BP chief flags up the Three Cs
CEO Bob Dudley has charted a way for energy businesses to succeed in a challenging market
Energy businesses are faced with hard choices in an increasingly competitive market-ones that determine success or failure. This stark message carried credibility, delivered by Bob Dudley, the CEO of BP.
The supermajor's CEO keynote address to the World Energy Congress stressed that the world has become much more competitive, with abundant supply now keeping prices low. At the same time, we are more aware than ever of the need to reduce carbon emissions.
Dudley used his speech to look at three main challenges-the Three Cs as he put it: competitiveness, carbon and choice.
"We're going through a time during which supply has outstripped demand. Technology has continued to unlock new sources of supply-notably shale oil and gas in the US. At the same time, global demand growth has slowed from the extraordinary pace of the past 20 years."
As a result, energy is abundant and the pressure to become more competitive at lower prices has increased.
Companies must be competitive in a way that's different from the past. "In previous cycles, as an industry, we have let costs drift up when prices are high, then cut back when prices fall. From now on, the challenge is to build-and sustain-businesses that are good through all cycles," said Dudley.
The risk of losing discipline on costs is evident, but there are ways of preventing that from happening.
First, through a constant focus on simplification, cutting out waste, improving efficiency and driving up reliability.
Safety is really important here. "At BP we have seen our numbers on efficiency and reliability go up at the same time as safety has improved. They go hand-in-hand," said Dudley.
The second is being innovative with business models. "One recent example at BP is the deal we have done with Det Norske in Norway, where it has combined the strengths of both companies in a new business called Aker BP-which brings together Det Norske's streamlined operating model and our technical skills, international experience and knowledge of the Norwegian offshore, built up over decades."
A third step is to take full advantage of technology. "Things that used to take months-like the analysis of seismic data-are taking hours as a result of supercomputing. That means we can find answers to problems in seconds, with a huge impact on productivity," said Dudley.
On the carbon challenge, momentum for action has been growing for some time. "For more than 15 years we have supported the Carbon Mitigation Initiative at Princeton University in the US which has been a leader in research into the science of climate change and potential policy solutions. And we have invested a substantial amount in low carbon businesses," said Dudley.
Dudley also highlighted collaborative action in looking at the potential of carbon capture use and storage (CCUS).
"We know CCUS has the potential to play a major role in the future as part of the solution to meeting higher energy demand with lower emissions, and will be essential in a tightly carbon-constrained world."
On the third challenge, choice, BP has been forced to make several investment and divestment decisions in recent times.
"Part of the competitiveness challenge is that we cannot cut everything. We need to keep investing for future growth and that means making big choices to sanction big projects."
BP's recent investment decisions-such as the expansion of the Tangguh LNG plant in Indonesia, the massive Khazzan tight gas project in Oman; and the Shah Deniz 2 project in Azerbaijan-have one thing in common: they are all natural gas projects.
This underscored a very important shift, said Dudley.
While renewables are growing quickly into the energy economy, it will take time to grow from a base of around 3% of the energy mix today.
"Even if renewables were to grow faster than any fuel has done, they are unlikely to contribute more than 15% of the total energy mix by 2035," he said.
That is why there has to be an increasing role for natural gas as a substitute for coal, allowing us to limit carbon quickly and at scale while meeting the energy needs of developing countries.
"In BP we are already around 50% natural gas now and heading towards 60% by the end of the decade as new gas projects come on stream," he said.