Daily Times (Farmington, N.M.)
March 13, 2006

ENERGY MYTHOLOGY AND ITS REALITY

By Dan Larson

Energy security, climate change, peak oil and industry profits are hot topics and the subject of popular myths.

Leading the list of popular mythology is the recent film "Syriana," which, according to BP CEO Lord John Browne, may have earned Oscar nominations but wouldn't earn a nomination for absolute truth.

Speaking Feb. 15 at International Petroleum Week in London, Browne said the film is entertaining fiction and will shape what some people think about the oil industry, but it only serves to add to the mythology "the cloud of misunderstanding" through which the public and political leaders see the industry. Unfortunately, the film is only one of several myths about the industry that, while not as dramatic, can be just as damaging since they are taken too seriously by too many people.

The first myth is a popular belief that oil prices are the result of a conscious choice by the industry. This myth suggests that companies do not invest sufficiently to meet the growing demands of the world, but instead extract huge windfall profits and exploit a vulnerable consumer.

The reality is very different, said Browne. In the five years ending in 2004, more than $550 billion was invested in exploration, development and production of oil and natural gas by the world's top 50 private energy companies. When 2005 investments are counted, that total will likely increase by $100 billion. Production in non-OPEC countries has risen by 3.1 million barrels a day over the same period, enough to meet nearly two-thirds of global demand growth.

Much of that investment has come in new developments, including the Caspian, Russia and Angola, and established fields like the Gulf of Mexico and the North Sea.

Yet the myth of under investment persists, making the reality more difficult to see. Browne then noted that a second, related myth holds that the industry simply pockets its extra profits. The reality is that companies reinvest in securing tomorrow's energy and return the rest to shareholders. In BP's case, the company reinvested $13.9 billion of $26.7 billion in operating cash it generated a year ago and returned $19.2 billion to shareholders in the form of dividends and buybacks.

In addition to investors, such shareholder returns support people who rely on pensions and those saving for pensions. So the myth that oil companies simply pocket the extra income doesn't stand up to reality.

Another myth heard for some time now is that the industry doesn't care about the environment. According to this fable, the industry pollutes at will, resists attempts to force controls on it and blithely leaves the costs of cleaning up to others, or worse, to another generation.

"Perhaps that was once the reality," said Browne, "but it isn't now."

As the industry continues to make tremendous strides in improving the quality and performance of its products, the improvements in air quality compared to a generation ago is apparent and measurable. And this is while the industry confronts the impact of a global increase in vehicle use, a challenging proposition.

The bigger challenge is how the industry faces climate change. Many companies, including BP, have accepted the precautionary principle that states while the science of climate change isn't certain, the mounting evidence cannot be ignored. "We can't afford to wait for certainty," said Browne.

Companies have begun to face this challenge by reducing their own emissions and by helping their customers do the same. However, what's been done so far isn't sufficient, Browne said. Emissions, tied to economic growth, are still rising and so are the risks. The challenge is in the fact that the world's prosperity and its use of hydrocarbons are inseparable.

Another, more recent, myth says that the world is running out of oil and gas and "we are walking towards the edge of the cliff," said Browne. "The idea that oil is running out is simply untrue. There is no physical shortage of oil or gas."

In reality, the world's base of oil and gas is strong and the amount that can be recovered is constantly being expanded as technology advances.

The other side of the coin, however, is the myth that says since there is an ample resource base, there is no need for concern. The reality is that much of the oil and gas yet to be recovered is controlled by governments and not private companies. Often, these governments have their own interests, many of which don't align with the interests of energy consumers.

These conflicting interests represent "the next great challenge facing the industry," said Browne. Companies will need new approaches to energy development if confidence in energy security is to be restored. A first step will be continued investment in all segments of the business that are open to investment.

Ultimately, the challenge facing the industry is how to provide clean, reasonably priced energy that is low in carbon and can be supplied to an open market, free of the risks of political interference.

To meet that challenge, the industry is well equipped, said Browne. It has the financial strength, a proven ability to adapt and adjust to changing circumstances, a heritage of technology and creativity, and the global reach needed to match supply with demand.

"We're at a point of great change in this industry," said Browne. "Demand is growing, but we have to meet that demand in different ways from different sources."

And while change is exciting, it may be no match for the excitement of a film such as "Syriana," said Browne. However, it is because we are leaving such myths behind that such change is exciting. In this case, he says, the drama is real.

For more information or a full text version of Lord Browne's speech, contact Dan Larson, BP Public Affairs, Durango, at 970-247-6817.