Energy Markets:

BP economist Finley projects production prospects for natural gas, coal, renewables

What policy steps does the United States need to take in order to be 99 percent energy self-sufficient by 2030? During today's OnPoint, Mark Finley, general manager of global energy markets and U.S. economics at BP, discusses BP's most recent energy outlook, making projections for coal, unconventional oil, renewables and natural gas. Finley also discusses the variables that will have the greatest impact on the United States' energy landscape.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi, joining me today is Mark Finley, general manager of global energy markets and U.S. economics at BP. Mark, thanks for coming on the show.

Mark Finley: Monica, thank you for having me.

Monica Trauzzi: Mark, BP recently released its energy outlook making projections to 2030, and you project that by 2030 99 percent of America's energy will be supplied by domestic sources. That's a big leap for many in the energy sector. What policy assumptions are you making?

Mark Finley: Well, Monica, we start our outlook process globally every year, specifically with a review of policy assumptions. We consult very broadly with policy experts in the United States and elsewhere around the world both inside BP and externally, and part of what makes, we think, our forecast different is that we actually do try to make assumptions about how policy will change over time. So, for example, the US Energy Department in its annual outlook is required to use today's energy policies, whereas we have the freedom to make changes based on how we think policy is likely to evolve over time. So, for example, we were anticipating a large increase in fuel efficiency before that was legislated in the United States a few years a go because we thought we could see it coming. And so we do build our forecast on a presumption not only of today's energy policies but how they might evolve over time.

Monica Trauzzi: You presume that we might actually see some policy, but that's hard to assume with the current political climate in Washington. Do you have any reservations about some of the assumptions that you've made?

Mark Finley: Well, one of the things that comes out of our research and that we highlight in our findings this year, actually, is that energy policy is actually about a lot more than energy policy. For example, when we examine why is it that the revolution in production of shale gas and tight oil has happened in the United States, it has partly to do with American energy policy, but it has much more to do about the broader political and economic system that is in place, a system of private ownership of property; a marketplace that allows free entry of access and investment money. And so it really to me is about a much broader slate of things. And across that dimension, I think there's actually a very positive story to tell from the experience of the United States, with implications here and around the world.

Monica Trauzzi: So let's talk about natural gas. You highlight self-sufficiency in your report. Does that assume total exploitation of the resources that the United States currently has, and what role do you see the US playing globally on natural gas?

Mark Finley: Because of the rapid growth in the development of shale gas production in the United States, which has essentially gone from nothing ten years ago to about a third of domestic production today, we see the United States has become already the biggest producer of natural gas in the world. And by the way, as those technologies have been applied to oil as well, US net oil imports have fallen by five million barrels a day just since 2007. That's the equivalent of removing Japan from the world's oil market in terms of need for supply. So what do we see going forward for natural gas? There's a huge potential for developing shale here in the United States, elsewhere in North America, and around the world. In fact, North America only has about a quarter of the world's resources for shale gas and tight oil. And yet by 2030 we believe that North America will continue to account for more than 70 percent of the production of shale gas and tight oil because of those above ground considerations that I mentioned earlier.

Monica Trauzzi: So unconventional sources of energy - what role are they playing in these projections?

Mark Finley: In the United States we believe that shale gas will account for more than half of domestic production in the back half of our forecast interval, so by 2020 and through 2030. Shale or tight oil deposits grow by about four and a half million barrels per day from the 2011 level, which is our baseline. What it means is that, as you noted, in our outlook the United States does become self-sufficient in natural gas. The United States is still a small net importer of oil in our outlook, importing about three million barrels per day, but that's a 70 percent decline. One of the many reasons why this is important is because last year energy accounted for half of America's trade deficit.

Monica Trauzzi: There are many projections. I want to talk about coal for a second. Projections indicating the global demand for coal will continue to climb and that the United States will be exporting coal at record levels. What is the coal story line that you tell in this analysis?

Mark Finley: In our outlook, coal does continue to grow, and at least in the early years of our outlook it gains market share. It briefly passes oil as the leading fuel in the world, and then towards the back end of the forecast begins to lose market share again, kind of tied with oil as the world's leading fuel. And it's hugely impacted by the pace of development of China's economy and the profile of their energy demand. China consumes and produces half of all the coal on the planet today.

Monica Trauzzi: So when we talk about energy, we have to talk about climate change.

Mark Finley: Absolutely.

Monica Trauzzi: What do you project for CO2 emissions reductions based on the level of energy production that you're projecting here?

Mark Finley: I'd break that down into two different parts. First is how much energy is needed to run the economy. In our outlook, the world becomes 31 percent less energy intensive. That is to say it needs 31 percent less energy to produce the same amount of economic activity by 2030. In the United States that figure improves by 36 percent. So first and most importantly the great improvement of the efficiency of our economy and the reduction in the intensity of energy usage is a key driver in helping to keep economic growth going without needing the energy even to being with. In our outlook globally, energy demand grows by 36 percent over the next 19 years, and CO2 emissions grow by 26 percent. So they do grow, but not as rapidly, because natural gas and renewable forms of energy are winning market share from coal and from oil. Here in the United States emissions are already declining because of declining oil demand and because gas and renewables are replacing coal and power generation, and we project that US emissions will continue to decline modestly over the course of our outlook as well.

Monica Trauzzi: So what does this all mean for investments within BP? How do your projections sort of shape where BP puts its money in terms of renewables, oil and gas?

Mark Finley: I hope and believe that it's an integral part of how BP views the world and the way we shape our company in anticipation of that. It's important, of course, to acknowledge that anything time you put a single data point on the paper, the only thing you know for sure is that you'll be wrong. This isn't about being right to the decimal point; it's about trying to describe the broad trends in energy and to think about where some of the key risks, uncertainties and inflection points might be within that.

Monica Trauzzi: All right, we will end it right there. Thank you for coming on the show.

Mark Finley: Great. May I just also mention, please, that this information is all publicly available on our website at BP.com/energyoutlook.

Monica Trauzzi: All right, fantastic. Thank you again.

Mark Finley: Thank you for having me.

Monica Trauzzi: And thanks for watching, we'll see you back here tomorrow.

[End of Audio]

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