Transitioning to a Low Carbon Economy

Good morning everyone. And thank you for that introduction. I'm an engineer by background and I've spent most of the last two decades working in many positions in BP, in many parts of BP, all over the world.

However, I do confess that power generation, carbon capture and storage and even the North Sea were not, until about 18 months ago, central to my thoughts. But then I was asked to head up a totally new business devoted to finding low carbon power solutions using carbon capture and storage.

Since then, I must also confess, I've been thinking of little else - often in the company of eminent scientists who have devoted their lives to the environment. The context, of course, has been global warming.

This isn't the place to debate climate change, but in any case the debate on climate change seems to be moving closer to a consensus. Discussion today is increasingly focused on solutions.

In BP our view is that human activity, largely through greenhouse gas emissions, does appear to be an important factor in recent warming. Scientific uncertainties remain. But we've been convinced that urgent precautionary action is necessary.

Emissions of carbon dioxide, for example, are rising and are likely to go on rising - some say doubling by the middle of the century from current levels in excess of 20 billion tonnes a year.

Given the circumstances, if we are to transition to a low carbon economy we must now move quickly from discussion to action.

This will take courage and leadership from communities, governments and, of course, from industry. Much of our everyday life will be re-examined.

For example: to most people electricity seems like a very clean product. Indeed, it creates no emissions in your home. Yet the electricity industry represents more than 40% of CO2 emissions, and this is forecast to grow.

Meantime fossil fuels are certain to remain part of our energy mix for many years to come. So we must also act fast to find how to use these fuels - particularly coal - in cleaner ways.

At BP one of our responses, announced at the end of 2005, was to create the world's first business devoted to the development of low carbon power. We expect to invest $8 billion over the next ten years in BP Alternative Energy.

This investment will be in wind, solar and conventional gas-powered stations since at the moment they provide the cleanest electricity from fossil fuels. And also in hydrogen power in combination with carbon capture and storage - which is my challenge.

Our plans: Today BP has announced two hydrogen power projects - one at Peterhead in northeast Scotland, the other at Carson in southern California. There are others not yet announced.

I'll explain some of the detail of the projects later. Right now I'd like you to focus on three key points. If you take away nothing else from this talk, please remember these three points:

Firstly, the technology offers a material solution for emissions. To put hydrogen power in combination with carbon capture and storage in context - the plant at Peterhead could generate as much electricity as all the wind farms in the UK today.

Secondly, the technology is available now. The challenge is in integrating all the elements of it so that when you turn on your light switch you do not impact the production of an offshore platform. That is the complexity we're dealing with here.

Thirdly, the technology is economic. If you compare it to conventional power generation, it's more expensive. But if you compare it to other low carbon forms of power generation, it's fully competitive. The Peterhead project, for example, needs a similar level of support as wind receives today to make it viable.

In fact, if this technology was applied to just 5% of the new electricity generating capacity that the world will require by 2050, it could reduce global CO2 emissions by about one billion tonnes a year. That is a lot.

The Peterhead proposal: So what are we proposing?

Well, at Peterhead along with our partners SSE, we're prepared to take on the capital and technology risk and invest in excess of $1 billion taking natural gas and converting it through a chemical process into hydrogen and carbon dioxide. The hydrogen would be used as fuel for a combined cycle gas turbine power station able to produce 500MW of electricity a year.

The carbon dioxide would be re-injected through existing pipelines into the BP-operated Miller Field in the North Sea where it would be used to increase oil recovery and ultimately stored.

This one project would reduce the amount of carbon dioxide emitted to the atmosphere by more than 90%, extend Miller's life by 15-20 years, produce 60 million barrels of extra oil - more than the average new discovery today in the North Sea - and capture and store around 2 million tonnes of CO2 each year.

That's the equivalent of taking 500,000 cars off the road each year. It's also sufficient to supply 'carbon-free' electricity to some 350,000 homes in the UK.

However, this is a time-critical opportunity. We have to make our investment decision early next year or the Miller field will be decommissioned.

Some people claim that there has been so much publicity surrounding this project that BP now has no option but to build it. That is not true. Without the right policy and regulatory framework in place, I have to say to you that the project will not happen.

Of course we sincerely hope it does go ahead. And we're doing what we can to make sure it does. Right now there are almost 100 engineers employed in the Front End Engineering Design stage which we expect to complete around the end of this year. But that point BP will have spent almost $50 million on the project.

The Carson project is different. Along with our partners EME we're proposing a new $1 billion hydrogen-fuelled power plant about 20 miles south of Los Angeles. It would use petroleum coke from refineries in California. The coke and treated waste water would be converted to hydrogen and CO2 gasses, and again around 90% of the CO2 would be captured and separated.

The hydrogen would then be used to fuel a gas turbine to generate electricity. The captured CO2 would be moved through a pipeline to an existing oilfield and injected into reservoir rock formations, stimulating extra oil production and permanently trapping the CO2.

Among the benefits of this project, California would acquire 500MW of new clean generating capacity, four million tonnes of CO2 a year would be eliminated from the atmosphere and some aging oil fields given a new lease of life. The project has the support of the Governor of California.

Reasons for projects: Together, these two projects would reduce global carbon emissions by about six million tonnes a year. Admittedly a pinprick when put against total global emissions in excess of 20 billion tonnes a year. But it's a start.

These are both significant investments. Each will require major technical challenges to be overcome to get them off the drawing board. And that requires the involvement of big companies with wide expertise. But we think this is the right moment to take on these challenges.

Over time we expect the costs associated with projects like Peterhead and Carson to fall significantly. And if society attaches a steadily higher value to the removal of carbon through trading schemes like the one now operating in Europe - which we think likely - then the technologies will become self sufficient.

As with all new technologies, there is a need for enabling policy from governments. So what do we mean by that?

First, we are not looking to governments to put in place a regulatory framework that would allow us to pass the higher cost of clean electricity through the market in preference to conventional power - as many governments have done with renewables.

Second, we need to agree a framework around storage and liability for stored carbon dioxide. But if this can be achieved with the nuclear industry, it should be possible.

The fact is that many countries will miss their Kyoto emissions reductions targets for 2010 unless something different is tried very soon.

There's also the issue of credibility. Do we - our government, our industry, our society - really mean what we say about the importance of reducing CO2 emissions? This is a great chance to show that we do.

Questions raised by projects: My time is short so I want to devote the rest of this speech to answering three questions that have been raised about these projects:

First, why the North Sea?

Schemes like Peterhead could double the life expectancy of declining North Sea platforms, produce more oil and tackle some of the concern around energy security. In fact as much as 2-5 billion barrels of previously unrecoverable oil could be extracted from the North Sea using CO2 according to some experts.

Second, what are the benefits beyond the North Sea?

As I said earlier, fossil fuels will be used for a long time to come. Assuming you accept that statement, this is the only solution there is for CO2 reductions. In BP we believe that it is now time to end the talking and empower the energy industry to start taking practical steps to reduce emissions.

Lastly, why hydrogen power?

Using gas as a feedstock, the cost difference of pre versus post combustion capture is insignificant. I'm aware there is a post-combustion capture project here in Norway - and I wish it every success. But when you take coal as a feedstock it's considerably cheaper to go the pre-combustion route. The real benefit of this technology will be to reduce emissions from coal power plant.

Look at countries with abundant coal resources such as the US, Australia, China and India. Increasingly, they are using coal over imported fuels due to concerns about both energy cost and energy security.

The US accounts for almost a quarter of all emissions. Australia has one of the highest emission rates per capita in the world. China and India are both experiencing enormous rises in electricity consumption as they develop - and most of this rise is fuelled by coal-fired power stations.

Carbon capture and storage is the only solution to this trend.

This is why last month we announced with GE our intention to jointly develop and deploy hydrogen power technology and projects that will dramatically reduce emissions.

Ideally we'd like to progress 10 to 15 projects jointly over the next decade. As a first step we expect that GE will participate in the hydrogen power projects in Scotland and California. We hope to conclude this arrangement by the end of the year.

At BP we're very excited about this development. It's going to take many companies and governments working together to tackle the issue of climate change effectively. We will all have to collaborate as never before.

Governments porbably have the most difficult role of all to play. They must respond to the growing tide of public concern over climate change. They will have to take calculated and bold moves to enable technologies whilst markets for carbon are developing. And they will have to set the policy framework.

In the UK we were heartened to see the recent Energy Review describe carbon capture and storage as a viable technology solution. We await the pre-budget statement, which promises to say more, with some eagerness.

But governments, too, will have to work closely together and so we have been encouraged by the ongoing co-operation between the UK and Norwegian governments around carbon capture in the North Sea.

The UK and Norway can lead internationally and demonstrate how other countries, such as China and India, might tackle their own greenhouse gas emissions challenge more actively.

Conclusions: I've covered quite a bit of ground in 15 minutes, so let me conclude by offering the following:

What we're proposing in Scotland and California is doable. It's here. It's now. It's material.

We've already spent a considerable amount of time and money on Peterhead. We're impatient to get going. We want to move this idea off the drawing board. Now is the time to do so.

Fossil fuels will continue to be used. Given that, carbon capture and storage is the only way of mitigating CO2 emissions.

The UK, Norway and Europe can show leadership and help us to make this happen.

In the North Sea reservoirs we have a natural carbon sink. The pipeline infrastructure exists. Coal could also be used as a fuel for this concept in the future. Surely this is a win-win proposition for everyone?

Thank you for listening so attentively.