BHGE AM '18: BP Upstream CEO touts "collaborating for competitiveness"
FLORENCE—By Adrienne Blume, Executive Editor, Hydrocarbon Processing and Editor, Gas Processing
Opening Day 2 of the BHGE 2019 Annual Meeting, Bernard Looney, CEO of Upstream for BP, shared his views on the topic of collaboration to overcome industry challenges and build deeper partnerships.
Error loading Partial View script (file: ~/Views/MacroPartials/ImagePopup.cshtml)Looney named three focus questions that must be answered to achieve successful collaboration:
- Why are these challenges different?
- Why do our responses need to be different?
- Why do these responses need to include new types of relationships?
Structural vs. cyclical change. The industry often talks about how change is cyclical, Mr. Looney said, but there are many reasons why we need to think about today's changes as structural, rather than as cyclical. The world has an abundance of resources; cheap, flexible shale oil and gas has changed the future of energy, the CEO said.
Digital technology is also coming of age. BP estimates that the world has nearly twice the volume of recoverable resources today than it will need in the next 30 years. "We're talking about abundance now, not scarcity," Mr. Looney said.
"We're also talking about the transition to a lower-carbon world," he continued. Three times as much power capacity came from renewables in 2016 than from natural gas power, and twice as much came from renewables as from coal.
Mr. Looney also noted, "Transportation and mobility has changed forever" with ride-sharing and the spread of electric vehicles.
Just today, BP announced that it has invested $5 MM in FreeWire, a manufacturer of mobile rapid charging systems for electric vehicles. The company will trial the technology at selected retail sites in the UK and Europe this year, according to a BP press release.
Responding to structural change. Looney said it is difficult to precisely predict how these structural changes will affect the future.
However, he noted, "The standout principle in all this is the simple principle of competitiveness. We have to become more competitive. Not every barrel will be produced, but the most competitive barrel will be produced, and the most competitive company and the most competitive country will thrive."
From a strategic point of view, BP is investing in natural gas, which Mr. Looney called "a great alternative to coal." However, he warned, "We must take care of methane as we do that."
BP is also expanding its investments in advantaged oil, which Mr. Looney defined as "oil that is resilient either through margins structure or cost structure, and remains resilient through a range of price environments."
Collaborating for competitiveness. Mr. Looney noted, "Cost and rates matter, we need to be realistic. With that said, we do increasingly need to look to the long term, and to solutions that work for all. We're moving to more of these partnership models; we're doing it with BHGE."
These new relationships, the CEO said, force organizations to think differently. "These relationships are based on trust, on long-term transactions and on understanding," he said. "They're based on asking our partners to collaborate with us on solutions, rather than presenting a solution to them … They can also be a real source of innovation."
These relationships are also built on more commercial common sense than convention, Mr. Looney said. He gave an example of an agreement between BP and BHGE that he called "a first for industry." Under the deal, BHGE will supply a gas turbine for a BP facility in Trinidad. However, instead of buying the turbine outright, BP will pay for the equipment's power by the hour.
"We'll pay for reliability, rather than pay for a piece of equipment," the CEO explained. "BHGE is incentivized to maximize reliability over the long run, and there's a real commercial upside for BP if the partnership gets the reliability right."
In closing, Mr. Looney reemphasized the importance of collaboration in a competitive atmosphere. "Partnerships will not only help us compete, but they will also help us meet our mission, which is to provide the world, with its growing thirst for energy, for many years to come."
The BHGE AM is taking place in Florence, Italy from 29–30 January, featuring technology demonstrations and a number of discussions by executives from BHGE and its operating partners.
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