BP's lucky number seven

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Tony Hayward, BP's group chief executive, outlined seven key areas for change. (Getty Images)

Group chief executive, Tony Hayward, outlined key policy suggestions during his opening speech at the Cambridge Energy Research Association (CERA) in Houston.

In his opening speech delivered to attendees of the 28th CERA Executive Conference, BP's group chief executive, Tony Hayward, delivered an upbeat outlook for the energy sector over the coming years and delivered seven key policy suggestions for an improved and more stable market.

The conference, held in Houston, Texas and commonly referred to as CERAWeek, is held by the Cambridge Energy Research Association (CERA), a consultancy which specialises in advising governments and private companies on energy markets, geopolitics, industry trends, and strategy.

Hayward was keen to attach the importance of Barack Obama's recent election as the President of the USA and his commitment to repairing the economy and pushing new energy legislation.

"After one of the great political campaigns of modern times, America has elected a new President who has promised to repair the economy and to diversify this nation's energy supply. A large fiscal stimulus which includes major investment in infrastructure and "green" jobs is before the US Congress," said Hayward.

"With Obama's presidency the question of energy independence has shot up the political agenda. Suddenly, the challenges many of us have been wrestling with for a long time - the importance of energy security in providing economic security and tackling the issue of climate change in a way that is commercially viable - are centre stage."

Key to Hayward's address is the future outlook of energy demand, and how we can tackle the challenges thrown at us as demand continues to grow, the environmental impacts related to this and the eventual depletion of reservoirs.

"At the current rate, the world population will exceed 9 billion by the year 2050.  The current maelstrom may interrupt but will not stop the movement of one third of the world's population from a rural way of life to an urban one," he said.

"If current trends continue, we will double today's demand by the middle of the century. That means we will have to invest more than US$26 trillion between now and 2030 to meet future demand. It is an immense sum that is more than eight times the total US federal budget of last year."

And he asserts that the majority of primary energy by 2030 - approximately 80% - will come from fossil fuels, which will require IOCs and NOCs, as well as governments, academics and industry workers to work even closer together in order to meet these requirements.

"The challenge for all of us is to not allow this cyclical fall to pitch us into a structural loss in capacity. We must continue to invest in technology to achieve greater energy efficiency across the board and to bring new sources of energy to market.

"In recent years we have pushed technical frontiers by exploring under the ice in the Arctic, drilling in the ultra deep-water of the Gulf of Mexico and Angola, extracting heavy oil and tight gas, investing in advanced conversion and the next generation of biofuels and in Carbon Capture and Storage," he added.

Seven Policy Suggestions

1. Stability: Hayward points out that companies and governments must have confidence in each other if the proposed $26 trillion is invested. "Fiscal and regulatory policies must be stable and enduring so industry can invest with confidence. And we must make the right policy choices, because inappropriate and ineffective regulation can discourage investment."

2. Open market: A free and open market is the best guarantee of energy security, according to Hayward. Increased interdependence means that global integration in energy trade is essential to the growing imbalance between energy supply and demand. "We need genuine cooperation to lower trade barriers and tariffs on all forms of energy. But trade growth is a fragile process. Open markets require constant support and appropriate oversight; they are not just a fact of life."

3. Energy conservation: BP's group chief executive believes prioritising green initiatives is paramount, as "the price is huge". One suggestion made is pricing carbon in order to conserve energy and increase greener technologies and energy supply.

4. Addressing climate change: "Until energy producers and consumers know and pay the cost of carbon, the uncertainty associated with planning and investing in the transition to a low carbon economy will remain high. Pricing carbon could make energy conservation far more attractive and wind, nuclear and solar power more cost competitive.

It will also allow informed investment in fossil fuels and in the technology necessary to reduce the carbon emissions associated with their use. Cap and trade is the best option and one we should look to pursue.

5. Developing reserves: In spite of a shift towards sustainable energy sources, fossil fuels will still provide most of the energy required to meet growing demand, and therefore developing resources around the world must continue.

6. Low carbon initiatives: "We need transitional incentives to make low carbon energy competitive with other energy sources; and to kick start technologies for large scale carbon abatement such as CCS. These incentives should reward cost reduction and deployment at scale, with the purpose of making new technology commercially competitive in a well defined time frame."

7. R&D Investment: Hayward outlines BP's commitment to investing in energy technology research, development and deployment, using as an example the plant to spend $500 million over the next 10 years to develop better energy crops, biofuels and processes for producing them.

"Creating the energy future we all want will require cooperation among many partners and conversations with and among national governments. We must liberate the ingenuity and intelligence of industry, academia, and government."

Conclusion

The opening speech delivered by Hayward certainly seems to demonstrate BP's growing commitment to deliver more environmentally friendly practices, to invest in alternative energies such as biofuels, solar and wind power, and to develop oil and gas reserves once deemed too difficult or prohibited. It is a resonantly positive speech in a distinctly pessimistic time. Let's hope that BP can deliver what it promises.

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