Energy Leaders and the energy transition: Dev Sanyal, BP
The energy transition is a big strategic challenge for all the major oil and gas companies. So what does BP think about it?
“I think when you look back over time we’ve actually evolved our thinking. A decade and a half ago the common consensus was there would be a jagged edge. In other words, one system would be replaced by another system. I think the thinking has evolved over the last decade and a half. I think the transition basically speaks into the idea that there will be a changing energy mix but the energy system is very integrated. I think what you’re going to see is a growth in some forms of energy and a less robust growth in other forms of energy. Our own view is that gas is going to grow faster than oil, we believe renewables will grow faster than anything else but from a smaller base. So I think what you’re going to see is complementarity; what you’re going to see is integration, and that’s a very different way of thinking about the industry versus this jagged edge transition that people were talking about a decade and a half ago.
The idea of peak demand has become the fashionable idea but it’s hard to say that’s going to be the case because there are so many things that can change, but what I do think is going to happen is that there will be new demand for energy because of rising prosperity and this is very important. The population of the planet will increase by 1.7 billion people over the next two decades and GDP will double so there will be a need for that energy so peak demand I think sometimes is overdone, but what I can’t do is forecast the price of oil.
So what we don’t want to do is try to do is say what’s going to happen to the price of oil, will it go down or up? What’s we saying is we want to break this cycle where effectively in the time of rising rent, everything heads north and in a time of declining rent everything heads south. The key is going to be how do you take out that cyclicality and operate like most industries do? When you talk to a car manufacturer they don’t about the price of a car and therefore their costs, they talk about how they drive efficiency through cycles. That’s the proposition that we’re trying to do, and when you think about renewables you can’t think of it again in the sense of there will be a subsidy forever or incentive forever, you’ve got to build up a robust business model. When I look at our biofuels business, which is a large part of the biofuels market, our break even costs are significantly below the current price of gasoline and that’s going to need to continue to decrease. What you want to be is the most efficient price-setter. When I look at our solar-energy business, it’s comparative with the alternative, usually it’s gas in many markets. Again if you’re not going to be competitive, then you’re not going to build over the long-term a sustainable business.
One of the things people talk a lot about is sustainability, I talk about sustainability, security but also affordability because there’s no point having an energy that nobody can pay for. You ultimately want to price it to move it and to price it to move it, you need to have a business model and a cost structure that is commensurable with that ambition.”
