Renewed Energy for Alaska

Published December 5th, 2000 - 02:00 GMT

Mr. Dick Olver, Chief Executive - Exploration and Production, BP 

Speech to the Alaska Support Industry Alliance, Anchorage 

I always feel at home in Alaska, and it is wonderful to be here again. Anyone who works for BP feels the same.  

 

Alaska has been part of our heritage for the past forty years - and it is going to remain so for the next forty years. We have a renewed energy for Alaska. That, essentially, is what I want to talk to you about today, and that is the message I want you to take home with you.  

 

But we've also taken messages from you, especially over the past year. At times, it's been a tough year, even though the outcome is, I believe, highly satisfactory both to ourselves and to Alaska.  

 

However, in getting to this point, we've learnt a lot about ourselves, and we know there is still plenty of scope for improvement. So, we are not just here to talk about our plans. We're also here to listen to you, so that we can help deliver what the people of Alaska need and want.  

 

But we have to place this in a global context.I remember a previous occasion when I spoke here in some detail about our plans in Alaska, and when there was deep concern over the oil price - but for different reasons from today.The whole emphasis then was how to perform in a lower-price world.  

 

I am glad that I was cautious enough then to remind my audience - and myself - that however tempting it might be to forecast the oil price over the next twelve months, it was - and I quote - "a waste of time".  

 

Today, of course, we have an equal interest in the gas price, and I want to talk a great deal about gas today, because this is where my company's position and outlook has been transformed over the past two years.  

 

But the moral to be drawn about price applies to both oil and gas. It is always unwise for any company - or government - to assume that current prices will prevail.  

 

Whatever investments we undertake need to be resilient to a whole range of prices - nobody can possibly tell how the price of gas and oil will fluctuate over a thirty year period. And that is the investment time-scale we have to consider.  

 

In the case of gas prices, there is certainly plenty of reason for thinking that today's level is strictly temporary. Market forces, spurred largely by rising industry investment, will eventually create a correction.  

 

And it's worth remembering, when talking about gas prices, that the natural gas market is highly competitive, while the industry is fragmented. BP is the largest producer of gas in the US - but we still only produce 6 percent of the total. Almost two-thirds of US supply comes from independents.  

 

So, I think it's safe to say that gas prices will eventually soften. But timing is of the essence - and that cannot be predicted.Economic growth, demand, the price of oil, not to mention the weather: these will all be determinants.  

 

But I'd like to stay on the subject of gas. In a speech last month to Fairbanks Chamber of Commerce, Governor Knowles highlighted what was going on when he said that, relating to gas, "For the first time in a generation, all the facts seem to be in Alaska's favor". I know what he meant, and I want to discuss today how my company can play a part in realizing these ambitions. 

Let me remind you first where BP stands.  

 

In a period of some eighteen months, BP has dramatically increased the importance of gas in our portfolio. It used to represent 20 percent - it now represents 40 percent. Soon it will be 45 percent, and we plan to be the No. 1 public company in gas by the year 2007. Our portfolio for growth represents a bias for gas.  

 

And so, in 18 months BP has gone from worldwide proven gas reserves of 10 trillion cubic feet to more than 30 trillion cubic feet with the Amoco merger, and to almost 40 trillion cubic feet through the ARCO acquisition. 

 

So, as I've said already, we're the largest producer of natural gas in North America, providing about 6 percent of the continent's consumption. We hold the continent's largest gas reserves. We have leading positions in all the key supply sources from Alaska to Trinidad - and taken together we have the lion's share of proximate reserves.  

 

In Alaska specifically, with BP now responsible for 30 per cent of the gas on the slope with about 10 trillion cubic feet of net natural gas already discovered, the North Slope represents one of the largest undeveloped sources of natural gas in our entire portfolio.  

 

It could be a supplier to North American - and Asian - markets for decades. Thirty-five trillion cubic feet of gas as a single supply source is enough to supply a country with a population the size of Canada for thirteen years.  

 

When you consider the growing importance of gas to BP's future, and how we currently rank in terms of reserves and production, you will understand how our combination with ARCO - and our position in Alaska as a whole - has been of such strategic importance and how we are delighted with the eventual outcome.  

 

In order to arrive at where we are today, it was necessary for us to dispose of some of our oil interests to Phillips - but we were more than willing to agree to this in order to receive gas in return, especially as we became, in the process, the single operator for the Greater Prudhoe area.  

 

The truth is that the new BP has now even more capability than the old BP. We have the potential to be an even greater contributor to Alaska's wealth in the future than we have in the past. We have a leadership role which we intend to fulfill both responsibly and imaginatively on behalf of Alaskans. And we regard Alaska as a fundamental core of our business. 

 

So, what does this commitment mean in practice? Firstly, it doesn't mean we've forgotten about oil. Let me make that clear, immediately.  

 

Our base production here in Alaska is as healthy as it's ever been before, and we're better positioned to weather the uncertainties of oil prices.  

 

We are determined to stem the decline from our existing fields, and I believe that new technological breakthroughs are changing our understanding all the time of what once was meant by 'maturity'.  

 

Some of our assets may be 'mature' in the conventional sense of the word, but they still present significant opportunities for future growth.  

 

Let me also repeat that we are committed to our development of Northstar whose recoverable reserves of oil amount to some 175 million barrels.  

 

We are convinced that we can develop this resource in a way which is totally consistent with our environmental principles, so as to ensure that the world has the resources which it needs.  

 

And I say this to underline the fact that we have no intention of giving up on oil, even though consumer preferences and demands are shifting towards gas. Oil is still a vital commodity - as Europe has been forcefully reminded in recent weeks.  

 

We are working hard, with others, to improve the environmental consequences of oil consumption. But we also recognize that it is oil production today which helps pave the way to new energy sources tomorrow.  

 

That is why we won't be deflected from developing Northstar. And it's also why we retain our interest in Liberty.  

 

This is a more difficult project to justify economically, but we are not giving up the quest to make such a development commercial. North star and - we hope eventually - Liberty will join the other fourteen oil fields which we produce and in which we participate.  

 

And in this context, you would expect me to say something about ANWR too. Whenever thinking about this issue, I am conscious that if the same concerns and anxieties which exist over ANWR today had been allowed to prevent the development of Prudhoe Bay thirty years ago, I wouldn't be speaking to you today.  

 

That might please some of our hardest critics, but I don't think it would have been in the interests either of the United States, or of energy consumers across the world or of Alaskans. 

 

For me, the real question surrounding any potential development anywhere in the world - and that includes ANWR - is whether BP is able to 'commercialize' the resource without damage to the environment, its country and its people.  

 

And that is the purpose of our global environmental and safety policies, for which we are fully and publicly accountable.  

 

We believe we can develop projects in sensitive areas. We have an excellent track record.  

 

And we believe the case for development of Alaskan - or any other - resources is best made through building an excellent track record.  

In other words, it's not a question of 'where' but 'how'.  

 

In the case of ANWR, all I have to say is that we believe it could be developed without environmental or social damage, and if it were to be opened we could consider working there on the basis of a commercial judgment.  

 

But the decision on opening the area for development is a matter for the democratic process. It is the people who will decide.  

 

There is, in any case, still an enormous amount for us to do here in Alaska.  

For example, we're launching a more aggressive drilling programme in mature areas on the Slope, and we are eager to seek out new satellite opportunities to further leverage the assets and infrastructure we already have in place.  

 

Drilling activity on the Slope is already accelerating and, at its peak next year, we expect to have ten rotary and three coiled tubing rigs at work.  

 

And I'm very pleased that we have been able to announce last week the order for the design and construction of three state-of-the-art double hull oil tankers for use in delivering Alaska North Slope crude oil to refineries on the U.S. West Coast.  

 

This means that, by the year 2006, BP will be transporting all of its Alaska production in double hull tankers - one year ahead of the OPA 90 requirements.  

For the rest of my remarks, however, I should like to concentrate on gas. And I'd like to build on the recent remarks of Governor Tony Knowles. 

 

It is no longer a question of "if" North Slope gas will be commercialized, but "when" and "how". And I want to answer as many of these questions today as I can. 

 

We believe "when" will be no later than 2007, and there are three exciting options for bringing North Slope gas to market at the present time. These are not mutually exclusive, and I don't list them in any order of priority. 

 

One way to commercialize Alaskan gas is to build a pipeline to the North American markets. 

 

Another is to liquefy the gas, so that we can transport it as LNG. 

And a third is to convert the gas into synthetic crude oil and transport it down the existing Trans Alaskan Pipeline. 

 

Now of course a lot is happening already, and we have already assembled a new team of about 50 people in both Anchorage and Calgary to study the options. 

 

We are investing $86 million in gas-to-liquids facility in Nikiski to test new technology to convert gas into synthetic crude, a promise I made on my last visit to Alaska.  

 

Site work is under way, construction will commence early next year, and by mid-2002 we expect to begin converting about 3 million cubic feet of natural gas per day into 300 barrels of synthetic crude in order to test the process. 

 

We have established a gas and carbon dioxide (CO2) technology center in Alaska to support the activities of our new gas business unit. 

 

We have joined a Liquefied Natural Gas (LNG) sponsorship group to develop a competitive LNG export option.In all, we have committed $60 million for Alaska gas-related projects and research in 2000 alone. 

 

However, it is the construction of a gas pipeline to supply growing Canadian and U.S. markets which is perhaps the most discussed option for commercializing North Slope gas. 

 

We have as you know initiated a major study to advance a project to build a pipeline from the North Slope to western Canada in order to supply lower 48 markets and Canada. In other words, we are aggressively planning a gas pipeline from Alaska to Alberta. 

 

This pipeline would provide capacity of up to 4 billion cubic feet per day, with first gas currently planned for 2006 or 2007. It could cost about $10 billion, and would operate for at least thirty years. 

 

In the near future, a decision will have to be made over the route. This is not a decision which BP can, or should take, unilaterally. But it may help if I explain how we intend to approach this, and the principles which govern our thinking. 

 

First, we recognize that we are talking about a vital natural resource.  

But we also live in an interdependent world.That is my second point. If decisions over energy supplies and production were to be taken in isolation, they would turn out to be mistaken and short-sighted.  

 

A pipeline, therefore, which runs through Canada must take account of the legitimate interests of Canada. Indeed, it is clear that Alaska's natural resource should be developed in conjunction with our Canadian neighbors, rather than in isolation. 

 

That's partly why my next port of call, after this visit, is to visit Calgary to discuss this whole project from the Canadian perspective. 

 

I am convinced that there is no inherent conflict of interest here - indeed, I believe there is significant scope for mutual advantage. But it is important that BP and our partners have a full understanding of the aspirations and objectives of all of our stakeholders, so that they can all be taken into account before a final decision on the route is made. 

 

What I can promise is that we shall take account of the full economic and environmental implications of each of the possible routes; and we shall take the decision with and in the best interests of US consumers, the people of Alaska and our Canadian stakeholders. 

 

We are aligned with our partners in getting gas to markets, so long as the economics add-up. As I said earlier, $5 gas is not a shoe-in for ever. That is why, incidentally, I welcome Governor Knowles's willingness to consider changes to Alaska's fiscal system to encourage gas development.  

 

But rest assured, all of us are working diligently and energetically to reach a solution which will win the support of the people of Alaska. 

 

In these few remarks, I hope I have said enough to convince you of BP's commitment to Alaska and of our excitement over what the future holds in store. 

Of course, it won't be all plain sailing. And of course, there is a need to place what happens here in a global context. 

 

Alaska is a crucial part of our portfolio. But it's not the only part, and the portfolio is expanding all the time.  

 

For our part, we recognize of course that Alaskans expect to benefit from the development of their own natural resources - in terms of employment and the use of Alaskan business; in terms of access to these natural resources; and in terms of revenue. 

 

And our other commitment is to develop these resources in a way which meets the aspirations and promises of our new brand. Over the past two decades, we have made enormous strides in providing improved environmental protection.  

 

This is a process which is unstoppable. We will never be able to do enough. We shall always wish to do more. We are determined to be a leader in this area, as in others. 

 

All our future plans in Alaska are, I believe, totally consistent with what underlines our brand. They are performance-driven; they are progressive; they are innovative; and they are environmentally responsible. 

 

And I hope that our behavior reflects - whether it be in our dealings with partners and stakeholders; or in devising new techniques and technologies to unlock the billions of barrels of viscous oil at Kuparuk, Milne Point and elsewhere. 

 

We are determined to set new environmental standards for all our activities, from reducing greenhouse gas emissions to bringing the most compact, into echnologically advanced and environmentally friendly field on the North Slope into production when we launch Northstar late next year. 

 

I said at the start of my remarks that we have a renewed energy for Alaska. I hope I've gone some way in justifying that statement. 

 

Of course, no part of BP's operations can be free from scrutiny. No part of our business is owed special favors. Our operations in Alaska, like all our other operations anywhere else in the world, must be constantly tested against ever more demanding criteria. 

 

And sometimes, this may involve saying and doing things differently in order to achieve our objectives.  

 

But the objectives don't change. We are in business to generate economic benefits and opportunities for an enhanced quality of life for our customers, for the communities in which we operate, for our employees and for our shareholders. What we do in Alaska remains an integral and essential component of our business. Gas provides a springboard for new, exciting ventures. 

 

And that's why I believe personally that this must be a very good time to both live, and work, in Alaska.  

Source : BP-Amoco  

originally published on the: 20th September 2000 

© 2000 Mena Report (www.menareport.com)

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