Lord Browne Speaks, Beyond Petroleum?

Today NPR's Morning Edition business report featured an interview with Beyond Petroleum's CEO.
Morning Edition, December 1, 2005 ยท Oil prices are destined to slip somewhat in the coming years, according to British Petroleum CEO Lord John Browne. Browne says that high inventories of crude oil prove "that the global supply system works rather well."

But as new technology and consumer preferences are changing the energy market, British Petroleum is adapting by investing heavily in alternative energy sources like wind and solar power.

British Petroleum is America's largest oil and gas supplier.
You can find the link to the audio (Real Player) here. For those of you who may not be able to hear the story, I'll provide a brief summary and some commentary.
Note: These are paraphrases from my rough transcription except where a quote is indicated.

On today's oil prices?
Prices today are higher than they should be and will settle in the $40/barrel range.

Are prices high enough to fundamentally change the economy and the way we use energy?
No, but our energy use is getting more efficient. Necessity and price makes for "innovation, invention and a different way of life".

What about the huge share of energy we get from the Middle East (Saudi Arabia, Iran and Iraq)?
It is inevitable that more and more of our oil imports will come from W. Africa, Russia and the Middle East. There are security implications but the biggest concern is that "people have enough choices" as to where to get oil--there needs to be more diversification in the oil supply market.

But we're still largely dependent on the Middle East. Haven't you said recently that diversification has failed? And what about the possibility of a large cutoff in supply from that region?
Yes, [diversification] for oil [has largely failed] but not for natural gas, coal and alternatives.... the world trading system needs to work correctly ... we've gone through in 2005 "a massive supply shock" (hurricanes) but despite this inventories (of crude oil, other products) are at or above historic levels so the "global supply system works rather well" ... "inventories can be reduced, supplies can come from elsewhere and demand is responsive to price".

Would a change in government in Saudi Arabia lead to an oil shock?
"What I would say is that most nations need to feed their populations and most nations therefore focus on the thing that makes them money so to do."

Are alternative energy investments a primary or a side business for BP?
The market is going to natural gas, alternatives ... what is clear is that customers want access to alternative energy because it's domestic (made where it's used), better for the environment (less CO2)...

Did you consult with Cheney Energy Task Force?
No but we do talk from time to time. I tell him what [BP] is going to do.

Just a few comments.
  • Browne seems to think demand drops will lower prices to the range he mentions
  • Diversity in oil import sources is not going to happen, don't expect any new megaprojects from new regions to come online
  • A coup in Saudi Arabia? What an answer!
  • The "massive supply shock" of 2005. Sorry, Lord Browne, the hurricanes were bad but that's not what I would call a "massive" oil shock
Be sure to actually listen to the interview if you can. It's a highly nuanced set of responses, wouldn't you say?
I think it's fair to say that browne knows damn well what's going on with PO, and he's following a two-stage plan:

  1. Do everything possible to keep people calm in the short run.  That includes making up a sincere-sounding but oh-so-convenient set of lies, i.e. oil will get cheaper, but we're doing renewables because people like local production.

  2. Go full steam ahead on those projects that will benefit BP and the whole world, namely renewable energy development.
Don't believe their PR.  Beyond Petroleum is investing almost exclusively in Petroleum.  I will check their numbers, but to venture a guess, I would say that 90 to 95% of next years capital expenditure for BP will be in Hydrocarbon Related ventures (both upstream and downstream).  
Looking on BP's website it is hard to find out how much they are investing in renewables (or any other segment of their business), but for one thing, they report PROFIT from renewables from under the heading of "Gas, power, and renewables".  Of this the "Gas, Power, and Renewable" segment made 0.9 billion out of almost $26 billion in profit (2004 numbers). This is about 4% of the total, and you can bet that the "Gas and Power" part made the lion's share of that profit.

BP is into alternatives and renewables for the PR value, not to make money, at least in the short to medium term.

Apparently, 2 days ago BP just launched a subsidiary called Alternative Energy.  Again they play up the Wind, Hydrogen and Solar, but they include gas-fired power.  They claim that they will invest 8 billion dollars in the next 10 years in this business starting off with an investment of 1.8 billion for the next 3 years - roughly split equally between all four business segments.  

This is great, but it is not a significant chunk of BP's investment capital.  My guess is that it is about 5% of their forecasted capital over that period.

excuse me, but bubba...you f*cking rock.

thx for the infos

It's hard to know what to make of this if it typifies the thinking of oil majors. Possibilities are
  1. they've got it right and there is ample time to react
  2. they will use their cash reserves to buy whatever   technology works
  3. they're going the same way as General Motors.

I've got solar panels on my roof made by a BP subsidiary but now they seem clueless. It would be interesting to compare this with the thoughts of the chairman of another oil major. Shell for example are looking at sun diesel and cellulosic ethanol among other long term options.
The Saudi Arabia response basically means: "We don't care where the oil (or insert natural resource or consumer good)comes from as long as it keeps flowing". That seems to sum up most of what's wrong with globalization... How else can you get All U Can Eat.
one of my favorite songs...like ever. Ben's the best.
I heard this and would be interesting to know what their actual thinking about oil supply is. You can certainly say that none of the majors are acting as there is much a problem and the recent heavy PR campaigns have been more a reaction to smoothing the price increases of last two years.

BP has talked a lot more about alternatives than done anything. For example there is shortage of silicon for solar industry right now, how BP or Shell justifies not standing up and building new fab, I don't know. I do know BP has been far from aggressive in pushing solar in the US. Always been a big thing about BP solar saying how they are "separate" from BP in response to why they never spend any money.

In the past two months BP announced in the next ten years they were spending $15 billion on US natural gas infrastructure http://www.forbes.com/prnewswire/feeds/prnewswire/2005/10/13/prnewswire200510130958PR_NEWS_B_MAT_NY_ NYTH078.html

and then just announced yesterday, they were going to spend 8 billion over ten years globally on all alternatives. http://business.timesonline.co.uk/article/0,,9072-1895135,00.html

So obviously they think there's no hurry.

There's also a great problem with corporate thinking in BP and Shell on something like solar, which you sell a product and aren't going to see that customer for three decades as opposed to every day(gas fired electricity) or once/twice a week with gas. They get that.

It's pretty optimistic thinking to look for companies that have been oligopolies to change based on some sort of vision for the future and develop the technologies that are going to end their reign, hasn't happened much in history with politics, doubt it will with technology.

Lou hit it dead on. Though he appears to be quite optimistic. He also knows good and well whats going on. He doesn't want to be the one who hits the panic button. But, on the other hand, politicians don't want to hit the panic button either. So it becomes a poker match. At some point, some one is gonna have to lay their cards down on the table.

Maybe he should talk with T. Boone Pickens.

You're not the only one waiting to see who calls whom in the poker game.  Somewhere, someone will have be the first to say, "Gee, folks, it's really looking like we're not going to have an infinite amount of oil, after all.  Let's see if we can cook up a plan B."

My hunch is that the powerful entities (corporations, gov'ts) have so much of a vested interest in keeping everything calm that they're all holding their breath and hoping that a combination of market response and technological breakthroughs saves the day.  

I find that approach (assuming that that's actually what they're doing) deeply offensive, and not just because they're lying.  By trying to ignore the problem they're taking two powerful tools out of the equation--public policy and an early change in market psychology.  Simmons likes to talk about how we'll need to pull on "all levers" to get through PO intact, a position I agree with 100%.  Public policy and market psychology are two of the most important levers at our collective disposal, so ignoring them is stupefyingly foolish.

Somewhere, someone will have be the first to say, "Gee, folks, it's really looking like we're not going to have an infinite amount of oil, after all.  Let's see if we can cook up a plan B."

I have this nauseating feeling that even as fields tip over into decline, and prices rise, and economies crash, and people starve, they're not going to ADMIT to a doggone thing. They're going to blame, blame, blame.

... they're all holding their breath and hoping that a combination of market response and technological breakthroughs saves the day.

"Leaders" of major corporations are often "people persons" rather than technical nerds. They expect to bark out commands sort of like the way the Captain on the StarTrek TV space ship does,

"Make it so!", "I need more warp drive to escape from the Klingons. Give me more!".

Then some foreign-accented nerd from the lowly engineering bays comes back with the heroic try:

"Aye aye Captain. I'm giving it all she's got but the dilithium crystals can't take much more, sir. We are near the end of our ropes down here."

Then the Captain smiles to himself, knowing the engineer, being what he is, is way too conservative, and the ship she's got more to give, much much more.

"Scottie damn it, I need you to give me all she's got, give that extra 50% you've been holding back on !!"

--[Inner Thought Bubble: In other words, I know you are a lying engineer lying about engineering capabilites just like I am a lying head of ship and state, always lying about our financial situation and even though I know nothing about the nerdy technical details, I know the script always turns out right for me. The dawn always comes right after my darkest hour.]--


Here are some things I would like to ask Mr. Browne (I hate that Lord shit!)

Why should oil settle at $40/bbl when the world's demand seems to keep growing (or at least stay flat) at a relatively stable price near $60/bbl?  What do you consider a price that natural gas should "settle" at, since it is selling for $13.00/MMBTU in the US and at upwards of $30.00/MMBTU in the UK?

No major (billion barrel - or even close to 1 billion barrels) oil discoveries have been made in West Africa in several years?  Why should one not concluded that this this area fully explored?  If not where will the next area be for likely discoveries of this magnitude?

Excluding natural gas (which is not alternative energy) what renewable/alterntative energy sources is BP betting on and what percent of your total capital budget is going to these investments?

Why hasn't BP agressively pursued a construction of a   pipeline to transport stranded Alaska North Slope gas to the lower 48 where the markets are?

Russia's oil production has stopped it's dramatic growth that was seen in the past 5 years.  Why do you think that they will be larger player in the future in terms of exports to the west?

The concept of Peak Oil is being debated, and written about throughout the world.  Major petroleum trade journals had written extensively about it including the Oil and Gas Journal.  When does BP think that demand will exceed worldwide supply for liquid hydrocarbons, and if they don't see this as a reality, where do they think this extra source of hydrocarbons is going to come from to meet the burgeoning future demand?

i fellated you above and i'll do it again! that's how big a man i am!!!

you really have a great grasp of these things and i really appreciate your input. this little list of questions is a devastating reality check to any insider. bravo.

The Washington Post seems to think Lord Browne did meet with Cheney based on White House documents recently obtained by the newspaper. Reading the Washington Post article, you can see that Brown did not outright lie to the NPR interviewer, as Cheney made it possible to meet Browne outside the official context of the Cheney Energy Task Force, yet the White House documents seem to record that meeting as being related to that same task force.
I'm not sure exactly what all the fuss is about. I heard either the same interview or one that was done a few days earlier on the BBC.

Browne clearly stated either of his own volition or in response to the interviewer that the mix of AE in BP's portfolio was going to be miniscule in comparison to Hydrocarbons. I can't remember the figure exactly but be clearlt stated it as something like $8 Billion in revenue versus the companies total revenue of $300 B, or whatever it is. He and they are not trying to hide anything.

$40/barrel, why not? If the modern-day historical average is $30, why is $40 so far fetched? It is nothing different from what a lot of other people are saying. I happen to believe that it will be higher, like at a minimum $60, but what makes that view any more relevant than his.

Sometimes I think some of you guys are drinking maybe a little too much of you're own Kool-Aid. Show me where PO has been proven as this past Thanksgiving.

For the record, I believe in Peak Oil from the extensive amount of reading I have done on the subject and tend to support its conclusions. The numbers and theories presented by the other side,i.e. Yergin,Corsi, etc., seem a little far-fetched, if not utterly ridiculous.

But none of this means there is going to be a catasrophic oil-crunch in the next five years. Although, admittedly, there seems to be a better chance than 5 years ago.

If 15 or 20 countries boost there production by 100,000 bpd and Saudi decides not to cut its production, but instead continue with expanding it's capacity to 12 mbpd by 2008, there probably is not going to be a near-term problem. Most of those knowledgeable about Saudi production seem to believe that if there is a problem it will occur past 12mbpd.

This extra production can easily keep up with demand increases of 1-2mbpd for at least the next couple of years. Again, I am not saying it will happen, only that it is entirely plausible.

Clearly a message has been sent about consumption in the United States. Whether this has begun to materialize into any real change in behavior is not clear, but Ford, GM, and Chrysler's numbers, announced layoffs, and planned production cuts from the last 4 months indicate that there is something going on. Also, nothing kills demand like a strong recession.

Can the Chinese really continue to spend $60+ per barrel? That remains to be seen.

And most importantly, nothing will kill your argument more than being wrong on a few short-term predictions. Keep an open mind.

I personally see oil at $120 and gasoline at $3.50 within the next two years, but I would still hesitate to bet on it.

When oil was a little over $70, I was paying $3.28 for regular unleaded.

I hate to think what $120 a barrel would mean.

Sometimes I think some of you guys are drinking maybe a little too much of you're own Kool-Aid. Show me where PO has been proven as this past Thanksgiving.

Do you think it's wise to wait to do anything about peak oil, not even acknowledge it, till you can prove it has already happened?

Here's an antidote:

The Hirsch Report

No, absolutely, but I've already bought the theory. You are going to need more than that. 99.9% of the oil consuming world isn't even aware of Peak Theory, and if they were, Yergin or Cheney or Lynch or Bill O'Reilly would have a fairly easy time convincing them that it was nothing to worry about.

Nothing significant is going to start happening until your average American is at least semi-aware which won't happen until you've either got some solid proof you can show them or gas prices go through the roof, which means it is probably already too late. In the meantime the only thing I know to do is "discuss" and walk to work. I think I'm trying like a lot of people here to develop that punch that can be used earlier than that.

I've got to effectively ground myself in the argument before I can make it. I believe numbers and facts, can't take it on faith.

Again, Hirsch shows we don't know till after the fact. Indeed no one has access to all the necessary numbers, and some of the numbers can't be known (e.g. exactly when a given well enter decline). Because of this, we who are interested in this issue have to do a lot of digging, a lot of hard work, decide which assumptions to believe, and come to our own conclusions. You do not and won't have the hard numbers to prove the case. That's why we won't know for sure till after the fact.

There is a lot of persuasive information out there on this site, ASPO and others, but it takes diligence to examine all the arguments.

Nothing significant is going to start happening until .... you've either got some solid proof you can show them or gas prices go through the roof, which means it is probably already too late.

I agree with you that 90%-plus of people do not know about Peak Oil.

Once a given newbie arrives at TOD, having recently become PO-Aware, he or she walks around in a daze for a while thinking everyone around should also be forced to become "aware".

"They," the general populace, are not aware. The "problem" is in your head. As far as "they" (the general herd of sheeple) is concerened, there is no problem. If you start babbling to them about this crazy, doom & gloom problem, then clearly you have "a problem". Clearly you are nuts.

I disagree with you (respectfully) about the idea that showing them "solid proof" is going to change anything. You are not dealing with rational creatures. Proof is not going to do much good.

Had they been rational, they would have long ago accepted Hubbert's basic proposition that we only have a limited quantity, Q of petroleum and that this resource is going to be depleted according to a logistics curve or something like it.

Had they been rational, they would have long ago accepted Malthus's basic proposition that the planet cannot forever support exponential growth of human population.

They didn't. So there is your solid proof that you are dealing with an irrational herd of lemmings each racing against the other in order to get to the cliff's edge first.

Thanks to MikeB for the post to the Hirsh article. I had read that before somewhere, I think I was searching for peak stuff and found it at random, it's good to know iy is getting some play. Now I will take issue with it in the context of this discussion.

The study clearly states that Peak Oil "will happen." It is very clear in this belief, which is fine,it also happens to be my belief. But be careful here, it is still just another prediction, with as much merit as any other prediction, whether that is Forbes'prediction that Oil will go to $40 or Economides' belief that oil will be fine and global warming is a conspiracy dreamed up by leftist wingnuts.

Saying something is definitely going to happen and having all the proof in the world, and a theaory to boot, still, scientifically/logically/philosophically doesn't make it a fact.

The notion that the sun will rise tomorrow is a fact is not based simply on the theory that it will, but on the fact that it has been observed doing so in exactly the same place, and time, everyday, for as long as humans have recorded. Three scenarios come to mind. As a mental exercise try to apply them to Peak Oil. 1) what if on one of those days, maybe last week sometime, the sun didn't rise. 2) what if the sun had risen once, yesterday for the first time. and 3) what if the sun had never risen? In each of these cases how do you make the argument that it will rise tomorrow?

The Hirsch report says Peaking WILL happen but then lists the predictions of when from roughly ten different sources. These sources include, amazingly, CERA(Yergin), Shell, and Lynch -"No Visible Peak." What is that? You are trying to prove something will happen and on the list of experts you quote you include at least one who says it won't. On the plus side, that seems fair and balanced, but hardly a call to arms.

And let's be serious for a second, projections 20 years out, while warranted in context from at least one perspective, are ridiculous when you are saying the problem is now.

So you have a list that already includes 3 anti-peakist factions (25%), let's look at the peakists. Their estimates range from "already happened" to 2020. While this is fine for somebody well versed in the topic, the Peak Community needs to come together on this. They don't need to agree, they just need to agree on a common position for the news cameras. 9 different opinions which all inherently contradict each other are going to confuse the confuse the hell out of the "newbies" as you call them.

You may feel like you are on Omaha Beach, but the historical parallel is probably more like 1929 where a few people are concerned with a certain Bavarian corporal. Long way to go.

And then you get to the kicker, the solution. The whole wedge thing. That is why I think I had read the paper before, and apparently why I forgot it as well. While completely workable if we were run by the Chinese People's Congress, or some benevolent dictator, this will never fly. Too complicated. If it isn't based around simple taxes, incentives, and regulations - in other words, revenue-neutral consumption taxes, government subsidy, and (much)higher gov't regulated efficiency standards, it doesn't stand a chance of making it through congress in the same shape it is on that adobe document. Did you happen to catch the Energy sub-committee hearings with the oil executives a few weeks ago. I'd be surprised if any of those legislators could spell 'hydrocarbon,' and you want them to do what?

We need to clear up the message, push for some simple changes that will nudge people's attitudes and therefore the market in the right direction. That is probably all you can do in the near term. That first step has not been done and is crucial. You cannot skip it, without it, there are you 2nd and 3rd steps. Deffeyes and Simmons are not household names.In fact, they have zero name recognition outside of a very small group of people.

Also, if these guys are right, then the palliative,"it's not too late to do something," may be incorrect. We may in fact be screwed. Somebody had to say it.

Don't get me wrong, when it comes time to fight, I'll be right there with you, but knowing a tad about the subject, and having observed the course and progress of this thing for a number of years, it really doesn't look pretty.

Gasoline was over $3 a few months ago due to local supply constriction caused by the Hurricanes. $120 should translate to gas at about $3.50 under "normal" circumstances.
Before the hurricanes, when oil was in the $67 range, I was paying $2.75 a gallon. Diesel was close to $3.

It appeared that every $10 rise in NYMEX was causing a 50-cent rise at the retail level this year. At least in Colorado. So $90 oil would translate to over $4.

I came up with a calculation for California that so far has seemed to more or less hold:

Price of gas/gallon = ( 0.05429 x price of NYMEX crude/barrel) - 0.6571

At $120/barrel this would be $5.86/gallon.

I will accept that there may be some refinery bottlenecks factored into our gas prices, but again, so far the formula's been accurate.

With all due respect, the previous two posts are incorrect. Analysis of the past correlation between oil and gasoline prices in the US will verify this.

 The price of oil accounts for between roughly only 40-50% of the price of gasoline. If you equate $2.20 gas with $60 oil, take half that amount($1.10 or 50%) and put it aside. Take the other half, double it(accounting for oil moving from $60 to $120), and add it to what you set aside. You get $3.30.

$120 Oil correlating with $5.86 doesn't make any sense.Gas is $2.15 now at $58. Your Formula would mean gas more than doubles when oil doubles. Better to use the national average from the EIA or AAA's website than a single state's or regions. I think you have some funky regulations or something out there that are affecting the situation differently.
Sorry, but in my opinion it's your analysis that is nonsensical.  While it may be true that CA has some higher fixed costs in the price of a gallon in the form of additional taxes, and blend restrictions do make us somewhat more refinery-restricted than the rest of the country, you could just change the formula to reflect this for your state.  However, a statement such as, 'the oil price only accounts for half of the gas price' is bogus.  As the oil price rises, the fixed costs of gas become less and less important.

If you think you have a better formula, or empirical data that completely disproves the formula (I'm not talking about what your local price of gas is in Mississippi right now), then show it.  The point was to show a methodology for how to determine a future price of gas based on a future price of crude, and all that you've done is make pronouncements about future prices that have nothing to support them.

Here is an analysis done by Natural Resources Canada of the relationship between crude and gas prices. They use a smaller multiplier than I do at 1.17 but note that it is still > 1. Using their multiplier I get a price of $4 for $120 a barrel crude. By their analysis we would not hit $5.86 until $186 a barrel.
I don't have time to deal with this now, but I will. But before reading anything, I want to just say this. There is no formula for converting the price of oil to that of gas. You can arbitrarily create one, sure. You could even do that locally, but you can't figure out a formula for something that doesn't exist.

While Both prices are related to each other and effect each other in many ways, they both float freely in the financial universe. I'm simply giving you the way that the world(and in particular the US) views how you make the jump. I'm just observing. And trust me, I pay attention.

Anyway, more on this later, I'll send you some spreadsheets.

Just finished watching snippets of Lord Browne on CSPAN:
Interesting perspectives on where the planet is heading energy wise and prosperity wise.

Unfortunately I was not able to stay tuned to the whole show- too many interruptions

Did anyone else watch and what are your impressions?

Ditto for the Energy & Climate change conference:

No i didn't. but since you did, could you give us some insight? did you record it? or just watch? body language, facial expressions? eye movement or contact?  
Sincerity in his voice? Was it rehearsed or staged?
i am not being funny or anything, but it compliments the body of the message.

You saw things differently? could you please elaborate?


Being an American myself, I could not read Lord Browne's body language. He is defintiely very British. He expressed a concern for the fate of his fellow Brits. Said something to the effect that 1 pound sterling of every 6 generated as return in investment in Britain came from BP and therefore he takes the running of his empire very seriously becuase so many people depend on BP making the right decission. He spoke about leveling the playing field by cost accounting for the externality of carbon emissions and then letting all available ways of generating energy compete with one another. He said BP was going to hedge its bets by being a player in everything. So yes they are going to continue with gas venture in Alaskan North Slope, yes they are going to continue oil exploration efforts around the world including in the USA. On the other hand they are setting up a new business unit to explore alternative energy sources. I did jot down some notes but don't have them at hand. As I recall he gave out per anum global growth rates for DEMAND for oil, gas and COAL, something like 5%, 10% and 30% respectively. He seemed to indicate that BP was going to focus on clean coal due to it's huge world wide growth and abundance --but then again I could be confusing this with the earlier CSPAN show where Senator Byron Dorgon of N. Dakpta was pushing big for expansion of clean coal technologies.

BP America had a presenter in the earlier climate change show on CSPAN who spoke extensively about BP's commitment to the new alternative energies development strategy. Kind of hard to keep those two presentations by BP separate in my head. Both Lord Browne and the other presenter seemed sincere to me in their insistance that BP was serious about alternative energies. I think Lord Browne was trying to say they are not betting the farm on wond or other alterantives and that BP instead plans to spread its risks by being a player in all posible outcomes.