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The World According to BP

On January 18, BP (NYSE: BP) released Energy Outlook 2030, its official corporate view of the future of energy.  Every year, BP releases its Statistical Review of World Energy that serves as an excellent compendium of historical and current data on a host of energy-related issues, but rarely does BP present its projections of trends and the associated implications on the energy markets.

At the release event in London, BP’s CEO Bob Dudley made a brief speech covering the highlights of the Outlook.  It’s an easy and good read, which I will summarize here.

Dudley began by reciting what he termed “five realities”.  In reality, these so-called “realities” are nevertheless anticipations of events to come.  However, they do seem like pretty safe bets as playing out as described:

  1. Global energy demand will increase by 40% by 2030.  As Dudley notes, “that’s like adding one more China and one more U.S. to the world’s energy demand by 2030.  Nearly all that growth – 96% in fact – is expected to come from the emerging economies with more than half coming from China and India alone.”
  2. Fossil fuels will supply roughly 80% of global energy demand in 2030.  Dudley continues, “renewables will grow rapidly, but from a very low base.”  In other words, while renewables will be a great growth industry for the next few decades, the enormous head-start in market share that fossil fuels enjoys from more than 100 years of development, along with continued demand growth, means that energy markets and the energy industry will be dominated by fossil fuels for the lifetime of anyone who reads this blog post.
  3. Oil will continue to be essential for transportation, with 87% of mobility based on petroleum.  While increased fuel efficiency, hybrid vehicles, and expansion of biofuels will reduce needs for petroleum, the explosive growth of the developing economies and their voracious desire for vehicles means that oil demand will continue to grow.  Dudley notes that oil demand growth will be less than 1% annually, which “doesn’t sound like much, but it adds up to an additional 16 million barrels per day by 2030.”
  4. To supply this increasing demand, new frontiers will continue to be tapped.  This will be oil from deep water – what should be a sticky subject for BP, given the Deepwater Horizon debacle from less than two years ago – heavy oil such as the oil sands in Alberta (which Dudley noted needed to be “produced carefully and responsibly”), and unconventional gas plays such as shale gas and tight gas.
  5. Global CO2 emissions will rise by almost 30% by 2030.  Dudley emphasized that “this is a projection, not a proposal.  BP supports action to limit emissions including a carbon price and transitional incentives that encourage renewable energy to become competitive at scale.”  The last two words – “at scale” – are critical, not just for cleantech advocates and for the planet, but also supermajors like BP, who by their sheer size can only be bothered with energy phenomena that represent more than niches.

It’s a daunting picture.  As Dudley states, “this is not an outlook for the world as we wish to see it,” but nevertheless “it should be important input for policy-makers.”  And, it should be added, for participants and advocates in the cleantech space.

From this sober perspective, Dudley outlines “five opportunities” surfaced in the Outlook:

  1. Energy efficiency gains will be critical to the world of the future, as they simultaneously reduce consumer costs, improve energy security and cut emissions.  Frankly, this is “motherhood and apple pie” that just about all observers of the energy sector point out – nothing new here.
  2. Technology advancement will be crucial.  Dudley notes that BP thinks “the efficiency of the internal combustion engine is likely to double over the next 20 years” – an extraordinary possibility for a technology that’s over a century old and ought to be quite mature.  Innovation is not only imperative for efficiency gains but also for supply expansion to meet worldwide demand growth even netting out improvements in efficiency.  New energy supply technologies are not just in the realm of renewables but also in the realm of hydrocarbon production as well, increasing the economic access to fossil fuels on the frontiers described above.
  3. Competitive forces are an essential stimulant of capturing efficiencies and pursuing innovation.  Although Dudley doesn’t exactly say so, I think this is code for “expect increasing energy prices”, thus driving efficiency and new technology.  (Also unsaid:  “Don’t blame us or accuse us of gouging when energy prices are high.”)  I think these comments are also a soft unobtrusive plea for more access by private sector companies, and correspondingly fewer obstacles thrown up by governments, to developing new energy resources.
  4. Natural gas will be a very big thing.  Dudley calls natural gas a “sustainable option being deployed at scale”.  The latter claim of scale is inarguable, though the former claim of sustainability is semantically dubious.  Even so, it is true when Dudley says “gas typically generates fewer than half the emissions of coal” – notably, the one and only time that the word “coal” is uttered by Dudley in his entire talk.  (Admittedly, BP doesn’t have any coal business, but coal remains a sizable piece of the global energy economy, and to mention the role of coal just once is telling.)
  5. Biofuels show great potential.  According to Dudley, BP has “an optimistic view on the future of biofuels,” but “the world needs to focus on biofuels that do not compete with the food chain and are produced in a sustainable way.”  Thereafter follows some touting of second-generation biofuels (e.g., cellulosic ethanol), which still remain tantalizing but commercially-unavailable.  To me, this fifth “opportunity” is the most speculative of the bunch.

Dudley closes his comments by discussing BP’s obviously very substantial place in the world of energy. 

He acknowledges the Deepwater Horizon tragedy, and BP’s activities in expanding production of the controversial oil sands in Alberta.  No doubt, he had to, in order to avoid allegations of “greenwashing” BP’s record.

However, he tries to counterbalance this by extolling $7 billion of investments in renewables since 2005, “focused on creating large-scale commercial businesses that are not dependent on subsidies,” and BP’s emphasis on improving energy efficiency – in part because BP requires “all new projects to calculate the impact of future carbon pricing on their operations”, planning for “a future where carbon does have a price.”

Perhaps this is the most optimistic item in Dudley’s synopsis of BP’s future view of the energy sector over the next 20 years.  Hopefully, not unrealistic.

Chevron Launches Largest Solar Enhanced-Oil-Recovery (EOR) with BrightSource

BrightSource Energy Coalinga 51k Chevron Launches Largest Solar Enhanced Oil Recovery Project with BrightSource

Chevron Technology Ventures launched an enhanced oil recovery (EOR) demonstration project using solar energy to recover oil. The 29MW project uses BrightSource technology including 7,644 mirrors to focus the sun’s energy onto a solar boiler. The steam produced is injected into oil reservoirs to increase oil production. The project is the largest of its kind in the world.

Desmond King, president of Chevron Technology Ventures, states, “This technology has the potential to augment gas-powered steam generation and may provide an additional resource in areas of the world where natural gas is expensive or not readily available.”

One of America’s oldest oil fields, the Coalinga Field began operations in the 1890s. Because the heavy crude oil produced at the field does not flow readily, it is more difficult to extract than lighter grades of crude.

Chevron currently enhances oil production from the Coalinga Field by injecting steam to heat the crude, thereby reducing its viscosity and making it easier to produce. Burning natural gas currently generates this steam. The solar-to-steam project will supplement the gas-fired steam generators and help determine the commercial viability of using heat from the sun instead of natural gas to generate steam.

BrightSource Addresses $4.7 Billion EOR Market

The 29MW solar-to-steam demonstration project is made up of 3,822 mirror systems, or heliostats, each consisting of two 10- by 7-foot mirrors mounted to a 6-foot steel pole. There are 7,644 mirrors that track the sun and focus the sunlight on a 327-foot-tall solar tower. Using heat from the concentrated sunlight, the solar tower system produces steam that is distributed throughout the oil field and then injected underground for enhanced oil recovery. The solar demonstration generates about the same amount of steam as one gas-fired steam generator. The project covers 100 acres, with mirrors covering 65 acres and 35 acres devoted to support facilities.

Extracting heavy-oil reserves, like the ones found at Coalinga, is a global challenge. According to a recent report by SBI, conventional oil recovery methods are only able to extract about 10% – 30% of the potential oil from any given reservoir, leaving nearly 70% – 90% of the reservoir’s oil in the ground.

“The energy intensity associated with extracting heavy-oil is extremely high. This presents a significant challenge to containing emissions and to the supply of fuel – such as natural gas – for this process,” said Paul Markwell, Senior Director, Upstream Research with IHS CERA. “Many of the known heavy-oil reserves around the world have limited access to cost-effective fuel sources and are located in areas with high solar resources. This provides an ideal environment for the use of solar thermal technologies for enhanced oil recovery.”

According to BCC Research, the global market for EOR technologies was $4.7 billion in 2009 and is expected to grow at a 5-year compound annual growth rate of 28%, reaching $16.3 billion in 2014.

Utility Market Even Larger for Solar Thermal

California utilities are required to have a 33 percent renewable energy portfolio by 2020, up from 20 percent today. Major investments are being made in solar PV and solar thermal. BrightSource Energy also provides solar thermal power plant solution for utilities. Called SolarPLUS, the offering combines BrightSource’s high-efficiency LPT power tower solar thermal technology with a two-tank molten-salt storage that can be used to deliver during peak hours when electricity is most valuable.

A BrightSource 392MW LPT solar thermal system is currently being deployed at the Ivanpah Solar Electric Generating System (ISEGS) in California’s Mojave Desert. Ivanpah, which started construction in October 2010, is the first project that will deliver power to serve the company’s signed contracts with PG&E and Southern California Edison. The project – which counts NRG Solar, Google and BrightSource as equity investors – is currently the largest solar plant under construction in the world. Bechtel is constructing the project.

BrightSource Energy with its leading solar thermal technology has raised about $530 million from investors that include VantagePoint Capital Partners, Draper Fisher Jurvetson, Morgan Stanley, Black River, DBL Investors, Riverwood, Calstrs, Google.org, Statoil Hydro Venture, Alstom, BP Alternative Energy, and Chevron. Solar thermal projects of 2,600 megawatts have received $1.3 billion in federal loan guarantees. BrightSource has filed an S-1 for an IPO.

Alan Salzman, Managing Partner of VantagePoint Capital Partners, states, “In working closely with BrightSource Energy over the past several years, they have greatly impressed us with their deep understanding of the solar thermal industry and technological prowess. The company represents an extraordinary business opportunity and a catalyst for transformative change to the energy world as we know it. It’s exciting to be part of it.”

The solar-to-steam project will be managed by Chevron Technology Ventures (CTV), a division of Chevron U.S.A., which champions innovation, commercialization and integration of emerging technologies and related new business models within Chevron. CTV is pursuing this goal through business units involving biofuels, emerging energy and venture capital.