. But all that changed in the 70s when those assets were nationalised.
The company had to re-invent itself and find new sources of production. So we started to work on the frontiers and do the unexpected. For example, many believed we couldn't develop the Prudhoe Bay field in Alaska in an environmentally safe way. But we did - and we have now had more than 30 years of production - peaking at nearly 2 million barrels a day of gross production in 1988.
Today we still produce over 200 thousand barrels per day net from our Alaskan assets; and with the announcement of the Denali Alaska Gas Company earlier this year; we are looking forward to future decades of production in Alaska.
The same applies to the UK's North Sea. Many believed the uncompromising waters of the North Sea would prove too great a challenge, but we surmounted that obstacle. The Forties field heralded a new era of production for BP. Today we still produce over 350 thousand barrels per day net in the North Sea and continue to make discoveries.
The BP of today is no longer dependent on one or two regions; our production and resources are dispersed worldwide with a long list of future projects.
This is why we have maintained a reserve replacement ratio of over 100% for 14 consecutive years.
This achievement is a demonstration of the sustainability of our business and provides the ultimate test of our exploration and technology strategy.
That strategy is focused on exploring the world's most prolific hydrocarbon basins and building leadership positions in those areas, at the same time as managing the decline of existing producing assets.
We have reserves and resources tot he extent of 200 billon barrels of total hydrocarbons in place. Of that, over 39 billion barrels has already been produced. Together with remaining proved reserves of 18 billon barrels that represents a recovery factor of 28%. Identified projects would increase that recovery factor to 35%.
The prize from pushing the technical and commercial barrier is significant, another 30 billon barrels. And I suspect if I was standing here in ten years time, I will be talking about a recovery factor in excess of 50% with an ultimate technical limit of 70%, which is actually double what we have in our plans today.
Continued...
