Suttles: Oil and gas business is secure for decades

Gulf Coast Louisiana District Meeting

In an environment where many find it difficult to forecast the coming months, Doug Suttles is talking about trends for the next 20 years.

 Suttles, Chief Operating Officer for BP Exploration & Production, says, in short, “the world needs what we do.” Oil and gas aren’t going anywhere.

There are, he says, a few features of the next 20 years worth thinking about. The single biggest thing is the growing demand for energy. About 1.5 billion people don’t have access to electricity, and 2.5 billion don’t use modern fuel to cook their food.

 “That’s driving the growth,” says Suttles. “People want a quality of life that affordable and secure energy provides.”

 Over the last 10 years, the price of oil has been volatile, but Suttles says the run up of the last 4 to 5 years is one of the most sustained runs the industry has ever had.

 “It started to drive some interesting behavior—in Summer 2008, you’d hear oil and gas experts—people we’d never heard of—saying that oil was $140 and would rise to $200,” he says. “We were more worried about when it would fall to $50.”

 Suttles says the reason for the crash is simple. The price of oil goes up, it brings new money, and the industry is good at finding oil and gas, so ultimately supply is greater than demand. On top of it, a global recession pulled 2 million barrels of oil of demand out of the market.

 “When the excess supply gets around 3 million barrels, the price falls—there needs to be 2 to 3 million barrels in excess supply to deal with things like hurricanes, political instability, or when something happens to a production facility,” he says. “When excess capacity gets to be less than 3 million barrels, the price goes up. I suspect that trend will happen many more times in the next 20 years.”

 Natural gas has the same dynamics, but it’s still largely regional, says Suttles. The emergence of unconventional gas yielded increased supply, coupled with an impact on demand, and the price fell. Supply and demand, again, were at work.

 Long-Term Trends

 Looking ahead to 2030, Suttles says demand for oil will be flat in the developed countries—efficiency will counteract demand growth. Non-OECD like China and India will create the additional growth.

 In terms of total energy, coal—even through environmental concerns—is the number-one energy source. Oil is second, and renewables are currently at 1 percent rising to 5 percent by 2030.

 “Basically, the world needs what we do,” he says. We think there were about 7 trillion barrels of oil equivalent originally in place, and if you look at what’s been produced along with recovery factors, we’ve produced about 33 percent. There’s clearly a ways to go. The reason we don’t know with certainty when peak oil will arrive is economics—we only go as far as we need to go.”

 With the emergence of NOCs, Suttles rhetorically asked why IOCs or independents are still needed.

 “Our part of the industry typically operates at the frontier, and that frontier includes technology,” he says. “You don’t find NOCs drilling exploration wells in 6,000 feet of water to 28,000 feet of depth with 28,000 psi reservoir pressure and 450 degrees. That’s what we do—we get out there on the edge.”

 Geographic and political frontiers are another reason for IOCs and independents.

 “One of the big plays in the coming decades is the offshore arctic—we haven’t figured out how to produce in pack ice, but I bet we figure it out. There are massive amounts of potential out there,” he says. “We’re also on the political edge—our company signed the first contract in Iraq and in the 1990s we went to Russia. There’s a lot of risk.”

 In offshore, Suttles says that some studies estimate that about one third of all the oil left to be found is in deepwater.

 “We’re starting to get into some very difficult wells that need 1 million pound frac jobs in 5,000 feet of water with 28,000 feet of reservoir depth,” he says. “There are billions of barrels at stake, so that’s why we get excited about it. We play the game because there’s a big prize.”

 And finally, he commented on climate change and carbon emissions.

 “The world believes this is an issue and believes that carbon-based fuels are contributing to negative issues with the climate,” he says. “If you don’t want as much carbon, let the private sector figure out the most efficient way to do it, be it cap and trade or carbon pricing. Level the playing field so that the best things win, and don’t try to select what they are.”

 Suttles says that demand for energy will grow, and oil and gas will be a big part of the growth. The challenges of companies who work the problem will be tough.

 “The work will be demanding in terms of the places we go, the technology we need to develop, and environmental expectations,” he says. “Volatility will continue to be there. We produce a fungible product—demand can grow, but supply can outstrip it, and the other way around. Our challenge is to find a way to meet the demand and successfully operate in a volatile world.”