Part 1 of 3: The strategic role of gas in the world
This is the first of a three part article based on a keynote address delivered by Group Chief Executive of integrated oil company BP plc, Lord John P. Browne, at the 22nd World Gas conference held recently in Tokyo.
Two factors will shape the energy market over the next decade. Demography and geology. Over the next 30 minutes 5,000 more people will join the world's population. That means almost a quarter of a million a day, 90 million a year.
Before 2010, the world will have a population of 7 billion -- almost three times as many as when I was born at the end of the 1940s. When BP celebrates its centenary as a business in 2008 the world's population will be almost six times as many as when we were founded.
On the other side of the calculation is geology -- the sources of supply which must meet the energy requirements of those 7 billion people. On the timescale of the next 10 to 15 years -- to 2020, and indeed beyond that -- geology will be crucial because hydrocarbons will not just remain the most important source of energy -- they will actually become more important.
Much great work is being done on renewable and other alternative sources of energy supply. We are significant investors in renewables. We've created a photovoltaics business which generates over US$300 million in annual revenues and is growing rapidly. However, there is still no source of alternative or renewable energy which can be supplied commercially to meet mass energy needs.
Renewable energy supplies only a small -- albeit growing -- fraction of the world's energy and that will remain the case for at least the next two decades.
If you add together all the alternative and renewable sources of supply -- excluding hydro which is available only in specific locations -- all that supply, added up on a global basis over a full year, would barely meet the needs of the city of Tokyo.
In nuclear, despite its early promise and importance in the primary energy mix of the developed world, there is no country which is making significant investments in new capacity.
Coal will remain an important component of energy supply although the costs of creating cleaner coal options place it at a significant disadvantage to gas. The inescapable conclusion is that energy supply will continue to be dominated by hydrocarbons.
By 2020, according to the International Energy Agency in Paris the world will be consuming each day some 36 million tons of oil equivalent (mtoe) of energy of which around 65 percent will come from oil and gas.
Apart from demand and supply, one other key element in the picture is trade.
Of the above growth in population, of the 700 million new citizens who will be born by 2010, 80 percent will live in Asia.
That in itself produces a startling change in the pattern of energy trade. Twenty years ago only 18 percent of the world's daily energy consumption was used in Asia. Now it is 28 percent. By 2020 it could be as much as 33 percent.
Asia as a whole within 10 years will be consuming as much energy every day as North America, and much of the energy needed to meet demand will be imported -- some from within the region, but most from elsewhere in the world.
The events of recent months have put back on the agenda the question of energy security. All the main energy consuming regions of the world rely on imported energy. In all cases imports are growing. That need not be the source of concern which it has been historically here and elsewhere.
Energy security is attainable, but it depends on conscious action, and choices made well in advance. Everyone here can contribute to those choices.
It is the desire to enhance the sense of security around energy supply which has dictated our strategy and which continues to shape the actions we are taking. We define genuine security in terms of an inter-connected, open market supplied from diverse sources which operates through competition and the progressive application of advances in technology to give consumers a real choice. Because it is the availability of choice which represents real security.
That's why as we renew our business we're investing in a range of new supplies which between them will help to meet global energy needs over the coming decades. In Russia, in Angola, in Indonesia, in Trinidad, in the Caspian and in the deep water of the Gulf of Mexico. Those are some of the most attractive investment opportunities available, with substantial volumes of hydrocarbons capable of being developed at a reasonable cost.
Within that total we have a growing focus on natural gas, because that is the most dynamic element in the energy mix today, and on a global scale as well as in Asia the new, major contributor to genuine long-term energy security.
This focus now involves us in marketing over 20 billion cubic feet of gas per day by pipeline and LNG to customers in 28 countries of the world.
Security isn't just about having diverse sources of oil supply. It is also about ensuring there is a balanced energy mix. And that is where gas is so important.
The best way to illustrate that point is to look at the key sectors which depend on energy. In transportation oil remains the dominant energy source. There is significant research work and innovation underway but the internal combustion engine still seems to have an edge in terms of cost, with substantial remaining potential for improvements in productivity.
New forms of energy use in the transportation sector will come ... But at the global level, particularly given the slow speed at which the capital stock changes, the basic assumption must be that oil will continue to provide the bulk of the energy needs in the transport sector for the foreseeable future.
And because vehicle numbers are rising that means that the transport sector will take a growing proportion of available oil supplies. Twenty years ago there were some 400 million vehicles worldwide. Now there are 775 million. Within a decade there could be 850 million. And 40 percent of that growth looks set to come in Asia. Five million extra vehicles every year.
That fact alone means that it is important to develop supplies of other fuels which can meet the world's other energy needs -- in industry, in the domestic sector and perhaps most important of all in electricity generation.
That is the crucial role for gas. The development of that role is already underway.