 Hi, good morning. Welcome. You can come join the table. It's not church. You can get closer. Yeah, if we pass around a basket, then you know do what you will. Hi, my name is Sarah Ladislaw. I'm the director of the Energy and National Security Program here at CSIS. Welcome this morning to, as I like to say, one of our favorite events of the year when we get to do it, which is the BP Energy Outlook for 2035. We are really, really pleased to have with us once again Mark Finley, who is not only a good friend and frequenter of CSIS energy program events, but also the one of the main authors of the BP Energy Outlook. We're always amazed that you're able to sort of keep up the constant yearly grind of both the statistical review and the BP Energy Outlook. And I know everybody that I can see in the room that works in this space utilizes both of those documents in the work that they do. So we are all sort of indebted to you for doing it. We are also pleased to have the head of external affairs and vice president at BP, Ray Dempsey here, to offer some opening remarks before Mark launches into his presentation. So without further ado, I'll turn it over to Ray. And then we'll let Mark do his thing. Thank you, Sarah. Good morning. Can you hear me, everybody? I told Sarah and Nanny I'd keep my opening remarks to definitely less than 45 minutes. Don't worry, this is not going to be difficult. I am really delighted to be here. And I'll say again, our appreciation, express our appreciation to Sarah and the whole team at CSIS for hosting us here. It has been a real delight for us, frankly, at BP to support and poll the work, the important work at CSIS over many years. And we look forward to doing that for many years to come. I guess I can't help but share a bit of good news with all of you. And if you haven't seen this news overnight, it's something that's really important to us. We've announced just late yesterday afternoon that we entered an agreement with the EPA that resolves all matters related to the suspension and debarment of BP, which followed the Deep Water Horizon accident nearly four years ago now. This is a great milestone for BP, for lots of reasons, because it allows us to participate again in government contracting in the United States. And that's a big part of our business and a big part of our priority. Maybe even more importantly than that, though, it's a chance for us to sort of more fully resume our activities as the largest energy investor in America. I hope you all had heard before that we are indeed the largest energy and investor in the United States, because that's something we've been working hard to share, particularly over recent months and maybe as long as a year. We've invested nearly $50 billion in the United States over the last five years. That is more than anybody else. It is certainly more than we invest in any other country in the world. And we're committed to the safe production of the energy that America needs and have been doing that for quite a long time. We, you know, as much as we are committed to the idea of investing the money, we also support a lot of jobs. And so the economic impact of our, say, 250, 260,000 jobs across America is also something that gives us great excitement in being able to return our attention and our energies to how that works with the federal government. The reason we're so proud of this energy outlook, the reason I am, I should make it more personal, is because while we've been doing it for our internal purposes for many years, we've really only started to introduce it externally for the last four years. And very quickly, it has become something that people anticipate and await and seem to really value and appreciate. And we're happy for that because it's not meant to be a commercial. It's not meant to be, you know, BP's recommendation or proposal for the way the world of energy should look. It's really designed and intended to be a very objective view of the way we think the landscape, the global energy landscape is going to evolve given existing or our view of the policies and the consumer trends and the dynamics that are at play around the world. And hopefully by your presence, it's reinforcement that you think it's useful too. So we're delighted that that's true. And that's enough of my BP commercial. I hope many of you know already, my colleague, Mark Finley, who's just about to walk us through this outlook. I love to describe Mark as my friend and colleague who's been in the industry for more than 25 years. I also like to say that he's been claiming that 25 years for about a decade now. And I shouldn't teach him. And with all due respect to his wonderful wife, Leanne, Mark and I have been growing old together in the company for quite a long time now. So he's got a wealth of knowledge, you know, a fistful of degrees, and a great command of this particular subject. So with no further delay, I'll hand it over to Mark Finley. Thank you, Sarah. And thank you, Ray. And is it okay if I stand up and walk around? I'm not 100% Italian, but I'm half that way. And it helps if I can walk and wave my hands while I'm talking. Okay, good idea. And your glass of water, too. So thank you all for taking time to join us for this morning for what I hope will become a discussion on energy matters. And it's a privilege to have a chance to share it, especially here at CSIS, you know, we're big fans of the program. And so thank you again for giving us that opportunity. Ray mentioned that this is a this is not the presentation, the outlook for the world as we wish it would be, but rather it's our best effort to be as objective as we can be building on the status and the data in our annual statistical review of world energy, which BP has done for 62 years now. And we try to maintain both a physical connection to the statistical review by building the data on top of that. So all of the historical data in this presentation will be consistent with the statistical review. But also we try to build on the reputation for objectivity. And we try to do our best job in calling it as we see it, taking into account. Thank you very much. All right. Is that better? Thanks, Annie. Doing our best to take into account, you know, not only the evolution of the world's economy and population and technology, but also policy. And that's, I think, just a differentiating aspect of our energy outlook. We'll actually look at how policy we think is likely to evolve as well. And we'll see some examples of that as we go through the presentation. This year we built our outlook around three themes. We asked if the world could have energy that is sufficient to fuel continued economic growth, secure something that's been in the headlines already in the last couple of days, and we were talking about before already, and sustainable. For the purposes of this narrative, at least we'll look at sustainability through the lens of CO2 emissions. And to give you a sneak preview of the answers, the, you know, sufficient, yes, secure. It depends. Sustainability, not from what we can see. But again, we'll come, but I think we can make some interesting observations on that as well as we go through. So as we go through this presentation, we'll begin with a review of the high level data, and then we'll go through it in turn, fuel by fuel, and then step out at the end for a discussion of CO2 emissions and some concluding remarks. What I'm going to do at first is to show you the same picture three times, sliced different ways for perspective. And what I'm showing you is the history and the forecast for global energy consumption. By the way, we use, we convert all forms of energy into the equivalent of a ton of oil so that we can make like for like comparison. Here, you can see very clearly that most of the growth is in the industrial sector. The slowest growing sector by far in our outlook is transport. And we'll come back to that with more detail as we go through the oil section. Notice also by the way that we don't show you electricity as a separate sector of the economy. Rather, we distribute electricity through to where it actually gets used. As we will see later in the presentation, power generation actually accounts for the majority of the growth of global energy demand in our outlook. By the way, you may also, if you have very sharp eyes, see the tiny wedge for electricity and transportation, but you'll notice that it's not very much. And we'll come back to that as well. On the right hand side, again, with the growth increments, you can see that the slowdown of energy demand over the forecast interval is concentrated in the industrial sector. Again, consistent with our view on China's, the changing nature of China's evolution. By the way, let me back up very quickly. Another point. It's important, we feel, to recognize what an outlier China is. If we look back in the historical record, certainly it is the case that as countries get richer, they achieve rapid growth rates of energy demand to fuel that rapid growth of the economy. But even by that historical pattern, China is the outlier. And so we feel that it's important not to base our expectations about how energy demand in other emerging economies will look going forward on China's experience over the last 20 years. In fact, by the end of our outlook, India actually replaces China as the biggest source of energy demand growth in the world, but doesn't replicate the very aggressive growth that we've seen in China, which again, we feel is really the historical outlier. And we can talk more about the reasons for that later if you're interested. The final repetition of the same picture is to slice the data fuel by fuel. So here we're showing you all forms of energy. By the way, we track commercial energy. So when we're reporting, for example, renewable energy, it's renewables that are commercialized in power generation and transportation, not the wood that you burn in your fireplace, et cetera. On that basis, all forms of energy grow in our outlook. The fastest growing group of fuels by far are renewable forms of energy, which grow by over 6% a year. So more than four times faster than the overall energy complex. Therefore, they gain significant market share, but from a relatively small base. Among fossil fuels, the fastest growing fuel is natural gas. The slowest growing fuel globally in our outlook is oil. On the right hand side, again, you see the changing pattern of growth of energy demand going forward. And in particular, you see the slow down of coal. Again, consistent with our story about China's shifting pattern. So again, these three slices of the data all reinforce each other in that messaging. That continued economic energy growth, but slowing over time. Now, because we're the pointy-headed nerds that we are, we can't just talk about demand. We have to show you supply, too. So here is our forecast for global energy production, which, of course, rises to keep up with the growth of demand. All regions of the world see growing energy production, except for one, Europe. Personally, when we put this chart together, I was surprised to learn that Asia was actually the biggest energy producing region in the world today. It's primarily coal in China for today, but going forward, Asia accounts for roughly half of all of the growth in global energy production. And it's not, as we will see, just a story about coal in China. There are significant increments of new energy supply from other forms of energy in Asia as well. Now, I mentioned earlier that I, you know, one of our questions was energy, you know, can the world have sufficient energy to keep up with economic growth? And we answered that. We were very emphatically. The answer is yes. One of the reasons why is shown on the right-hand chart. What I'm showing you is new forms of energy, which are already coming into the world's energy mix in a material way, and we believe will continue to grow rapidly. Now, you know, this is probably the only presentation you're going to look at that put renewables, shale gas, tight oil, oil sands, and biofuels all together in one, you know, chart with one theme to them. But I think it's a valid theme, which is that, you know, due to, you know, combination of market forces and government policies, we are seeing the facilitation of this rapid growth rate, and we believe it's likely to be sustained. In fact, these forms of energy by themselves account for almost half of all of the growth in global energy production in our outlook. And again, in every case, there is a story to be told around, you know, the evolution of market forces and the important role of policy to harness those forces to drive innovation and to facilitate continued robust growth. And again, we will examine each of those in turn as we go through the presentation. The other reason why we're optimistic the world can have the energy it needs is that we don't need it to begin with. The panel on the left shows how much more efficient the world gets using energy relative to economic growth in our outlook. In fact, in our outlook, the world's economy roughly doubles. Energy demand, as I mentioned earlier, only grows by 41%. What it means is that if you calculate how much energy is needed to produce a unit of economic activity, whether it's a dollar or, you know, a euro or other currencies, doesn't matter. The amount of energy needed to produce a unit of economic activity declines by 36%. Slightly faster rate of improvement than we've seen historically. Again, consumers and businesses reacting to higher prices, but also government policy pushing for more efficiency. By the way, keep that visual image in mind. The big gap that opens between energy demand and economic activity. We're going to come back to that concept later. On the right, I'm showing you the long-term evolution of market shares for all forms of energy. Oil today is still the dominant fuel in the world, but has been losing market share structurally for 40 years now. In fact, oil's all-time market share, I'm sure many of you can tell me the exact year when that happened. 1973. That's right. Gold star for that. And oil has lost market share and the pace at which oil loses market share historically tracks with price of oil. When oil prices were high in the 70s and early 80s, oil lost market share dramatically. When oil prices collapsed, the erosion of oil's market share slowed down. And in the last dozen years or so, as oil has resumed, you know, prices have gone up, oil's erosion of market share has accelerated once again. And our outlook, oil, even though demand keeps growing, it loses market share. And what's been gaining market share? Well, in the last 10 years, most dramatically, coal. And again, you can see how much the China story in the last 10 or 15 years has been an outlier in the long historical pattern. Eventually, coal begins to lose market share. We've covered that. Structurally, what's gaining market share and continues to do so in our outlook is natural gas and renewables, which pass nuclear power in terms of market share in the middle of our forecast interval. And by the end of it, you know, are roughly equivalent to hydro output as well. Now, of course, what that means is that the world continues to be dominated by fossil fuels in our outlook. Fossil fuels lose market share, but it's still the case that around 80% of the world's energy is met by fossil fuels in our outlook. And that has implications for CO2, which we'll come back to. Another interesting observation, however, is that this endpoint, well, not an endpoint. The world doesn't end in 2035. It's just what our forecast does. In 2035, for the first time in recorded economic history, there will not be a dominant fuel in the world. In the past, two fuels have crossed lines when one was gaining and one was losing. So coal passed wood, oil passed coal. But now, for the first time ever, we'll have three fuels roughly equivalent. And I think it might pose some interesting energy security questions. I mean, what does energy security mean when there's not a dominant fuel? Better minds than mine for a deal. You can consider that one, perhaps. I mentioned the role, important role of electricity in our outlook. The majority of growth of energy demand comes from it. It's not just a story of poor countries plugging in. This chart shows the amount of energy used to generate electricity as a share of total energy use. One of the most broadly established trends in the energy markets is that this number grows over time. And the important point that I want to share with you is that here's the emerging economies, which continue to grow, but also here in the rich market economies of the OECD, the share of energy needed to generate electricity continues to go up. It used to be you had one device that you had to plug in. Now it's two, and everybody in the house has their own, and so you know the pattern. I don't need to explain that to you. On the right, I'm showing you where the fuel comes from to generate electricity. So remember earlier, we talked about how oil has been losing market share structurally around the world, nowhere more pronounced than in the power generation sector. In 1973, about a quarter of all of the world's electricity came from oil. Today, it's about 4% on its way down to 2% in our outlook. Here in the US, it's already, you know, 1%. So important point, where oil faces competition, oil lost a long time ago. As an aside, by the way, who eats their house with heating oil? I don't see a hand up there. You would have had a lot more hands, I guarantee it 40 years ago. So where oil faces competition, oil lost a long time ago. What's been gaining market share? At first, it was nuclear power. When that slowed down, we saw the revenge of fossil fuels with coal and natural gas, both gaining share. In recent years, it's been renewables, and that continues in our outlook exceeding 10% of total power generation by 2035. We can also use the data in our outlook to make some observations on those second and third questions I posed earlier, security and sustainability. The proxy for thinking about security and one dimension of it, we'll think, we'll look about trade. The panel on the left here shows regional imbalances of energy. Now, I will freely confess that we don't forecast bilateral trade relationships. I just don't have time to go through every fuel and every bilateral trading relationship. So this is a proxy for trade. Just looking at, for example, is North America a producer or an importer or exporter of oil, then gas, then coal? And we aggregate those regional imbalances to put this picture together. The way to read the chart is if you're below the line, you import. If you're above the line, you export. Historically, for those of you who have suffered through our statistical review presentations in the past, you will have seen charts like this and the message historically has been once a region becomes a net importer, it's game over. All you ever do is import more and more and more. But that's no longer the case here in North America. And we've been reducing import dependence significantly. And in fact, in our outlook, North America switches sides, becoming a significant net exporter of energy. On our data, all of the net growth in world energy imports accrue to Asia. On the right hand side, I'm showing you the implications of our outlook for CO2 emissions, at least CO2 emissions from energy use, which grow by a hair less than 30%, not as rapid as energy consumption, because remember the fuels that are gaining market share are the low carbon sources of energy, renewables and natural gas, but still growing. But not much of a gap opening between these two. Contrasting with the example we saw earlier from economic growth and energy use, which is becoming much more of a noticeable gap. We're going to come back to that. So let me move next into an examination of the data fuel by fuel. We'll begin with the biggest fuel for now oil. Well, I should say liquids because we include biofuels and small amounts of gas and coal to liquids as well, but it's primarily oil. The way to read this chart, first notice that we've switched units to million barrels a day, which is of course the convention when we talk about liquid fuels. We read the chart by beginning with the level of demand and supply in the world in 2012, and then showing you total increments over the forecast interval. I mentioned earlier that oil is by far the weakest growing fuel in our outlook, but it is still the case that global demand grows by 19 million barrels a day, roughly equivalent to adding a new Saudi Arabia and a new United States to production over that interval. On the demand side, again, those of you who are familiar with BP's work know that we're not big fans of the peak oil supply argument, but peak oil demand, we believe that we've already seen it here in the U.S. and in the other mature market economies of the OECD, where again a combination of consumers reacting to high prices, mature economies and government policies that really push for fuel efficiency will result in a long term structural decline in oil consumption. But all of those declines and all of those countries are offset by growth in one country, China, and then we add the incremental growth on top of that for the other emerging economies to get to a figure of aggregate growth of 19 million barrels a day. And where does the supply come from to meet that? The biggest increment by far is outside of OPEC and in particular driven by those unconventional sources of supply that we mentioned earlier. Tide oil in the United States, Canadian oil sands. In fact, if we include growth of deep water production in the United States and in Brazil, the Western Hemisphere accounts for almost all of this net growth outside of OPEC. And by the way, this is also taking into account declines in mature provinces like the North Sea and Alaska. The remaining slice is met by OPEC and here we break out the growth between crude oil and natural gas liquids because as we will see, there's an important distinction there. The distinction is that OPEC quotas only apply to crude oil and we'll come back to that. So first a bit of detail on the demand side. I mentioned earlier that we're going to look in more detail at transportation. We talked about declining consumption in the OECD countries and you can see that that is concentrated in the transport sector. But in the emerging economies there's a different story. Significant growth not only in transport but also in industrial applications. And in fact on the right hand side I'm showing you that familiar pattern of growth in increments over time of our forecast. Remember earlier for the global total we said that the slowdown of growth of demand in our forecast is concentrated in industry, not the case for oil. In oil the slowdown is concentrated in transportation. Well why is that? Well we'll come back to the transport part shortly. But what turns out is that for oil in industrial applications there are certain base load uses of oil that cannot be easily substituted away. In petrochemicals for example or asphalt for roads. And so as industrial output grows in the emerging economies there is a base load need for more oil demand that cannot easily be substituted away by other fuels. Next up is the supply. On the left hand side I'm just showing you the evolution over time. And what I want to really focus on are these wedges and in particular on tight oil which of course is on everyone's mind these days. On the right I'm showing you our forecast for tight oil. Last year we spent more time talking about this so I'm not going to go into the whole laundry list of reasons why this is important but these numbers are truly staggering. And by the way when you study history like we do with the statistical review and by the way it's not a slog it's a labor of love. You're not prone to use superlatives because if you look far enough back in history there's always somebody who's bigger and stronger and faster but this is big. Last year in fact for two years in a row now the United States has had the biggest increase in oil production in the world and the biggest increase in the entire history of the United States going all the way back to Colonel Drake at Titusville. And we can even go further than that. If we look at the increase in US oil production last year it ranks as one of the biggest increases in oil production the world has ever seen. In fact only one country has ever had a bigger increase in oil production than the US did last year and that was Saudi Arabia. The Saudis have done it a number of times but many of those were when there was a crisis and the Saudis were tapping already existing spare production capacity. If we look at the organic growth of production the Saudis have only done it three times you know in the early run up to the Arab oil embargo and once in the most recent decade when there was very strong growth of demand and new capacity being brought on. So this increase in the United States was on our data the fourth biggest increase of organic production in the history of the world. So big big big numbers and we project that it will continue to grow eventually those growth rates will moderate. In the United States production will begin to plateau production elsewhere grows but not to the game-changing degree that we've seen in the United States and again we can come back to this if you're interested. Globally we think production will approach about seven million barrels a day about seven percent of global total and remember keep that visual image in mind rapid growth for the next few years and then beginning to moderate. The reason why that's important is because of the implications it has for the markets requirement for oil production from OPEC. What I'm showing you on the left hand side is the history and the forecast for the markets requirement for OPEC crude oil production in the red and in our outlook indeed it goes down over the next few years the market with rapid growth of unconventional supply and with moderate demand growth we think that the market will require less oil from OPEC. We believe that OPEC members will cut production in the face of this in an effort to try to sustain prices but when you cut production guess what spare capacity goes up. This is why you know cartels historically have run into trouble that another word for spare capacity is it's pretty not a real word but I would say cheatability and so I think this is part of the challenge. Now that's a temporary factor eventually remember that growth of tight oil begins to slow down OPEC recovers its market share spare capacity tightens again and by the way the dynamics that we're describing over the medium term are nothing like what the oil market went through in the 1980s and so while we do you know project in our outlook that OPEC will have to work harder we're not calling for a repeat of the extreme circumstances that the market saw in the 1980s. I would be remiss if I didn't acknowledge a another dimension of the oil market which is you know the turmoil and the loss of supply associated with events in the Middle East and North Africa many of which under the rubric of what has come to be known as the Arab Spring. You may have been wondering as I'm talking about all this wonderful growth of US oil production why hasn't it impacted prices and the answer is that disruptions elsewhere have basically matched the growth of US oil production barrel for barrel over the last three years and by the way our study and review of historical data suggests that there's reason to be concerned about that going forward. The historical record shows that when supplies get disrupted due to civil unrest civil wars etc it doesn't come back quickly in fact in many cases it doesn't come back at all. Libya to this day has never produced what it was producing before Qaddafi took over in 1970 Iran has never produced what it was producing in the late 70s before the Shah fell and so a review of this data means you know to us that looking at these disruptions you know we we have to be cautious about the prospects for a quick and speedy return of this supply and we've actually used this data to increase our provisions for supply disruptions that sit behind our outlook. A bit more context on the pressures on OPEC producers. On the left-hand side I'm showing you well in all three of these charts I'm showing you the data over the history in our forecast for OPEC countries other emerging economies and then the OECD countries. So you know in in our outlook OPEC countries continue to have the most rapid growth of population but if you're wondering why these countries have you know seen been at the epicenter of the unrest that we've seen in much of the Middle East and North Africa. Over the last 40 years per capita income in the emerging economies outside of OPEC is tripled. In the OECD countries it's doubled. In the OPEC countries it hasn't moved at all for 40 years. By the way on our outlook the prospects for continued growth of export revenues are also constrained by the market dynamics that I described earlier a contributing factor to which by the way is rapid growth of energy demand in these countries themselves and so the prospects for you know feeding rapid economic growth through a dramatic growth of exports going forward is is is constrained in our outlook at least. Now we can use our data to make the same observations about oil that we started with energy earlier about trade and import dependence so the center panel it just looks at what we already looked at for the total energy complex only for oil. So you know North America is on a trajectory to become self sufficient and in fact to become a net exporter of oil. All of the net growth of oil imports in our outlook come from Asia and by the way as a share of the total Middle East share of oil exports actually doesn't change at all. So I know in a lot of policy circles there's a lot of focus on you know China is going to be much more dependent on the Middle East and you know this is going to have big strategic ramifications. Our data says actually that Asia's you know going to have to look way beyond the Middle East for incremental barrels of supply from former Soviet Union from Africa and from the Western Hemisphere as well. You know that indeed the incremental barrel to supply growing Asian imports will not come in the Middle East. Then we look at the implications for import dependence and we can compare and contrast the United States and China on the far sides of these panels. So here in the U.S. the story is well documented import dependence has already dropped significantly due to declining consumption and rising domestic supply. In fact the U.S. has reduced its import dependence equivalent to removing the world's third biggest oil consumer from the market over the last five years Japan. That's how big the turnaround has been. On our data those trends continue but the U.S. does not achieve self sufficiency. The U.S. remains a small net importer of oil about a million barrels a day by 2035. Contrast with the projections for China which if it hasn't already will this year overtake the U.S. as the biggest importer of oil in the world and as the biggest consumer in the later years of our outlook and all of that growth of demand comes from imports. Not our outlook for overall Chinese oil production is relatively stable. What it means is that in terms of both barrels a day and as a share of consumption China's oil import dependence is a much bigger issue than anything the United States has ever had to grapple with. Now I mentioned we would look in more detail at transportation. Some people I mentioned also that transport is the weakest growing outlook our sector in our outlook and some people have said well does that mean how can you say people aren't going to buy cars in the emerging economies and just to be clear that is not what we're saying. We believe that the world vehicle fleet will double in fact the vehicle fleet in the emerging economies will triple but energy demand in the transport sector actually goes down in the OECD even as the car fleet goes up and while the car fleet triples in the emerging economy energy demand only only grows by 81 percent so obviously you know it's not that we're not projecting people are you know going to avoid buying cars there's something else at play and just as obviously what that something else is is fuel efficiency and by the way I need to apologize this chart is you know play it's headquarters are in London what can I say yeah here in the US we would say miles per gallon and to show greater fuel efficiency the line would go up but you know the units are reversed by convention of how to track fuel efficiency in Europe so trust me down is up what I'm showing you is fuel efficiency and by the way notice that the dramatic improvement of fuel efficiency in new cars is not only in the rich countries of the world and by the way how to achieve this we try we work as you can imagine this is a core area for VP to be interested in so we every year are always talking to the battery makers and the national laboratories and auto companies and the policy makers and we array all the technology options and you are best to understand their relative costs and merits and every year what comes back is make the internal combustion engine more fuel efficient supplemented with hybrid technology so by 2035 three-quarters of the world's new car sales have some form of hybrid technology in them you do see a line up here at the top that says plug-ins and battery electrics they're primarily plug-ins we don't really have that much pure electric vehicles in our outlook the cost the range limitations you know look to be significant limiting factors toss now again important caveat you know this is premised on what we can see today if there's a breakthrough on battery technology if there's a more aggressive policy stance these numbers could be different but again based on what we see today this looks like the most likely trajectory now the implications of that are a couple of things one we've already talked about transport is the weakest growing sector in our outlook but to transport continues to be dominated by oil you can see in fact that on our data oil accounts for still by 2035 about 87 percent of all of the energy consumed in the transport sector and that's even after we made a big upward revision this year to the amount of natural gas used in transport that primarily is in liquefied natural gas in big applications like shipping long-haul trucking rail applications we still think that you know while we don't we aren't at liberty to talk about the price forecast that sit behind our outlook it doesn't look to us like compressed natural gas you know is a competitive option going forward speaking of natural gas why don't we move there I mentioned earlier that natural gas the fastest growing fossil fuel in our outlook unlike oil it grows in the mature market economies of the OECD but it's still the case that 75 to 80 percent of that growth is in the emerging economies on the right-hand side I'm showing you the sectoral breakdown doesn't change dramatically in our outlook you do begin to see that wedge of transport and a bit squeezed in other which is primarily residential and commercial applications remember this is market share not levels on the supply side it's actually the case that for all of the focus on shale that's not where most of the growth of supply comes from the vast majority of the growth of production comes from conventional natural gas supply outside of the OECD that said shale is a much bigger deal for gas than it is for oil globally we believe that shale gas production will achieve a global market share of about 21 percent remember for oil it was only about 7 percent similar story dominated by North America rapid growth in the near term beginning to slow down in the later years partly offset by growth in other countries that is significant but not game changing to the degree that we've seen here on the trade story again a familiar pattern North America becomes a significant net exporter and much of the growth if not all of it on the import side is in Asia now on the right-hand side I'm showing you the evolution of trade as a share of the world total which doesn't change much but within that where the growth is is in liquefied natural gas trade and the reason why that's important is because those shipbound cargoes have the opportunity to move between different regions of the world and to begin to provide more connectivity between what are at least today still largely disconnected regional markets again a familiar pattern of import dependence we looked at this concept for the oil charts here we're looking at it for natural gas and we're comparing the projections for the North America Europe and China so in North America significant growth of consumption fueled by rapid growth of production of shale gas and making room for significant net exports from the region as well in contrast European consumption grows but grows slowly however domestic production continues to decline meaning that import dependence increases significantly and then on the far right we see China which actually has the biggest growth increment for natural gas of any country in our forecast by 2035 China is consuming what all of Europe does and that growth of demand is fueled by significant increase in domestic production including big increments of not only shale gas but also other and conventional supply primarily cold but nothing but also significant increases of imports via both pipelines and liquefied natural gas so again for China the story is growing import dependence for oil growing import dependence for natural gas while we don't show it in our data also believe it or not import dependence for coal as well it has become fashionable in economic circles in recent years to talk about real experiments so we economists have been focused on getting away from our cubicles and trying to get out in the real world and find examples of our nice theories whether you realize it or not you've actually been participating in one the last 10 years the real experiment is this let's take an isolated geographic marketplace for natural gas drop a whopping big new source of supply on it and let's see what happens you know we point you had an economist would say well supply should you know be impacted demand should be impacted and maybe if it's disconnected regional market there should be efforts to connect it with trade so let's look at the data on the left-hand side the supply reaction maybe I'm just the point you had a nerd but if you'd asked me if I had a rig and I wanted to look for a hundred dollar oil or four dollar natural gas I would have picked a hundred dollar oil and that's exactly what's happening a decade ago three quarters of the rakes in the United States were looking for natural gas today three quarters of the rakes are looking for oil in case you're wondering why US oil production is taking off so there's the supply reaction on the demand side again let's you know pull out our econ 101 textbook and ask ourselves so if the price of natural gas you know gets very cheap what happens well people will try to consume it but where can it go quickly it turned out that there was only one place in the US economy where it could go quickly because ten years ago people built a lot of new natural gas fired power plants as the gas and power markets were being regulated and so that gas didn't require a lot of new investment to find a home in power generation however other sectors of the economy people had to invest to build new capacity to consume natural gas so here's my thought process if you want to convert a factory if you own a factory and you want to burn natural gas because it's cheap you switch out your boilers or your burners you maybe run a little pipe to connect to a grid that's already there and off you go if you want to switch your car to natural gas there's a lot more moving parts you not only need to you know retool your car you need to figure out where the refueling infrastructure is going to be so there's you know a more complicated set of transactions as an economist I would say that the economic signal has to be the bigger and longer to provide the incentives to move it into transport and that's exactly what we see we're already seeing the reaction on the industrial side but only later do we begin to see the implications for transport so again on the demand side there's been a very clear phased reaction to cheaper natural gas first in power generation where the capacity was already there to use it then in industry and only later in transport because it's a more complicated set of transactions and as I mentioned earlier there's also a response on the trade side again maybe I'm just the pointy-headed nerd but if you had the opportunity to sell gas for four bucks at Henry Hub or $18 in Japan which would you rather do and we've seen in fact now we've seen a number of LNG permits already issued here's our forecast for US natural gas exports in fact on our data the United States becomes the second biggest exporter of natural gas in the world behind only Australia in the later years of the forecast we can further observe that on our projections global liquefied natural gas trade becomes more diverse or less concentrated today the biggest supplier in the world Qatar has about a one-third market share going forward that you see a much more diversity of supply going forward and I think that might have some interesting strategic and market ramifications as well so let's move on to other forms of energy I won't dwell on coal because we've already really talked about it you know going forward in fact you can see the growth increments for China not only slow down they cease in the last 10 years of our outlook Chinese coal consumption actually stops growing you know due to the combination of the slower growth of the economy and the change in the industrial makeup that we mentioned but also rising consumption of natural gas and as we will see non fossil forms of energy as well speaking of other non fossil forms of energy here they are and here we've broken up the data in terms of the OECD and non OECD countries so we here's the implications of the tragedy at Fukushima you know we do write down our forecast for nuclear power on the face of that moreover now that we've extended our outlook to 2035 we begin to see a dip in nuclear power in the very later years of our forecast that's actually primarily driven by an expectation that nuclear power plants here in the United States will begin to reach the end of their safe operating lives and can no longer be re licensed for continued operations and we begin to see significant retirements of old nuclear power plants at the tail end of this meanwhile significant growth of renewables in power generation and by the way significant growth in the emerging economies of nuclear power where we don't see the evidence that Fukushima has caused a reevaluation of plants to build new plants in India China Russia etc but also growth of large-scale hydro power where the opportunities are limited but still some significant growth I mentioned the importance of renewables in power generation in particular globally it gets to over 10 percent of the total the biggest increment by far is actually China and yet China you know while the use of renewables in power generation grows significantly it doesn't get anywhere near to the penetration of the United States or more especially in Europe which will see more than 30 percent of its power coming from renewable sources by 2035 why is that how if this is so big why don't we see a bigger number here and the answer is what's on the bottom of the fraction you know in Europe there's not much growth of power demand whereas in China the bottom side you know the total demand for electricity continues to grow very robustly by the way on renewables especially renewables of power generation this outlook for continued aggressive growth is premised on not only an expectation of continued supportive government policy including eventually efforts to begin to deal with the challenge of climate but also a view that technology that you know the learning curve will continue that will see reductions in cost as these technologies scale up in the early years of our outlook most of the growth is in wind but actually we believe that the opportunities to improve the the economics of the projects is that better in solar it's a less mature technology so especially in the later years of our outlook the growth rate for solar is actually much higher now I mentioned I wanted to come back and look at the implications of this for CO2 emissions of our outlook here's the raw data you know again overall CO2 emissions in our data rise by about or CO2 from energy use rise by about 30 percent there it is all of the growth is in the emerging economies CO2 emissions in the US and the EU the other mature market economies continues to fall but who cares that's irrelevant it's a global problem the red dotted line is what the climate scientists say the trajectory needs to look like if we are to be on path to stabilize atmosphere concentrations at 450 parts per million manifestly we are not on that trajectory and on the right-hand side again we see the declining per capita emissions in the OECD countries but that's offset by significant increases elsewhere now we can actually think about this in a couple of different ways we can break CO2 emissions down into component parts the first part is how much energy do you need to run your economy the second part is how much carbon you need to fuel your energy mix so we'll look at those two separately on the left we're showing you the relationship between energy and the economy we talk about it earlier significant improvements over time and going forward in our outlook they improve the energy intensity of the world's economic and energy complex improves by 36% but there's something else interesting to point out look at the convergence over time the gap between how countries use energy relative to their economic system has been narrowing in fact we've drawn this chart back to the beginning of the industrial era it's never been as narrow as it is today and you can see in our outlook it continues to synchronize this is the awesome power globalization at work not only in the trade of energy but in the trade of global goods and services as well and it's driven by you have markets then contrast that with the experience of the right-hand side we talked about it earlier there is a bit of improvement in the carbon intensity of the world's energy mix but not a lot not in fact primarily driven by climate policy but also no harmonization or between countries you know there's no you know those gaps are as wide as they ever were in the absence of climate policy there's no incentive or there's no reason why countries should use carbon in a similar fashion around the world so here's an example of this and I apologize this is a busy chart what I'm showing you here is the share of the dominant fuel in a country's energy mix and we've looked at 20 major economies around the world and again we've gone back a hundred years with this data so there's a couple things to show first you can see that in general the pattern of these dots tends to go down over time that is to say the fuel mix diversifies you know you no longer dependent on one fuel if it's a hundred percent you're dependent on one fuel but also you see the color scheme changes goes from coal being the dominant fuel oil being the dominant fuel and now we're starting to see other forms of energy natural gas and non fossil forms of energy as a group you know becoming the leading source of energy in some countries so organically over time and without climate policy at least up till now you've seen already a lightning of the carbon load through the natural evolution of the world's energy system and then I've shown you just the projections for a couple of the key countries here you know in the US natural gas replaces oil as the leading fuel in the European Union we see that non fossil forms of energy as a group become the largest share China continues to be dominated by coal but coal continues to lose market share now a big part of what we're seeing over time as you remember we talked about that lightning of the carbon load nowhere do we see that more that competition playing out more vigorously than in power generation so what I'm showing you here is the share of power generation that and I were looking specifically at competition between gas and coal so what we're seeing is for example North America significant loss of market share for coal and power generation driven by not in the first instance climate policy but by the shale revolution in Europe a different story and you can make more of an argument that this is policy driven including more recent years in climate policy in China significant loss of market share for coal and power generation beginning to see natural gas coming into the mix I'm sure you all know of many people in this room know better than I do the stories around air pollution and concerns about that in China but in the absence of again a global carbon price part of the message of our outlook is that when countries reach the stage of rapid economic growth they're going to use what they have so for example the story of coal losing market share to natural gas is not uniform in other emerging economies for example we actually project the coal will gain market share because again they're reaching that point of rapid economic growth and what they have at hand is coal now we can use this observations to wrap this up we've already shown you the data on the left big gap that opens between economic growth and energy consumption but not so big gap between energy consumption CO2 we can play a thought experiment if we took today's relationships between energy economic growth and carbon and froze them and just let the economy grow as we're projecting global CO2 emissions would grow by more than 30 billion tons per year in the event they only grow by 10 billion tons per year by 2035 that's still too much but the reason why it doesn't grow even more rapidly is almost exclusively because of this dramatic improvement of energy intensity that we're projecting what it suggests to us is that you know when the time is right to to engage more forcefully on the climate front this might be where the low-hanging fruit is so let me come back and thanks for hanging in there hope I haven't run too far over time we started out asking three questions can the world have energy that's sufficient secure and sustainable on the first case you know we answered enthusiastic yes the world can have the energy it needs to fuel continued economic growth you know due to a combination of new forms of energy working their way into the mix in a material way but also significant improvements of energy efficiency in both cases these significant improvements that lead us to an optimistic view are driven by market forces harnessed and encouraged by market by government policies that provide incentives for competition and therefore innovation then we turn to security a great story for North America which becomes a net energy exporter including the US which achieves self-sufficiency overall in energy and I didn't use the word independence on purpose but but a mixed story because we see prospects for you know increases in import dependency in Europe and most of pronounced in emerging economies in Asia and then finally on sustainability CO2 emissions grow no way there's no sugarcoating it in our outlook they don't grow as quickly as as energy use but they're still growing when that time when climate scientists said they should be falling I would offer that if we think about why we're optimistic on the first there might be some observations for the second and the third questions here you know so security if Japan had truly been an island at the time of Fukushima how much more difficult would the country's experience been and the the tragedy the impact of it on the Japanese people if Japan hadn't been able to be dependent and able to plug into flexible markets around the world to rapidly bring in large quantities of alternative sources of energy to offset the loss of nuclear power so again the observation is that markets can be you know it can help in the cause of energy security and growing import dependence need not be a cause for concern on the sustainability front similar argument you've seen our data where we suggest that you know the reason why we become much more efficient is because energy is expensive and that suggests that there's opportunities to become more carbon in fact efficient you know if there were to be a cost on carbon so again the observation on the first point about the importance of markets and government policies that facilitate the functioning of those markets to ins to incentivize competition and innovation you know could offer constructive policy observations for the second and third questions let me just wrap up by noting that all of this information is available on our website which is here and you can download the data there's a lot of resources that that you can tap into if you're so inclined you can follow us on Twitter I never would have imagined that part of my job would be to describe all of this in a hundred and forty words or less I bet you wish that I could do that now so but but most importantly you know I hope that this is a useful resource for you I want to thank you for your time and hopefully we've left some time for discussion as well so thank you again that's great Mark as usual it was a tour de force that was wonderful thank you we have about 15 minutes left for questions and I wanted to take you up on two real quick one was you offered to explain why China is such an outlier in terms of its consumption and and and how it plays out in the forecast so I'd like to take you up on that and then the second is you in a very sort of interesting and thought-provoking kind of way talk about sustainability but really only in light of climate change and so but I'm sure you thought about other sustainability aspects as well so I wanted to give you a chance to expand on whether you know water pollution or local pollution some of those other issues that are you know how those things fed into how are you looking at this okay thanks and so on China let me start with again the objective observation that the even taking into account the size of China's economy and its population the intensity of its second energy development is qualitatively different from other countries that have gone through the same process so the question is what is it that's different and you know I would defer to the China experts my personal theory is the one-child policy you know which you know left China in a situation of needing to become rich fast you know before it got old you know with a very discrete window and those demographics simply are not repeated anywhere else and therefore you know the urgency is different and the demographics that shape it again that's that is a personal theory but but I think it's well I'd be interested in other thoughts on the sustainability front you're absolutely right we there's a lot of ways to think about sustainability and and we have in fact if many of you may be aware but if you're not BP actually is undertaking a project that we call the energy sustainability challenge I think some of people have briefed here so the concept was let's fund independent academic research on lots of different dimensions of sustainability and what and I'm going to you know give you the non-technical summary here it's on our website if you want to get more detail and we've looked at most particularly at water but as we looked across the range of water land requirements rare earth minerals clearly there are issues but at a global scale issues that can be managed once they are measured and once you unleash the creativity of the engineers on them and so you know while these are all significant challenges they are at least based on the independent research that we're seeing so far manageable ones raise anything you want to add on that front that's okay well we'll open it up for questions that only ground rules please state your name and your affiliation and then question in the form of a question would be great thanks the fastest rising sorry Ariel Cohen if you're looking at the fastest rising gas producing onshore offshore and shale can you give us a top five top 10 maybe thank you from now to 2025 I won't push you 2035 the fastest growing producers of natural gas projected projected oh not basins I'm sorry I don't have that information yeah that that degree of granularity so I'd have to get it for you I mean clearly the big growth increments United States LNG or you know shale US shale Australia you know big LNG projects China which is both Colbert methane and shale I mean those are the the ones that jump off the the chart for me I'd have to look at it to see I mean you see on saw on the chart that African countries as a group become significant net exporters of natural gas through liquefied natural gas trade and you know if you want to follow up we can get you the specific breakdown of that hi Dave Garmin with Decker Garmin sold in this great presentation thanks very much you've probably looked at this because you show EU gas demand growing for electric power generation and I was wondering how deeply you've drilled down into the dispatch models particularly as growing renewable shares come online we've been doing the same thing looking at what natural gas will be doing in Europe in the coming years and that's particularly you know headline relevant due to you know Ukraine and and how dependent will Europe be on Russia right and other gas sources in the future and and sort of what we're seeing is that the Europeans are just going to have to build a shadow system based largely on gas due to the variability and an intermittency of renewables and I was just seeing how the dispatch happens right in those northern European countries particularly I wanted if you were seeing the same thing I we've we've tried to look at that in a fair degree of detail and the answer is I mean you know the the question for us was is there's some glass ceiling for renewables beyond which the sustainability and reliability of the grid can't be assured and at least as we've looked into it the numbers that we've got you know so upwards of 30% are still a manageable load given the profile of demand and the flexibility the system as we understand it I mean and this is you know a deregulated market you know now or you know and made significant inroads into that front so for example in the very short term we've actually seen Europe burning more coal in the last couple years I'm sure that's a dynamic that's well covered by many people in this room but with a even with the climate policy you know with the recession and with rapid growth of renewables there wasn't much of a price of carbon and so you know in the very short term you know more coal could be used and the surplus coal being thrown off in the US by US shale gas so I mean I think going forward we do try to incorporate those those you know both market forces the regulatory environment the physical you know requirements of the grid and its reliability all go into this one point a guy crew so CSI's one point he had the question he had natural gas in the US power sector sharply declining it looked like right after the current periods for the next I don't know it looks like a few years that yeah and that was wanting now that in the second one is could you give us your take on the mismatch in the US refinery sector of this lot of light-tight oil coming on stream and and how that might play out well okay so the first one yes you know you you're exactly right we do believe that gas has already begun to lose market share to coal you know markets work competition happens you know and over the next few years as the US begins to export liquefied natural gas as we see more natural gas going into higher value added applications like industrial use and the economic incentive to produce natural gas continues to be slanted toward oil instead by prices you know what we've seen is fuels compete and you know as natural gas has become more expensive relative to coal people have used more coal instead so yes you're right that is a a a cyclical dimension you know amid a structural trend but the structural trend is still for the gas to you know overtime to displace coal driven in large part by economics but also by policy you know to you know you know you know around particulate emissions and other dimensions including eventually climate policy just a quick clarification does it does that outlook include sort of the proposed EPA regulations on carbon pollution within the power generation sector? I don't want to say definitively yes because I don't know the details of the specific policy but in general the concept that policy will try to that coal will be impacted by policy going forward in power generation is definitely part of the outlook and on oil exports yeah so you didn't use it do that okay well clearly what we have assumed for the purposes of this outlook that eventually economically rational trade to rebalance the mismatch between crude oil domestic light crude oil production and refining capacity that is optimized for heavier and more sour grades of crude does begin to occur but we recognize that that's a massive political uncertainty and a significant decision that's yet to be made in the meanwhile we can already observe that United States has structurally you know we've seen the massive disconnect in the prices US refineries are running at you know record high utilization rates and the US has moved to being a net exporter of refined products for the first time in the at least the post war era in a structural way but it's a suboptimal solution because the refineries aren't optimized you know you know along that dimension how's that for a non-answer answer as a mark that was great frank for astro CSIS so two questions so one point on a slide where you showed national gas and oil so it's like rigs in production we don't capture associated gas in the gas rig count right it's captured in the oil rig count right true what I was showing was just production volume so that wasn't rigged but yeah I mean it's it's it's always an art form saying are you drilling for oil or gas you know this you know that you drill for gas and you get liquids you drill for oil and you get gas and so it's I mean you have to get Baker Hughes to you know identify that natural gas liquids and OPEC right so you actually have your wedge was an interesting thing is not covered by the OPEC quota system when you look at the surge of volume because we switch now from an oil economy to a liquids definition how does that play out tell me a little bit more what you're with so that the liquids so who has the liquids where they go and in past the BP charts one of them has always been the trade flows chart that shows up right and so it's not in this slide deck but I'm sure it's in your your data yeah we've been looking at the product changes or or liquids changes and what that means for regional trade as well as global trade and how it shifts back and forth from you know a 10-year period and then moves as refined so this goes back guys question as as refineries get built and you optimize refineries in age or the Middle East and they send products to Europe and European refineries can't compete with the US and they go down how does that geopolitical dependency right so wow there's we could have a whole conversation just know just about that it certainly become a lot more complicated we like everybody used to just do you know here's our oil balance and just you know everything would kind of price off the international price you know now WTI and Brent have become disconnected but also US based you know natural gas liquids you know propane and butane have all become significantly discounted as well and it's become clear that you can't just look at the global liquids market you have to break out all those various components if you want to or if you want to understand them each because you can't just assume that they're all going to track with each other anymore so you know we like everybody else are trying our best to get our heads around all of these different moving parts and and we do and we do look in the outlook it's not in the presentation at some of the implications for the global refining sector you know because as you know a lot of the growth of production that's in our outlook is not something that goes through a classical refinery whether it's condensate natural gas liquids biofuels in fact you know I don't know if it's in this year's outlook we've had in the past observed that taking that into account and if you assume that China continues with its policy of being more or less self-sufficient in refining capacity the rest of the world never needs to build another new grassroots refinery you know globally we tend to think that refining is a very competitive industry over long-time periods it's difficult to earn your rate of return you know but you know specific bits of it you're going back to the granularity you know the specific refineries if they're advantaged in terms of their access to a you know source of demand or source of supply can still be competitive within that globally very competitive mix and so you do have to really break it down Bob Wright Department of Energy on the sustainability issue you obviously indicate the outlook isn't that good I'm asking what do you tell your shareholders who are interested that you're trying to do something about the only company I know that really heavily involved now is Shell with their Quest project in Alberta at one point you had in Sala and we're very active and I guess given the uncertainty you have back down I'm sure you're still concerned but what do you what do you tell the shareholders great you want to take that or okay I'll start I'll start you know at the end of the day we view ourselves as being in the business of supplying mobility you know light heat you know to to our customers you know and right now that's primarily you have 87% of the world's you know energy mix today is fossil fuels so the reality of delivering though what consumers are demanding from us you know means that we have to supply it with fossil fuels you know we BP was the very first you know major international energy company to come out in favor of more aggressive actions to deal with climate change we still support that you know we have a preference for market-oriented approaches to doing it and at the same time we have you know continue to have and grow investments you know outside of the fossil fuel space aimed at the same concept of delivering light heat and mobility to people we have a significant biofuels business focused in Brazil we're looking for next generation biofuels and funding research here in the United States we've got a thousand wind turbines spinning in the US right now and so you know you know we're always looking for across the technology space for where are the opportunities to deliver those concepts to consumers and and in the meanwhile also having to live in the here and now which you know by and large means that for right now it's it's fossil fuels that's a great response and I wanted to buy myself time to think about both the the shape of your question and the reality of indeed how do we talk about this with our shareholders because as Mark pointed out we were I would argue the early sort of energy company that that made observations and even commitments related to the impact that we have on broader issues around climate as far back as the late 1980s our former CEO Lord John Brown made a couple of speeches in fact at Stanford University and made some pretty strong assertions about the reality that while the science may be debatable or perhaps incomplete there seems to be something happening and what we do in our industry seems to be a contributor and therefore we ought to do something about it. The reality today though is our shareholders do have an interesting combination of expectations for us they they want us to generate a return they hold us accountable to that and indeed that is in the end it's our license to continue to exist and they they want us to continue to work towards those ambitions that we have articulated over now you know a couple of decades around finding ways to continue to mitigate the implications in emissions and and broadly in contribution to challenges to the climate. We have invested a lot of money in the alternative to renewable space. We've invested now some eight billion dollars as we said we would about a decade ago and while some of those businesses continue to endure and prosper others we've found it's it gets harder and harder to compete as an energy company because there's a transition into more of a manufacturing economy and there are others who are better at that than we have been in sort of the technological development side from an energy point of view. So what we can keep telling our shareholders today is we still do believe what we say and when we point at the projections in the growth in CO2 emissions of 30% it still isn't our recommendation our proposal frankly we don't like it much and we continue to work on things even within our own business to mitigate the emissions of our existing operations and to look for ways to help develop that that future low-carbon energy but as the outlook has reinforced it has for all the four years that we've talked about it the vast majority of our energy supply over the next at least the next 20 plus years and probably for a long time beyond will continue to come from from carbon sources from fossil fuels and that being the case my personal bias is that what we need to continue to commit to is developing the right technology and the opportunities that could be developed through technology to mitigate further the impact of burning fossil fuels well one of the ways we get people to show up and and to speak and then also to have a conversation as we let you go on time so I just want to thank Mark and Ray for being here today great presentation again visit their website for all the data that goes behind this and we hope you'll come back again so thanks very much please join me in thanking you