Last Tuesday, 13 June 2017 I had an opportunity to attend the BP Statistical Review of World Energy 2017 launching in BP office in London. I am always interested in reading either BP’s energy outlook or statistical review every year, merely based on my curiosity on how the big fossil fuel players see their business in the future. Compared to a neutral organization like Bloomberg or International Energy Agency, there are some distinct points on big energy* companies’ energy outlook seeing the market share of fossil fuel in the future. They tend to overlook the share of fossil fuel in the future primary energy supply, prefer to underestimate the growth of renewable and alternative energy source other than fossil fuel. Starting from the fact that nobody can predict the future with their outlook, the move makes very sensible motives of the big energy company to favor the optimism of big fossil fuel share since that is the value of their business. The outlook might ensure their stakeholders that everything in the business is still good at least until next twenty years, as most outlook now predict the condition in 2040.
*Now the big oil companies tend to call themselves by energy company in order to remove the trademark of fossil fuel producer, even though the majority of their portfolio is still in oil and gas industry.
The opening speech was done by Lamar McKay, one of BP Deputy Group Chief Executive. He emphasized on the declining coal usage in power industry, the stagnation of carbon emission, and the strategy to achieve the emission commitment as declared in COP20 at Paris. Shortly, he also mentioned briefly about BP’s strategy on surviving the energy industry by altering their upstream investment in the gas field and strengthening their presence in the downstream industry as lube producers. Especially, he mentioned about six from seven major projects in upstream sector are gas field drilling to justify their strategy on prioritizing gas-related investment. Natural gas is the cleanest fossil fuel compared to the others, especially coal as it emits around two times carbon than natural gas. Most people believed that natural gas is the bridge fuel for the transition from fossil fuel dominated power sector into the renewable energy powered.
The main talk was delivered by Spencer Dale, the chief economist of BP. Two main points that he emphasised were the short run adjustment and long run transition of world energy. Some issues in energy that he talked about are the resilience of tight oil that play an important part in the oil market and the unwillingness of OPEC to cut production in November 2014 when oil price started to crash. OPEC’s power to handle the market crash seemed unapparent, so the result of the event was the permanent shock and the long-term structural imbalance of the oil market. OPEC can do temporary adjustment to the stock of oil in order to stabilize the market. But no one knows what will be the stability price of oil in the next 5 or 10 years.
Natural gas, despite the expected prospect as new fuel to replace coal in power generation showed positive but slow growth. The number of gas trade through long-term contract decreased, as more short-term and small size contract became more prevalent. Added by prospect of LNG and USA shale gas capacity, gas market is expected to grow more competitive where LNG might plays an important part.
Renewables will only contributing up to 4% of primary energy supply despite its unexpected fast growth in power generation sectors due to falling cost of solar and wind energy. However, the variability of renewable power still very dependable on weather condition in the location which makes it less reliable to provide big share in the power supply. There was a question during the Q&A session that argued that the lack of renewable growth is in implication of not high enough carbon tax. It is still debatable about renewables, about what can drive more renewables penetrating the energy market. Spencer opined that price will be the deciding factor, and the way you drive the prices are numerous. However, which one will be effective is still debatable.
It was such a valuable experience for me, being the students amongst all professional with suits from a different background. Some are market analyst and trader, some are consultants, and some come from academics. The presence of fossil fuel industry is unexpectedly still very prominent in the energy industry, hence I am curious and excited for the energy industry transition that may happen in the near future.