Production decline does not mean oil is running out, says BP
By Terry Macalister
The world is not running out of oil and can continue to produce hydrocarbons for the next 40 years provided restrictions on where companies can operate are lifted, the head of BP said yesterday.
The Arctic and closed areas off the coast of America should be considered for exploration if rising global energy demand is to be met in future, said chief executive Tony Hayward at the launch of his company's annual statistical review of world energy in London.
He insisted that all other forms of energy, whether clean-tech or otherwise, also need to be developed simultaneously, while rising carbon emissions could still be controlled to curb global warming.
"Declining oil production in the OECD highlights the fact that, while resources are not constrained globally, the resources within reach of private investment by companies like BP are limited," said Hayward. "Political factors, barriers to entry and high taxes all play a role here. In other words, when it comes to producing more oil, the problems are above ground, not below it. They are not geological, but political."
Some of the difficulties of access were in nations such as Venezuela, Russia and in the Middle East that have adopted clear policies of resource nationalism where the state has grabbed assets from independent oil companies. However, Hayward also noted that 92% of the US is off limits - for environmental reasons - and he said the Arctic needed opening up.
Production volumes had been falling in Russia due to a tax system that means the vast bulk of the revenues has gone to the Kremlin since the price of oil rose above $30 a barrel.
The BP boss was scornful of subsidies given to oil consumers in some developing countries, saying this distorted markets, but appeared to support the idea of tax breaks to encourage more drilling in the North Sea and to help speed up trials of carbon capture and storage.
The review said that world oil consumption grew by 1.1% in 2007, or 1m barrels a day, slightly below the 10-year average, while production fell by 0.2%, or 130,000 barrels a day, the first decline in five years.
An increasing number of oil industry commentators believe that "peak oil" - the point where production begins to decline - has been reached and is responsible for the huge rise in crude prices this year to record highs of nearly $140 a barrel. But BP said proven oil reserves at 1.24tn barrels were enough to meet current production for 41 years.
Hayward batted aside Opec arguments that the extremely high price of oil could be attributed to financial speculators playing the commodity markets and the slump in the dollar's relative value to other currencies.
"The defining feature of global energy markets remains high and volatile prices, reflecting a tight balance of supply and demand," he said.
"I am certainly not a subscriber to peak oil [theories]."
Hayward defied predictions from some of his peers that current oil production of around 81.5m barrels a day may never be exceeded. He suggested 100m barrels may still be possible. The era of cheap energy was over, with oil prices moving steadily upwards over the past six years, but this was definitely not because the world is running out of oil, he said.
The markets in 2007 had been hit by Opec production having fallen by 350,000 barrels a day as a result of the cumulative impact of production cuts implemented in November 2006 and February 2007, while non-Opec output rose 200,000 barrels a day.
Hayward declined to comment on where oil prices would go from here but his chairman, Peter Sutherland, dismissed as "apocalyptic" Tuesday's warning by Alexei Miller, Gazprom's chief executive, that the price could virtually double to $250 a barrel by the end of 2009.
"I don't believe in some of the more apocalyptic predictions," he told a separate meeting of the European Policy Centre. "I don't believe we are in for a spike to $250 and I am hopeful that we will not have further dramatic escalations in the price. Personally, I would like to see prices fall." Hayward said high prices could be helpful in encouraging energy efficiency, which was happening already. "High prices drive efficiency," he said, and encouraged investment in alternative power schemes.
The BP head said a drive to produce more oil, gas and renewable energy was not contradictory with fossil fuels being used more carefully so as to reduce the carbon footprint. "I don't think there is a conflict, but it does need joined-up policies," he added. "You need to start with energy security and build into it how to tackle the issue of climate change."
Environmentalists said BP had got the two issues back to front and should be using its windfall profits to pioneer cleaner fuels rather than continue to champion tar sands and other carbon schemes.
"They should be viewing everything through the lense of climate change rather than oil supply and demand," said Benet Northcote, a campaigner at Greenpeace.
Hayward shrugged off his company having spent $50bn on share buybacks over recent years, saying a balance had to be found that rewarded investors while spending on new capital projects.
The BP statistical review also showed that world natural gas consumption grew by an above-average 3.1% in 2007, with half of this increase coming in the US. Chinese consumption rose 20% while European Union demand fell 1.6% in the face of warm winter weather.
Global demand for coal grew by 4.5% last year. Ethanol output rose by 27.8% while wind and solar electricity generation continued their rapid growth - by 28.5% and 37% respectively.
Oil prices have not performed as strongly since the data was first collected in 1861 - the year the American civil war broke out.