Good afternoon everyone. It is a pleasure and an honour to be here at Harvard.
In a sense it's rather daunting to be asked to talk as part of an energy series to such an audience. However I am also spurred on by the intellectual calibre of that audience and the eminence of the institution. I believe the challenges posed by energy are significant but soluble.
However, their resolution demands the application of minds that thrive on solving complex problems. If this event - indeed this series of events - spurs anyone to make any further kind of contribution to the solution - as an academic, scientist, economist, engineer, politician or simply as a concerned citizen, then it will have served its purpose.
What I will be covering is a current and forward look at the world of energy - including the emerging trends, the key challenges and some of the technologies and policy dimensions which are likely to shape the future solution set.
This means I will be making some forecasts. And when I start talking about the future I am mindful of the advice once given by a senior British civil servant - "By all means give a number - or a date - but never both together."
In general terms I sympathise with that sentiment - the future is unpredictable. We are watching some of the geo-political certainties of the last century being replaced by new forces and dynamics.
However we do know about certain key issues which will be significant for the world whatever happens - issues such as climate change, development and energy security. Our industry will have a critical role in these, so although we cannot foretell the future, that does not absolve us from seeking to set the energy industry on a sustainable course for the remainder of this century.
Slide 1 - Energy and prosperity
First it is worth reminding ourselves how much our civilization depends on energy. This slide shows that increasing quality of life, as measured by the United Nations Human Development Index, is clearly associated with increasing per capita electricity consumption. Without energy, advanced economies cannot sustain their standard of living. Without energy, developing and emerging economies will never attain the growth and quality of life to which they aspire and to which they are entitled. Without developments in energy, millions, particularly women, will continue to spend a large part of their time simply collecting fuel.
So my starting point tonight is that energy is clearly good. Energy fulfils human needs - although I intend to show how we should be moving towards a world in which we use new forms of energy and progressively only the minimum amounts of energy needed to fulfil our needs.
Having established that starting point, I will:
Slide 2 - Four key drivers of the energy future
There are four key drivers which I believe will shape the future of energy, determining what we might call the "solution envelope" for the next 50 years. They are the growth in demand for energy, the challenge of energy supply, concerns about energy security and environmental constraints, particularly the challenge of climate change.
Technology and appropriate policies and regulations lie at the very heart of all solutions to these challenges.
If we are to secure a sustainable approach we need a new engagement with society and a fresh way of thinking.
Three lines by the New England poet Robert Frost seem pertinent here:
"two roads diverged in the wood, and I -
I took the one less traveled by
and that has made all the difference"
We're at a moment that calls for boldness and innovation, the courage to go to new places and try new things. So let's look in more detail at these four drivers.
Slide 3 - Rapid energy demand growth
Total demand for energy worldwide has risen by around 15% during the 21st century so far. This is first because of the growth in population, which will add 10,000 people to the world while we are seated in this hall tonight; and second because of rapid economic growth of China, India and other countries.
Most forecasts project energy demand growth of some 60% to 2030 from 2002. This is shown on this slide in billion barrels of oil equivalent. What you see is a relatively modest growth in the developed world - shown in green here - and a tremendous growth - 66% of the total - in non-OECD countries - shown in orange.
Slide 4 - Energy demand and GDP
I'd now like to return to looking at demand in key countries and look at how it has moved over time. Perhaps you know the Hertzsprung-Russell diagram that plots the luminosity of stars against their temperature. Well, this is a similar kind of chart for energy. The axes are primary energy use per capita (in Gigajoules) and GDP per capita (in constant dollars). The data are evolutionary tracks (one point per year) for various countries from 1980 to 2002.
There are many things that jump out at you when you look at this chart. The first is how out-of-whack the US is with everybody else in the world, although you might argue that it is simply the most extreme example of a general trend. Interestingly, the energy used per capita in this country has been growing only very slowly over the last 20 years, despite economic growth.
Second, there are other developed countries, such as the UK, Japan and France which also have moderately growing per capita energy use over the last two decades, but usage is at about half the level of the US.
There are some fast movers on the chart like Australia and South Korea - and look at the way Ireland has really taken off. The reason for the rather strange shape of Russia's line is that it went backwards for a while - because of the economic stagnation associated with the fall of the Soviet Union. And finally there are countries with correlated low, albeit rapidly growing, GDP and energy use, most particularly China and India.
The lessons here are that there is a big disparity in energy use between countries; that the developed countries show a high, but slowly increasing per capita energy use, and down in the lower left, where all the "capitas" are, energy use will increase more strongly as the economies develop.
Slide 5 - Demand growth by sector
It is also interesting to look at the projected growth of demand by sector. This chart shows historical and projected energy demand broken up according to transport, power generation and industrial uses, and then other applications which include residential, agricultural, and service sectors.
Several things are evident here, apart from the overall growth. One is that transport consumes a relatively small fraction of the energy. When you say "energy", many people immediately think "automobiles and oil". But, in fact, only around 20% of energy used is for transport: more in developed countries, less in developing countries. And you can also see on the chart that direct use of energy for industrial and residential uses accounts for about as much as the power sector.
Second, it is evident that power is going to be a key driver of energy demand growth. It is expected to account for around 40% of primary needs by 2030, twice as much as transport. By that date the world will use well over 50% more power than it does today. However 40 to 50% of the power capacity required by that date is yet to be built. The choices selected for power therefore require great focus in the next few years.
So let's move on to how we supply this demand.
Slide 6 - US energy resources 1850 - 2000
First a reminder from history that we have multiple sources of energy and that the balance among sources changes with time. This is a graphic showing the proportions of different energy sources in the US over the last 150 years.
What you can see is that at the time of the Civil War almost all of the country's energy came from wood, with only about 10% coal - the green and yellow bars respectively. As the industrial revolution was completed, coal displaced wood and then, starting in about 1920, oil - shown in light green - displaced coal, with hydroelectric remaining roughly a constant fraction since then. Gas usage in turquoise has grown more recently and nuclear has become present over the last few decades. Renewables, apart from wood and hydroelectricity, are the small black bar at the top. Incidentally, in absolute terms, the amount of wood that the US uses for energy today is about the same as in 1850.
Slide 7 - Current and historical global energy mix
This chart shows the global energy mix trends over the last 30 years. You can see that, as a fraction of the total energy supply, oil has been coming down, natural gas has been growing, coal has been coming down (although with an upturn over the last few years), and nuclear and hydro have both been constant at about 6% in the last 20 years. So roughly 85% of the world's energy is coming from fossil fuels. If you project where the mix is going over the next 25 years, it's likely that renewables in total together with nuclear will in aggregate remain in the minority and it is clear that fossil fuels will continue to supply the majority of the world's energy needs.
So the natural question is "Are we going to run out of fossil fuels in the near future?"
My answer is no. And I have four reasons for saying this.
First, the official data - always open to challenge - but the best data we have - indicates we have decades worth of fossils fuels in the ground.
Second, there are "unconventional" fossil fuel resources which do not appear in the official data. These include heavy oil, tar sands, oil shale and unconventional gas resources hitherto seen as non-commercial.
Third, most data tends to only cover proved reserves - and our experience from exploration continues to suggest that there are significant resources yet to find.
Fourth, technology is not only helping us to find new reserves and enhance recovery rates but it is also helping to make coal and other hydrocarbons more environmentally sustainable.
In the matter of recovery rates, it is worth noting that typical conventional oil recovery factors are in the range of 30-35% of the hydrocarbons in place. Every 1% increase in average global oil recovery factors would add some 55-70bn barrels of reserves - equivalent to the UK North Sea province.
In looking more closely at the facts, I would like to talk firstly about the history of global reserves over the last thirty years, and then we can look at the wider definition of potential resources and BP's view of what is available.
Regarding reserves, in 1972 when world reserves of oil were around 670 billion barrels and reserves of gas were 1,900 tcf, the Club of Rome reportedly announced, in all seriousness, that oil would run out in 1990. At the end of 2004, world reserves of oil were almost 1,200 billion barrels and reserves of gas were over 6,000 tcf.
The data may be open to question, but the phenomenon of growing reserves has borne a closer relationship to reality than the more pessimistic prophecies have done. The history of our industry is that of technology overcoming fears of depletion.
Slide 8 - Substantial global fossil resources
Let's now look at fossil fuel resources, which include proven reserves but also estimates of additional resources likely to be found, and unconventional resources - i.e. those other than conventional oil and natural gas.
Working from today's official data, we believe there is about 40 years' worth of conventional oil reserves at the current production rates. That is based on the ratio between the world's total proved reserves at the end of a given year and the production in that year - the so-called R/P ratio. In addition, there are plausibly significant yet to find reserves and considerable potential unconventional resources.
For gas, we know of about 70 years' worth of reserves at the current rate of consumption and again material yet to find reserves. There are also significant resources of unconventional gas including a potentially enormous resource in the shape of gas hydrates. Finally, for coal, the R/P ratio is at least 160 years, with estimates up to 1,000 years because no one has gone seriously exploring for coal.
In total, we estimate there could be at least 3 trillion barrels of recoverable oil, at least as much gas and significantly more coal. In short, there is still an awful lot of fossil fuel.
Today's pessimists say oil production has already peaked, or will peak in the next year or two. The more moderate observers of this school would say that non-OPEC production will peak within 20 years or so, and OPEC perhaps in 30 years.
The economists' take a different angle - that because prices increase when demand exceeds supply and high prices encourage the production of more difficult resources, at some point it will become economical to shift to non-conventional and alternative sources.
My own thinking is that both the geologists and economists are probably right to some extent: production is going to peak at some point, but it will be a non-event if we have enough foresight and the economics work to ensure we get the alternatives ready.
Slide 9 - Dislocation of supply and demand
However, just because there are plentiful resources for a number of decades, it does not mean there are no issues. Resources may be available or accessible, but where they are located is often not where the demand for them is greatest.
And here we come to the third factor shaping the "solution envelope" - widespread concern about energy security.
The green bars on the chart show in total the three large consuming regions - North America, Europe and Asia - and their consumption and reserves of oil, gas and coal. As you can see, they account for about 80% of world oil demand but only have 10% of the conventional reserves. A similar disparity exists in gas - although with coal, the situation is more balanced. This last point reinforces the fact that coal must have a material future role provided we can address its current comparatively high levels of greenhouse gas emissions.
Unless the geologists succeed in finding new and so far unidentified provinces, consumers in ten years' time will be materially dependent on supplies of oil from just three regions - West Africa, Russia and, most important of all, the five states around the Persian Gulf, led by Iran, Iraq, and of course Saudi Arabia.
If current trends continue, the forecast is that by 2030 over half of the daily demand for oil will be traded internationally.
Many of the oil resources on which we are going to rely are closed to investment by private international companies. The decisions on investment and production are controlled by governments who have their own interests to pursue, which may not always be aligned with the interests of international consumers.
The comparable story for gas suggests a growing dependence on traded supplies, particularly from Russia and the Middle East.
I believe it is natural for individuals and governments to be concerned over such dependence, and this is especially true given current high energy prices.
Slide 10 - Oil prices
Oil prices have risen dramatically over the last two years, driven by demand growth and relatively tight supply. In recent months we have seen concern over energy security expressed in many different ways - not least in President Bush's State of the Union address.
I believe the response to that concern is the next great challenge facing the industry. Can we restore a degree of confidence in energy security? Beyond maintaining appropriate relationships with suppliers, this is where new approaches are necessary. These include increased investment to produce and deliver the available reserves and, as I will cover in a moment, investment in technology to expand alternative energy sources.
At this point I want to note two things which are helping to alleviate the supply/demand pressures.
First - our industry is investing heavily to meet demand. Worldwide the top 50 private upstream companies invested over $550 billion in exploration, development and production between 2000 and 2004. The full figures for 2005 are not available but the trend continues, and we are likely to add another $100 billion to that total.
Second - the global market works. Even when beset by hurricanes, conflict in Iraq, strikes, surging demand and low spare capacity, the market has maintained supplies. True, high prices have reflected the fact that in the last 18 months there has been severe pressure on spare capacity as demand has surged while new investment has been yet to come on stream. But fundamentals have already eased to some extent as new production starts up and the production lost from the 2005 hurricanes - which peaked at 1.5 million b/d - has now largely come back on stream.
Nonetheless, it is clear that in the major consuming regions people want more secure energy - that is reliable and ideally local - more affordable energy, and cleaner energy.
Slide 11 - Growing concern about climate change
Let me therefore turn to the final driver of our energy future - climate change. There are some prejudices and illusions on this issue. There are however two stark facts. Over the last century, atmospheric concentrations of CO2 have risen to their highest levels for over 400,000 years and this increase is materially due to our use of fossil fuels. Global temperatures have also been rising. There is still uncertainty over the precise linkage between these two effects. But there is a palpable sense that we must take decisions now to mitigate the risks.
The atmospheric concentration of carbon dioxide (CO2) was 280 parts per million (ppm) before the Industrial Revolution, but is now about 380 ppm. The left panel of the chart shows the change in CO2 concentrations over the last 1000 years and the dramatic rise in the last 200 years. We also know that this rise is due to fossil fuel use through an analysis of the isotopic ratios of the carbon.
The global temperature has also been increasing, at least for the last 140 years, as shown in the right-hand panel. There are other recent indicators of climate change: the onset of Spring is advancing, there is a compression of the diurnal temperature difference, and the Artic ice is thinning.
BP advocates a coordinated global precautionary effort to limit average global temperature increases to less than around two degrees Celsius relative to late 19th century levels, which the IPCC estimate would require stabilizing atmospheric CO2 concentrations at 500 - 550 ppm. Beyond that temperature rise, one could start to interfere seriously with the world's climate.
Present forecasts suggest that stabilization at that level will require countries to go significantly beyond the reductions envisaged in the Kyoto protocol. It will require real leadership from the G8, obviously including the USA and, equally vital, the full involvement of India and China.
There is a very simple equation which underscores the scale of the challenge. The reality of current energy demand projections suggests that we will double our use of energy by 2050. But the imperative of climate change requires that total emissions in 2050 must be the same as today, and then continue to decrease to half that level over the subsequent few decades. That scenario means that by 2050 we must halve the carbon intensity of the world's energy - by reducing the emissions created by hydrocarbons and using zero-carbon alternatives.
Last summer the G8 nations made progress on climate change at their summit. While there was insufficient specificity or targets for some, the key highlights for me included:
Research indicates that the target level of 500-550ppm can be attained by using a range of existing technologies, including carbon sequestration, energy efficiency, increased capacity in solar, wind and gas-fired power, as well as nuclear power. I'll cover some of these but for more detail on all of the options, I'd also refer you to the work of Steve Pacala and Rob Socolow from Princeton. Rob Socolow is going to be speaking here in this series in April.
Slide 12 - The role of technology and policy
So, I have now reviewed the four drivers of energy. I'm more than half way through - but like oil - I hope this speech has not yet peaked! Because we now come to the scope for solutions.
What we conclude from the four drivers is the following:
In framing solutions to meet these needs, both technology and policy have key roles to play. They have a symbiotic relationship. New technologies provide policy-makers with new options to regulate and legislate for their use; and progressive policy in turn encourages innovation.
So technology first - and I will start with options that relate to oil and transport fuel. And then I'll look at the options for power generation, and briefly, demand side options.
Oil is significantly about the transport sector, where the characteristics of high energy-density liquid fuels make them very suitable for personal transport in particular.
Slide 13 - New frontiers: Deeper water
Starting with the effort to find, produce and distribute oil resources, let me share with you what is happening in some of BP's more challenging projects.
The Thunderhorse project in the Gulf of Mexico will come on stream later this year. It is huge. It will cost BP some $4bn. It is situated in water depths of some 7,000 feet, the reservoirs are high pressure and high temperature, and much of the completion technology is unique today. In the deepwater provinces we can see technology helping to widen access. New developments in seismic imaging are enabling us to look beneath the salt layer providing a clearer picture of the subsurface and assisting us to find and extract oil in a way that was unthinkable a few years ago.
Slide 14 - New frontiers: Arctic & cold regions
Estimates suggest that a large proportion of undiscovered reserves may lie in the Arctic. And here too we are active along with others. In the Sea of Okhotsk north of Sakahlin Island in eastern Russia, for example, BP and our partner Rosneft made two large discoveries last year. Producing those reserves will involve overcoming major challenges of seasonal ice, logistics and environmental sensitivities.
Slide 15 - New frontiers: BTC pipeline
And here is one of the major new industry investments about to come on stream and which is opening up a new energy corridor. The Baku Tbilisi Ceyhan pipeline, which is currently filling with oil, crosses three countries - Azerbaijan, Georgia and Turkey. It is part of a $20bn project for the development of Caspian oil. It will flow at rates rising to one million barrels a day and is one of the most ambitious and challenging pipeline projects ever delivered. First oil export from Ceyhan is expected in the second quarter of this year.
So oil is being brought to market through various new means. But long-term the supply to the transport sector remains a challenge as it is so dependent on oil. And a significant opportunity for the future is to increase the 'fungibility' of fossil fuels.
Slide 16 - Increasing fungibility of fossil fuels
Fungibility refers to the ability to take a wide range of primary fossil fuel energy sources and through flexible conversion technologies, make a wide range of products from multiple sources such as natural gas, coal, biomass, extra-heavy oil. Of particular interest today is the part of this chart indicated in yellow. Here gas, coal and biomass can be converted by partial combustion into "synthesis gas (syngas)", which is a mixture of carbon monoxide and hydrogen. The syngas is then run past various catalysts to turn it into all sorts of useful liquids, including diesel fuel, lubricants and methanol. Heavy oil is more likely to be directly converted into fuels or chemicals. Different countries will prioritise different conversion pathways depending upon their access to primary energy and the nature of demand.
It is possible to make synthetic diesel fuel out of coal at a price between $35 and $45 per barrel. South Africa has been doing so for decades because of the oil embargo during the apartheid era. However the capital cost is such that a plant for 1 million barrels of diesel per day is likely to involve an investment of tens of billions of dollars. You would only be able to recoup that so long as the oil price remained high. So these conversion technologies require a step change improvement in cost, given long-term uncertainty about energy prices.
In addition, without capturing and storing the CO2 - which I will return to - syngas conversion will tend to increase CO2 emissions per barrel.
Slide 17 - Biofuels
There is another interesting alternative to conventional energy which deserves further exploration - and this is the production of biofuels. Producing fuels from biomass can simultaneously address four needs without major modifications of vehicles or fuelling infrastructure. They meet demand. They offer security of supply - as they can be produced locally in sustainable systems. They address climate change - as they recycle carbon dioxide extracted from the atmosphere in producing biomass. And they support agricultural activity.
There is potential here to move way beyond the 2% of transportation fuels that are derived from biomass today. These are blended with fossil fuels and produced either by the fermentation to ethanol of food-derived carbohydrates such as cane sugar or by the processing of plant oils to produce biodiesel. Unfortunately, current practices do not maximize energy or greenhouse gas benefits. Fossil fuels are used in their production, and they are not always economically competitive with fossil fuels at average long term energy prices, requiring subsidies or tax incentives.
However, with plausible technology developments, biofuels could supply a material fraction of global demand in an environmentally responsible manner without impacting food production. To realize that goal, the production of so-called "advanced biofuels" from dedicated energy crops such as switchgrass, poplar, and jatropha, must be developed separately and distinctly from food. There is a fascinating challenge for bio-technologists in developing these processes to produce optimal fuel molecules. Other "bio-energy" value chains are also possible - producing heat, power, materials and animal feed.
Understanding of biological systems is advancing rapidly and there is scope to explore such areas as use of biological enzymes or even creating plants or other organisms that extract and sequester significant amounts of carbon from the environment.
There is substantial technology "headroom" for advanced biofuels to be produced, largely because the world's scientific and engineering skills have not yet been focused coherently on the challenges involved. It is now time for that to happen through a coordination of government, academia, and industrial efforts. In the jargon of the petroleum industry, the "size of the prize" is too large to ignore - and I note that President Bush is planning to ask Congress for increased funding for research into this area.
Slide 18 - Cleaner use of coal and gas for power
Turning now to power generation, here there are multiple options to provide the necessary supply as well as mitigating the effects of climate change. Power has more fuel options than transport. For example, globally the demand for natural gas has been increasing significantly because gas emits half the greenhouse gases of coal when burned for power. As well as pipeline distribution, there is an increased focus on long distance gas supply through liquefied natural gas - allowing longer distance supplies to reach the major markets of the world. In recent years, natural gas into Combined Cycle Gas Turbine plant has been a preferred solution for power.
There is also the option of cleaner use of coal - likely to become increasingly important as governments all around the world turn to indigenous energy resources. There is much here to fascinate us as engineers. For example, the latest generations of ultra-super critical plants with Flue Gas Desulphurisation (FGD) and NOx removal have great promise. Again Congress will be asked for nearly $300m to advance cleaner coal technologies.
We can also create hydrogen power stations by taking a fossil fuel such as coal or gas, separating it into hydrogen and carbon dioxide, using the hydrogen to generate power while capturing and storing the carbon dioxide. At BP we have plans for two such power stations. One of these is planned for Scotland and it would form hydrogen from North Sea gas and use the carbon dioxide to help recover North Sea oil.
Slide 19 - Hydrogen power project - Carson, California
The other hydrogen power project we are planning is a $1 billion, 500MW power plant at our refinery in Carson, California, 20 miles south of Los Angeles. The plan is to fuel this plant with petroleum coke produced at the Carson facility and at other Californian refineries. It would supply enough power for around 325,000 homes - about a quarter of LA - or more than all the households in Boston - and this is at a time when state agencies are predicting possible power shortages in the area.
Meanwhile the hydrogen plant would eliminate four million tons of greenhouse gas emissions per year - equivalent to the emissions of 800,000 cars in the local area. The carbon dioxide created as the coke is processed will be transported by pipeline to mature oil fields in California. Here it would be injected into the reservoir rock to recover extra oil reserves and extend the productive life of the fields. We're currently carrying out more feasibility studies with a view to starting construction in 2008 and having the plant running by 2011 - subject to approval from the permitting authorities.
This is a very significant project because demonstrating the use of pet-coke to generate clean electricity could be key to unlocking US coal reserves. Proved US coal reserves are a significantly greater energy resource than Saudi Arabia's proved oil reserves, so being able to generate clean electricity in this way could substantially enhance US energy security.
Slide 20 - Potential for nuclear - PBMR
Then we have the possibilities of nuclear energy and the latest generation of reactors. For example, Pebble Bed Modular Reactors have great promise, offering passive safety systems, reduced proliferation risk and lower costs. But the engineering challenges are significant and barriers for nuclear energy in general have to be overcome, particularly on nuclear waste, if it is to win public acceptance. However, confronted with the environmental risks associated with fossil fuels, some environmentalists who have long opposed nuclear energy are becoming more open to the prospect.
There is also growing acceptance for renewables, although it is interesting how in both Europe and the United States, opposition to wind power has mounted as wind farms are constructed - especially where they threaten bird migration in countries such as Spain and holiday migration in areas such as the Boston coast.
Slide 21 - Levelised costs of electricity generation
This chart shows the costs of electricity generated using various technologies. On the left in blue, conventional gas and coal generation have the lowest costs, with nuclear and hydrogen for power with CO2 capture and storage being somewhat higher. Onshore wind can be competitive with the lowest cost fossil fuels at the best sites, but offshore wind is significantly more expensive. Wave and solar generation of power are much more expensive than any of the other options. The costs are however converging and with some well-judged incentive mechanisms there is the real possibility of creating a level playing field on which different types of low-carbon technology can compete with each other and with traditional fossil fuel applications. For example, at times of peak demand, solar already competes with the retail cost of electricity in a number of markets, such as California.
Slide 22 - Potential of demand side reduction
Finally, there are a large range of possibilities open to us to improve efficiency as well as reduce overall demand for energy. These options can often be the lowest cost route to reducing CO2. And we know these can be taken up, as all major economies dramatically improved their energy efficiencies after the oil crises of the 1970's.
One of the biggest areas for potential reduction is in buildings which account for 40-50% of total final energy consumption worldwide. Technologies already exist to reduce energy demand by around 50% - the challenge is creating the right incentives for individuals and companies to act. Also, given that an estimated 75% of the world population will be urbanized by 2030, there must be significant opportunities for reducing total energy use in cities through good planning, and the policy frameworks to underpin change.
Slide 23 - Energy policy - Key themes
So having outlined some of the leading technology options, what is the role of energy policy?
Essentially the function of policy and regulation is to shape markets and then ensure that they work. Today's motor fuel market, for example, has been shaped by legislation to ban lead and limit sulphur. A measure such as encouragement for clean coal solutions in the US helps to shape a power market that at once responds to environmental concerns and unlocks the potential of North American coal to provide secure supplies of home-grown energy. Action in the EU to break down the barriers to a full internal market is an example of policy that helps an existing market to work properly.
Similarly policy is beginning to define the shape of a low carbon market, with emissions trading systems emerging in parts of the world and incentives for low and zero-carbon solutions. As market mechanisms increasingly attach a price to carbon, explicitly or implicitly, thus defining a low carbon market space, so the various low and zero-carbon technologies need to be allowed to compete to determine which are most cost-effective and material. Some of the technologies are at incubator or early stages, or require such long-term major investment that they need support in order to get a footing on the playing field. This may include research funding or market incentives. Some technologies, such as nuclear, have some elements of irreducible risk that governments will have to under-write in order to make them part of the mix. Other than this last point regarding nuclear, provided there is a well-defined and open market, governments should not be in the business of "picking winners". Mankind's ingenuity will do the rest. Energy mix will be an outcome.
There are many other areas where policy can be influential. I would like to highlight a few other key points.
Materiality is important. At a minimum, policy must be sufficiently inclusive and designed to ensure that energy options which are likely to have material impact are enabled so that that the combined challenges of security, affordability and climate change are addressed over the next 30 years. That means material energy options must be enabled in the next 5-10 years.
Next, given the importance of the global market, nation states must pursue mutually advantageous relationships with supplier countries and proactively develop a basis for future plans and investments in energy supply.
Investment in research and technology will continue to be vital as newer alternatives are developed and efforts are made to bring down the costs of technologies such as renewables and carbon dioxide capture and storage.
And finally, governments can play an active role in encouraging energy efficiency, through building regulations, incentives for industry or encouraging the use of engines and fuels that provide increased fuel economy.
Slide 24 - Energy policy and technology are key enablers
Before I close with a word on BP, let me summarize a few key convictions.
The world needs more energy, more choice of energy sources, more security of that energy and energy that is less harmful to the environment. This will mean a preference for more local energy sources, more affordable energy and for those sources which have the least impact on climate change.
We will remain dependent on fossil fuels for the next few decades, and provided we make progress on new energy technologies and develop appropriate policies in parallel, our fossil fuel resources will not run out before we have sufficient alternatives.
To have a material impact, key policy measures and technologies have to be developed in the next 5-10 years so that decisive and significant steps can be implemented and their effects felt in the next 20-30 years.
I believe technology is absolutely fundamental to the way forward. I do not doubt the growing vitality of human ingenuity and inventiveness. And this is why investment in technology is so critical. But scientists are not always trusted by society. We need to carry public opinion with us and earn public trust. In achieving this we need to stress that every solution must carry within it the promise of mutual advantage. Everyone needs to gain: the communities where energy is sourced, society in its use of energy, the overall environment, and the companies involved.
To achieve this, there must be trust between nations, and an inclusive dialogue which accommodates different perspectives and starting points. Energy security cannot be achieved by military means alone.
Finally, as I have said, through international cooperation we must deliver the right regulatory and fiscal environments for the development of a lower carbon future. Regulations must allow different types of low-carbon and zero-carbon energy to compete with each other on a level playing field. If we get these regulations right, facilitated by market mechanisms, innovation will then take off.
Beyond these basic convictions, to what extent and in what ways is BP's approach to the "solution envelope" different and notable?
In 1997 BP made a landmark decision in accepting the responsibility of our company to contribute practical solutions against the threat of global warming by acting to reduce our own energy consumption and CO2 emissions. Our direct emissions of CO2 have decreased from 95 million tonnes in 1998 to 78 million tonnes in 2005.
Today our oil and natural gas production is growing at record levels in response to world demand. We are implementing 9 projects each with a BP investment of over $1bn simultaneously from the GoM to Azerbaijan to Angola. Yet we are broadly on track through our energy efficiency programmes to offset the direct CO2 emissions from around 50% of BP's overall growth.
In other words BP's economy is growing at twice the rate of our emissions footprint. We have begun to prove that you can decouple the two.
If you stand back and consider BP's overall intent, we have a two pronged approach - firstly to deliver increasing supplies of energy today to meet world demand for energy, security of supply and economic progress; and secondly to invest in technologies which will enable a sustainable approach to energy tomorrow.
Slide 25 - Alternative energy -our aims
In November we launched a new business - BP Alternative Energy - which will focus on the power sector and specifically on solar photovoltaics, H2 for power with carbon capture and storage, wind, and gas-fired power using CCGT. This is a significant business, and subject to development of good commercial opportunities, we intend to invest some $8bn in these activities over the next 10 years.
From a personal perspective, over the last 20 years or so in BP I have found the challenge of contributing to the world's energy equation immensely rewarding. This has included the privilege of working with some of the finest engineers and leaders of our generation including of course John Browne, who has taken BP and indeed the industry to many new places, new positions and new approaches whether it's the biggest foreign investment in Russia, a series of new mega-projects from Angola to Azerbaijan or a ground-breaking position on climate change. Who would have thought an oil company would be amongst the leaders when it comes to research and thinking on the environment, but then again, who has a better reason to lead?
So, as one of the world's leading energy companies, we fully accept our responsibility to be part of the solution and not part of the problem.
Finally, you can't reduce all of the issues and potential solutions to a formulaic recipe for the future. As we pursue that future, we need the best talent capable of ingenuity, imagination, well judged investment, and committed to mutual and shared benefit. It also comes down to a very human combination of brains, brawn and bravery - all equally vital.
And although I don't know Harvard well, after a great day on campus I am confident this is the sort of institution which spawns such a combination.
Ladies and Gentlemen, I appreciate you taking the time to listen and I hope what I've said has given you food for thought.
And now I'd be more than happy to take some of your questions.
Thank you.