Davos 2010: a new peak in oil production is needed, energy leaders argue

A 40pc increase in the demand for oil from China and other emerging economies will create the need for an extra 15 million barrels a day of production over the next two decades.

Tony Hayward, the chief executive of BP, has told delegates at the World Economic Forum that world oil production needs to increase
Tony Hayward, the chief executive of BP, has told delegates at the World Economic Forum that world oil production needs to increase

At a meeting of oil leaders at the World Economic Forum at Davos, Tony Hayward, group chief executive of BP, said that there was a “supply challenge” for the industry which would have to increase output to 100mbd - a new peak for oil. Mr Hayward said that at present the world was producing between 83 and 84mbd.

He said he hoped Iraq would become a major oil player, producing up to 10mbd in the next decade if the political situation remains relatively stable.

A need for a new peak in oil production will dismay environmental campaigners who hoped that the West’s declining reliance on oil would mean less CO2 emissions. Instead, demand from the emerging economies, including India and the other BRIC countries, China, Russia and Brazil, will lead to new record levels of consumption.

Mr Hayward’s comments were supported by Peter Voser, the chief executive of Shell, who said that the industry would have to find up to $27trn of investment over the next 20 years to meet demand.

At the session new figures from PriceWaterhouseCoopers revealed that non-OECD countries will account for two-thirds of world consumption by 2030. Mr Hayward said that demand from non-OECD nations would increase by 40pc.

“The obvious thing in the mature markets of Europe and the United States is that demand for oil products is in structural decline,” Mr Hayward said. He argued that demand was now coming from the East, pointing out that China sold 13m cars last year.

“The challenge is how do we meet this growing demand for oil and keep a lid on price?” Hayward said.

BP has been exploring new supply areas, including deep drill sites in the Gulf of Mexico and under the Arctic ice. It is also looking at renewables and alternative approaches, particularly bio-fuels, solar, wind and carbon capture.

Turning to Iraq, Mr Hayward said that he was “cautiously optimistic” that the country could increase world supply.

“BP has a major contract to redevelop an existing field that BP first found in 1953,” Mr Hayward said, revealing that he wanted to increase BP production from 1mbd to 3mbd. Iraq could eventually produce 10mbd.

Mr Voser said that although much of the oil in Iraq was “easy oil” (onshore and relatively accessible) its technology was 20 years behind much of the rest of the sector.

He also argued that although renewables would be able to supply some of the increase, there needed to be a “more balanced discussion between oil and renewables” and that increasing gas supply had a lot of potential.

“There is plenty of gas. Here we have an energy source which from a CO2 point of view is better than other fuels – than for example coal for electricity generation.”

Andrew Liveris, chairman and chief executive of Dow Chemical Company, one of the largest industrial users of oil in the world, said that price stability was essential for economic growth.

He revealed that in 2002 the cost to the company of its oil needs was $8bn and that had risen to $32bn by 2008. At times such was the volatility of the market there would be a “10pc aberration” in the oil price in a week.

“We need certainty, we need predictability,” he said.

He also called for more efficient use of energy, both by industry and by the consumer. He said that every American house has 2.5 miles of cracks in its walls, leading to the loss of heat.

“That is an absolute tragedy,” he said.