Oil is not going away, former BP chief says

The biggest oil companies will continue to play a key role in providing the world with fuel despite the quickening pace of alternative energy development, says Lord Browne.

United Arab Emirates - Abu Dhabi - January 19th, 2010:  Lord John Browne, President of the Royal Academy of Engineering, at the World Future Energy Summit in Abu Dhabi  (Galen Clarke/The National) *** Local Caption ***  GC02_01192010_Browne.jpg

The biggest oil companies will continue to play a key role in providing the world with fuel despite the quickening pace of alternative energy development, says the former chief executive of BP. Lord Browne was in Abu Dhabi yesterday as a jurist for the Zayed Future Energy Prize, which was awarded last night at a ceremony in the capital.

He said the uncertainty besetting oil companies today resembled problems the industry faced four decades ago. It was still too early to herald the end of the petroleum age, he suggested. "Things really have changed, but we are not going to stop using hydrocarbons. It's just a question of how much we will use them, with possibly a bias towards gas," Lord Browne said during a round-table discussion with reporters. "For the very biggest companies, there is a role that will continue.

"In a sense, I've been here before." As the US and other western powers fretted over higher energy costs and fuel shortages during and after the 1973-1974 Arab oil embargo, international oil companies scrambled to diversify their operations. Mobil Oil eventually bought Marcor, which owned a container company and the US department store chain Montgomery Ward. Gulf Oil bid unsuccessfully for an insurance firm and the circus company Ringling Brothers and Barnum & Bailey. BP went into the food business and hard-rock mining, Lord Browne said.

But the diversification drive was reversed a decade later as oil companies ditched their non-energy assets to refocus on their traditional strengths. The current round of oil company diversification is no less surprising, although it may be better thought out. All the big international oil companies have launched renewable energy divisions in recent years. BP under Lord Browne's leadership was one of the first to do so, in the 1990s, when the former British national oil company tried to rebrand itself with the slogan "Beyond Petroleum", which it still uses.

The biggest international oil company, ExxonMobil, held out until last year, when it launched a joint venture with a leading biofuels developer. Through their clean energy ventures, oil and gas producers have entered sectors that were widely held to be rival businesses seeking to unseat petroleum's energy supremacy. But many of the newer forms of energy could thrive alongside fossil fuels, Lord Browne argued.

"I don't see biofuels as a threat [to conventional oil]. It's very complementary, I believe," he said. In Lord Browne's view, the relationship between oil prices and levels of investment is a bigger problem for developers of alternative energy than is the prospect of competing with powerful oil companies: when crude prices rise, investors eagerly pump money into solar energy, wind power and other carbon-free energy ventures that suddenly seem more competitive with oil production.

When crude prices fall, investment for alternative energy becomes scarce. "Allowing the development of alternative energy to be entirely based on the price of a carbon-full fuel is probably not all that wise," Lord Browne said. Instead, he argued, development should be related to energy policy objectives, with the help of mechanisms to help clean energy compete with fossil fuels. @Email:tcarlisle@thenational.ae