SPIEGEL Interview with BP CEO Lord Browne "We Take the Problem of Climate Change Seriously"
Lord John Browne, 58, chief executive of British Petroleum (BP), discusses rising oil prices, the West's fear of countries like Iran and the role of corporations in the global struggle for access to declining resources.
Oil manager Lord John Browne: "
Lord Browne, can you sleep peacefully when you think about Iran?
Browne: As a citizen of this world, I'm certainly concerned about Iran as a potential nuclear power.
SPIEGEL: And as head of BP?
Browne: The fact that the price of oil is currently about 30 percent higher than last year is partly attributable to concerns over political developments in Tehran. The oil supply hasn't changed fundamentally since then, and there hasn't been any unusual activity on the demand side. Nevertheless, prices have increased because people are worried.
SPIEGEL: How seriously should we take Ayatollah Ali Khamenei's most recent threat that Iran will suspend its oil exports if the United States takes action against his country?
Browne: The Iranian state is extremely dependent on consumer states. I'm sure the political leadership is aware of this.
SPIEGEL: Is a general power shift taking place in the oil business: away from Western oil companies and towards state producers?
Browne: Many may find this surprising, but the private sector has played a subordinate role in the oil market for some time now. Oil companies control less than 20 percent of reserves, with state-owned companies controlling the rest. This has been the case for decades, ever since many countries nationalized their oil production industries.
SPIEGEL: Does this mean that the name "Big Oil" no longer applies to Exxon, BP, Shell and the like?
Browne: Of course the oil business is a powerful industry. But BP, for example, represents only three percent of worldwide production. A state-owned company like Saudi Aramco produces almost three times as much. "Big Oil," or what we used to refer to as the "Seven Sisters," are pompous names for something that isn't nearly so gigantic.
SPIEGEL: Governments in parts of Latin America are also regaining influence over the business of natural resources. Are you concerned about a wave of nationalization?
Browne: What's happening in Venezuela and Bolivia is not the beginning of a new era. Instead, these are isolated cases that have been predictable for some time. They have no effect on the global supply of oil and gas.
SPIEGEL: Are these countries justified in wanting to keep a larger share of the profits from their natural resources for themselves?
Browne: Every government reserves the right to increase taxes and fees on production. This isn't unusual. Of course, some of the profits are unearned, because the oil price is higher than anyone could have reasonably expected. However, you should consider that we, as a private, international enterprise, invest a great deal of money, and that whatever remains goes to our shareholders, most of which are pension funds. In other words, a majority of our profits are used to fund retirement plans.
SPIEGEL: Government influence is also evident in the natural gas business, especially in the wake of Russia's dispute with Ukraine, which caused a ripple effect throughout Europe. Do you believe that Russia will use natural gas as a weapon?
Browne: Europe has been buying Russian gas for decades, and there were never any supply problems, not even at the height of the Cold War. After all, there are mutual interests involved. Europe will continue to be dependent on Russian gas, but the Russians need their customers in the West.
SPIEGEL: You've acquired some experience in dealing with Russia. Your joint venture company, TNK-BP, produces 1.8 million barrels a day, or about one-fourth of BP's entire production. How risky is it doing business with a country where Western standards of legal certainty do not apply?
Browne: There is no such thing as profit without risk. There is risk in technology, in production and in relationships with governments. In Russia, we spent a great deal of time developing the business, essentially as an experiment. Of course, we also had to contend with setbacks.
SPIEGEL: Moscow has made it an expensive proposition for you -- with dubious demands for back taxes in the hundreds of millions of dollars...
Browne: ... but we learned a lot. The company we operate there today is based on a Western European business model, and we invest almost $3 billion in that company each year. The structures of these mixed companies are suited to Russian circumstances.
SPIEGEL: You recently met with Alexei Miller, the head of Gazprom. What was the purpose of the meeting?
Browne: We meet often, usually once a month. Most recently, we discussed gas production in eastern Siberia for the Chinese market. The time is coming for this project to become reality.
SPIEGEL: The Chinese play a growing role on the energy markets, not just as customers, but also in competing for drilling licenses in African countries. Has the competition become tougher?
Browne: There are several new players in the business, and some of them are using tactics that we neither can nor wish to employ.
SPIEGEL: Are you referring to the Chinese paying with weapons?
Browne: There are many ways to compete. For example, we're not interested in doing business with someone who offers us a license that would only make sense at an oil price of $100 a barrel. In our industry it's important to gain access to reserves at the right time. We went to Algeria very early in the game, and we were essentially the only company that persevered there. Today that approach is paying off. When it becomes fashionable to invest in a region and one follows the herd, it's usually too late and one usually ends up paying too much. It was cheaper to buy a Picasso when he was still an unknown artist.
SPIEGEL: There are many geologists who expect that, despite technological advances, global oil production could see its peak by no later than 2015, and that production will then inevitably decline. How likely is this scenario?
Browne: The age of oil has seen its obituaries written so many times, and they've always turned out to be premature. All things reach a peak at some point, and the question always arises as to when this will occur.
SPIEGEL: Do you see this so-called peak oil hypothesis as panic-mongering?
Browne: We don't have to be worried. There are still sufficient reserves out there. Technological advances enable us to pump far more oil from a field than in the past. We used to recover about 20 to 30 percent, now it's about 40 to 45 percent, and there is no good reason to assume that we shouldn't be able to achieve 50 or 60 percent.
SPIEGEL: But doesn't this make production increasingly complex and costly?
Browne: It may be more difficult, but that only applies to a small percentage of production volume. Most of the oil can continue to be produced by simple means. People always believe that short supply is responsible for a tightening in the market. But the supply has in fact increased, specifically in non-OPEC countries, where investments are growing by about 15 percent each year, as well as in OPEC countries like Saudi Arabia, which currently produces about 10 million barrels a day and will certainly reach 12.5 million barrels in a few years ...
SPIEGEL: ... a theory which other experts question. Why then have the available capacities state producers, which in the past amounted to 5 million barrels a day, shrunk to an historic low of barely 1 million barrels a day?
Browne: You mustn't forget that the average price of oil remained at $20 a barrel for 20 years. In fact, a barrel cost only $10 a few years ago, and some experts even predicted that it would drop to $5. This explains why there was so little investment in exploration in those days. But that has changed. I expect available production capacity to increase again soon.
SPIEGEL: Nevertheless, the world remains dependent on production in a few giant fields on the Persian Gulf, fields that have already been in operation for about half a century.
Browne: We are constantly discovering new fields, Kashagan on the Caspian Sea, for example. West Africa also has significant amounts of oil and there are large reserves in Russia. And then there are the so-called non-conventional reserves, such as oil sands in Canada. The costs there are much higher, but production is still profitable. As a rule, production costs make up only a small fraction of the selling price.
SPIEGEL: In other words, it's possible that prices could drop to below $40 a barrel again?
Browne: By all means. We can hardly expect prices to drop significantly in the short term, but it's quite likely that prices will average about $40 in the medium term. In the very long term, $25 to $30 is even a possibility.
A BP refinery in Cologne, Germany
SPIEGEL: BP earns its money primarily from the sale of fossil fuels, which are then burned and pollute the environment. But your advertising refers to BP almost exclusively as "Beyond Petroleum" -- to cleaner energy sources beyond petroleum. How can such a company portray itself as an environmentally conscious business?
Browne: Because we simply are. This is a fact, not a ploy. We have put a great deal of store in being environmentally conscious for some time now. We have managed to reduce our internal CO2 consumption, we are investing in alternative energy sources like solar and wind, and we are very active in the development of biofuels.
SPIEGEL: Some see this public emphasis on the green side of BP as a way of diverting attention from a dirty reality.
Browne: I vehemently disagree! You can't say that you either want oil and gas or a clean environment. There has to be a balance between both sides. Fossil fuels will continue to be a large part of the energy mix in the future, that's the reality. It will take some time before technologies are available that reduce the importance of oil and gas. This is why the question we must ask is: Can we find an energy mix that affects the environment in a positive way while at the same time guaranteeing a reliable supply? I think we're doing a great deal to make this happen.
SPIEGEL: BP increases its oil and gas production by more than four percent a year. At the same time, you promote a future with fewer CO2 emissions. How do you reconcile these two things?
Browne: Of course, we could also say that we don't have to do anything. All the world needs is oil and gas. But I believe this is wrong. We invest $800 million a year in renewable forms of energy, because we take the problem of climate change seriously.
SPIEGEL: Eight hundred million dollars is undoubtedly a lot of money for the renewable energy sector. But you make less of a fuss about the $11 billion BP spends on exploration and production of oil and gas alone.
Browne: With all due respect, you're comparing apples and oranges. On the one hand you have today's reality: There is currently no alternative to oil and gas. On the other hand you have the alternative projects we are developing for the future. We couldn't possibly be spending more.
SPIEGEL: How high do you think the renewable energy share will be in 2020?
Browne: It's difficult to say. There are still too many unknowns in the equation. We don't know how technology will develop. It's also unclear how seriously governments will address the issue. Experiments like Europe's emissions trading program are certainly a step in the right direction.
SPIEGEL: In the end, it'll be the consumer who will have to be willing to pay a premium for clean energy.
Browne: Consumers are clever people. They like it when products are consistently available and when these products possess certain attributes -- this applies to energy as it does to any other product. In Europe more and more people are buying green power, even though it's more expensive, and that includes some of my closest friends. This would have been inconceivable 10 years ago. I believe something is happening here.
SPIEGEL: Lord Browne, thank you for speaking with us.
The interview was conducted by editors Erich Follath and Alexander Jung