BP PLC Statistical Review of World Energy 2014 in Moscow

Jun 16, 2014 AM EDT
BP.L - BP PLC
BP PLC Statistical Review of World Energy 2014 in Moscow
Jun 16, 2014 / 07:45AM GMT 

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Corporate Participants
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   *  Bob Dudley
      BP plc - Group Chief Executive
   *  Christof Ruehl
      BP plc - Chief Economist

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Conference Call Participants
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   *  Dan Yergin
      IHS - Vice Chairman
   *  Kirill Molodtsov
      Russian Federation - Deputy Minister of Energy

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Presentation
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 Dan Yergin,  IHS - Vice Chairman   [1]
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 Hello. Good afternoon to everybody in the hall here, and also hello to the people around the world who are watching the webcast of this session. I'm Dan Yergin, Vice Chair of IHS and I want to welcome you to what is the presentation of the 63rd edition of the BP statistical review.

 This is a unique document. The statistical review plays a unique role in the world energy industry. With its enormous databases that unpin it, it's really one of the fundamental resources for understanding the world energy situation and, indeed, how the world itself is changing

 I know as a personal user of it, as so many others do, that it's really a great service to the oil and gas industry, to the world energy industry and to the world community. Over the last six decades, it's really provided a benchmark for how world energy has changed and how dramatically it has changed.

 There's a great deal of very hard work that goes into this document and preparing it. It's really something that serves the entire industry. It, interestingly, as a document was borne out of a crisis in 1951 and it has registered many crises involving energy in the years since then.

 Its data, databases, enormous amount of information behind it, but out of the data that's presented in the statistical review, you get an extraordinary narrative of how world energy is changing and, indeed, how the world is changing.

 This year, we'll be looking for the impact of changes in economic growth coming out of the economic crisis; how has that affected world energy? Very interesting questions about the shift in the energy mix; what's up, what's down? What's happening with consumption? Impact of technology markets and policies; and I suspect that when we see the presentation of this document, we will be in for some surprises that will change how we're looking at the energy world today.

 So we're going to hear first from Molodtsov Kirill, who is the Deputy Minister of the Russian Federation. He'll be followed by Bob Dudley, who's the CEO of BP. And then Christof Ruehl will take us through this narrative of world energy and how it's changing, looking at the very recent changes and really providing a guideline for us to think about the future.

 So let me first invite the Deputy Minister to take the platform and, again, look forward very much to what we're all going to learn from this session. Thank you.

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 Kirill Molodtsov,  Russian Federation - Deputy Minister of Energy   [2]
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 (interpreted) (Inaudible) council and congress, but also for the Russian Federation, because essentially this is the first presentation of the statistical review by BP, which is being done outside of the BP's office environment. So this is an historic event which has coincided and which marks the start of the World Petroleum Congress, which is something that we're very happy to welcome.

 We have no doubt that this particular review will give us the understanding of the current trend of events in the global fuels market and of a changing kind of a market, the kind of a market which is so interdependent between the continents and nations.

 We, as the representatives of the Federal Russian authorities, continuously study and research the situation which evolves in the global markets. We continuously observe the trends which analyze, which predict and, in a systemic way, evaluate such annual presentations like what we see in front of us right now, understanding where we should go and how we should respond to respective challenges.

 During the first plenary session that this forum had, we heard about where the Russian oil industry is moving which are the trends within which it diversifies its development and we are, undoubtedly, confident that through such information as BP's statistical review, we'll be able to see the ever changing and growing role of the Russian petroleum industry in the global energy market.

 I'm sure that this presentation will be a considerable contribution into the development of the analytical understanding of the petroleum market and I'm sure that it will be very useful to all of us.

 Thank you very much for your attention.

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 Bob Dudley,  BP plc - Group Chief Executive   [3]
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 Well good morning everyone here in Moscow and to those all around the world; good morning, good evening, who are on our webcast from all over the place for this launch of BP's 63rd statistical review of world energy. For those not counting, that goes back to 1953 -- 1952.

 We are glad that we are able to launch this year's review here in Moscow. It's the first time we've done this here, launched the program at the World Petroleum Congress, which is this great gathering of our industry.

 The statistical review is a reference document for the global energy industry, as well as for governments and others, so it's good to be able to set out the data here as our industry gathers from around the globe.

 It has been said that everyone is entitled to their own opinion, but not their own facts. The role of the statistical review is to provide objective facts to inform decisions and discussion and decision-making around the globe.

 I want to say thank you to all of the governments and others that have provided the data for the review and help to make the authoritative source that the document has become.

 I also want to thank the BP economics team, some of which are here, under Christof Ruehl who have worked tirelessly to produce the review with their customary professionalism; thank you.

 Christof will take us through the detail of the review in a moment, so I will pick out just a few of the themes that I think are important for the industry and for BP.

 My observations cover three areas: the way energy mirrors economic trends; the strength of the global energy market; and what the review implies for the energy industry today.

 First, it's interesting to see how the global economy has rebalanced to a degree this year. We're used to seeing most of the growth in the economy, and in energy too, coming from the non-OECD countries. Back in 2012, for example, we saw demand for energy go up, around 4% in the non-OECD world, and down by around 1% in the OECD.

 But in 2013, something else happened; energy consumption growth was below average in the OECD countries and above average in the OECD world. Non-OECD growth in demand was constrained a little at 3.1% of the OECD demand; while OECD demand recorded a rare increase of 1.2%, largely due to a big rebound in the United States and that bounce-back of the OECD world is a running theme in this review.

 We should not overlook the obvious, but important, point that growth in overall global energy demand at 2.3% continues to be significant, despite a weaker global economy.

 Second, the review, once again, demonstrates the strength of the global energy market itself. In 2013, the impact of further disruptions was balanced by increased production, largely from the United States.

 Oil production in Libya suffered the world's largest decline in the face of renewed civil unrest, and the production of oil and gas was disrupted in a number of other countries as well. But, the US last year saw the world's largest increase in oil production.

 Here in Russia, we also saw a big increase in oil production as well, as a 2.4% increase in gas production. That was nearly twice the percentage increase seen in the US and it was encouraged by an increase in demand of almost 20% from the EU for Russian gas.

 Recently, disruptions seem to have become a fact of life and so too have significant increases in production that compensate for them. This has been a pattern for three years now, as Christof will explain.

 However, neither of these factors can be taken for granted. Take away the disruptions and we would have seen lower energy prices, no doubt. But take away the production increases and we would have seen much higher ones, so there is a need to keep encouraging investment, learning from what has worked around the world.

 Markets can be encouraged or discouraged by governments and regulators, as well as by the available resources themselves. In the US, abundant shale resources went into favorable investment conditions have driven the shale revolution.

 Here in Russia, competition grew last year, with independent gas producers taking a greater market share and small oil producers registering high market gains.

 Elsewhere, the review shows that coal had the competitive edge for the feedstock of power around the world. Did you know that coal was the fastest-growing fossil fuel last year, with China and India combined accounting for roughly 90% of global growth while, surprisingly, natural gas consumption actually decelerated at the global level?

 However, we know that if gas can be brought to where it is needed, then it is cheap, clean and highly efficient source of power. That's why new pipelines are being planned, such as the giant project to pipe gas from Russia to China and the southern corridor to bring gas from the Caspian to Europe where BP is operating.

 Policy measures have also driven the growth of renewables. Last year, they combined to grow robustly, although from a low base. They now account for more than 5% of global power output and nearly 3% of primary energy consumption.

 However, renewables can only go so far on the back of subsidies in a constrained economic environment. The big challenge is to bring the technologies to competitive parity with fossil fuels, as we see with wind in the US in some places and biofuels in Brazil.

 More broadly, I think that the interdependence of suppliers and consumers is a force of stability in a very turbulent world. In particular, I think the fact that Europe depends on Russian gas and Russia depends on European revenues creates an important link, and I do believe that energy can act as a bridge.

 So finally, let me make a few observations on what our petroleum industry can take from the review. I think the first thing to notice is the limited growth of the global economy.

 This is not an age of expansion, so much as one where there is stiff competition for capital. Every ruble, or dollar or euro needs to be used very well, so I think that companies need to prioritize value over volume, as we're doing in BP. We need to set strict limits on capital spending and really focus on safe reliable efficient operations and the very careful selection of projects.

 It's a time for getting heads down and pursuing excellence. Technology has an important part to play in driving excellence and efficiency. I think that some of the examples that will come out of this conference in terms of technology is offshore, deepwater, super-computing are going to be some of the great examples we'll look back on for decades ahead.

 Second, the review confirms the way energy demand is continuing to grow. That means supply will need to grow to keep pace with it and that is why the industry is still going to new frontiers to provide energy that the world needs as capital discipline allows. That includes shale oil, tight oil, shale gas, tight gas, deeper offshore wells and working in the Arctic.

 In our own case, we participated in nine discoveries last year, largely in deepwater, including off the African coast, the Indian Ocean and some of the deepest wells in the Nile Delta.

 In this connection, the review confirms the importance of Russia in the world of energy. In 2013, Russia was the world's largest producer of oil and gas combined, and its largest energy exporter. And, as I mentioned, it is also an increasingly competitive energy sector.

 Russia has massive conventional reserves, but also great potential in unconventional oil and gas. So I am pleased that BP and Rosneft have agreed to work together to explore for unconventional oil and gas production in the Domanik formations, which is the Orenburg region of the Volga-Urals.

 So to sum up, the data again shows a flexible, global energy system, adapting to a changing world. It demonstrates how the world's quest for secure and fairly priced energy can be met through competitive industries, driving innovations and smart government policies, which encourage investment and progress. I hope you will find it a useful resource.

 Before I turn it over to Christof, I'd like to again thank our hosts here in Russia. Deputy Minister, thank you for joining us, and so many of us that are gathered here in this great city of Moscow, and heart of our industry in many ways.

 And before I turn it over to Christof, I'd also mention that Christof -- this will be Christof's last statistical review. He is leaving us to take up a very exciting new role. We wish him all the very best for the future.

 But for now, I'm going to turn the facts over to you, Christof.

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 Christof Ruehl,  BP plc - Chief Economist   [4]
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 Good morning, everybody; thank you very much for coming. You have heard the purpose of this review has always been to provide objective data on global energy developments, and to chronicle changes in global energy markets, year by year, in as rigorous a fashion as we can possibly muster.

 What I will do now is I will spend a short time on the global big picture between energy and the economy, then walk you through developments last year, fuel by fuel, before coming back to this big and important picture.

 But to begin with, let's step back a little bit. 10 years ago, the energy world looked rather different. Much of what we take for granted has changed.

 And it's always a good idea and a good first step to look back at where you came from before assessing today. What have been some of the major changes over the past decade?

 10 years ago, the developing world classified here simply as non-OECD economies, had started to embark on a period of rapid economic growth. The term BRICS, for example, was coined in 2001.

 From 2001 onward this showed up as an energy gap. Global energy demand growth became dominated by the non-OECD.

 In 2008, they overtook the OECD. China, rightly or wrongly, came to symbolize this assent, overtaking the EU energy consumption in 2007, the US in 2010, and the whole of North America last year. Many would have found this hard to believe 10 years ago.

 The energy markets are huge and the supply response can be sluggish, so prices started to rise and to diverge. Oil prices rose the fastest of course, but many of the implications are easily forgotten.

 Today, we not only think of oil prices above $100 as normal. There is also many an analyst who remains gainfully employed by investigating gas price differentials. An activity which would not have attracted much attention 10 years ago.

 One trend that has not changed is the reserves growth; this was always one of our more popular statistics. But saying that proved reserves had increased again, after yet another year of rapid oil, gas or coal consumption growth, that created a lot more disbelief then than it does now.

 But increase they did. Proved oil and gas reserves are up 27% and 19% respectively, over the last decade, despite production growth of 11% and 29%.

 Perceptions changed, not only about reserves. A supply response always existed, but it became widely recognized only after it triggered the emergence of new sources of supply.

 The biggest item on this list has to be the emergence of unconventional resources in oil and gas. That this will happen in the competitive energy world of North America, makes perfect economic sense, in retrospect. But who would have thought at the time?

 If we loosely group together fuels that may classify as new, simply by virtue of having not been around 10 years ago, including renewables, motivated by newly-formed climate change policies, and by, of course, lower -- higher fossil fuel prices, they accounted for 81% of global primary energy production growth last year.

 Time to look at this in more detail. Global economic growth has been softening since 2010, the year of the big economic stimuli. Last year, it was 3%, and little weaker than 2012, and considerably below its 10-year average, which now includes the years of boom and bust, before and after the economic crisis.

 Economic performance softened in the OECD, and in the non-OECD alike, but the economic growth gap between them has narrowed a little since the crisis.

 Energy consumption followed economic growth, but with a twist. Energy consumption growth in the OECD has been flat over the last 10 years, despite economic growth of 18%.

 And if you pick a particularly accommodating subset, energy consumption in the 28 member states that make up today's European Union, last year was back at the level of 1988, despite cumulative economic growth of 54%, which raises an intriguing question; namely, whether or under which circumstances it could be possible to combine economic growth with stagnant or falling energy consumption loss.

 Meanwhile in the non-OECD, stronger economic growth and industrialization necessitated continued consumption growth before, during and after the crisis.

 The relationship between economic and energy growth was quite similar in the non-OECD and the OECD the 10 years before the crisis. After the crisis, and presumably related to these large energy-intensive economic stimuli, energy intensity improved faster in the OECD.

 Now 2013 has broken this pattern. Global primary energy consumption accelerated to about 2.3%, just a tick below the 10-year average, and despite slackening economic growth.

 But, for the two sub-groups, fortunes diverged. OECD energy demand growth -- energy demand rose by 1.2%, offsetting an equal decline the previous year, and this is despite slowing and lackluster economic performance, almost on a par with GDP growth.

 Non-OECD energy consumption in contrast, grew by only 3.1%, the slowest growth rate for 13 years, except for the crisis year 2009, and substantially below GDP growth.

 North America, the only regional globally, to show above average growth, drove the OECD acceleration, with energy demand growing even faster than GDP.

 The non-OECD slowdown was concentrated in Asia, with energy consumption growth below 4%, for only the second time in 12 years, and was substantially below economic growth, which held steady.

 The contrasting experiences of North Africa and Asia Pacific reflect the differing fortunes of the world's largest two energy consumers, the US and China. Together these two account for 70% of world energy consumption growth.

 And in 2013, Chinese energy growth slipped from 7% to 4.7%, and thus well below its 10-year trend, although the People's Republic reported unchanged economic growth of 7.7%. This Chinese slowdown was concentrated in coal, but it is visible in oil demand as well.

 Meanwhile, US primary energy consumption grew by 2.9%, rebounding from a similar decline in 2012; much of this is due to weather effects. But beyond the weather, there are signs of underlying strengths in the US industrial sector, and in energy used from that sector, particular of light oil products.

 These effects are visible, even if you only look at global fuel aggregates. China is responsible for the relative weakness of coal growth, US for the relative strengths of oil growth, and we'll discuss this in detail in a second.

 All told, the diverging performance of China and the US caused the energy gap between non-OECD and OECD energy consumption growth to narrow sharply. It became the smallest since the year 2000.

 Now what can energy data tell us? Are these data points are a harbinger of things to come, or just an aberration? Too early to tell, is the appropriate response.

 In our text books energy demand is the consequence of economic growth. In reality, where data measurement is less than perfect, energy data often allows for conclusions about real economic activity. And, in the present context, it is easy to see how abundant domestic resources in the US would eventually give a boost to the economy, not only to energy demand.

 I find it much harder to see how the fundamental restructuring underway in China could leave an impact only on energy demand growth, without eventually also showing up in economic performance. But let's look at these developments fuel by fuel.

 Oil prices over the last three years have been high, but remarkably stable. Last year, they dipped slightly. Dated Brent averaged almost $109 per barrel, just $3 below the averages of 2011 and 2012. This has been the third consecutive year of prices above $100, a first in both real and nominal terms.

 It has also been the three-year period with the lowest price volatility seen since 1970. The stability of oil prices betrays significant changes in the underlying balance between consumption and production. In 2013, global consumption growth exceeded production growth by a wide margin, the exact opposite of the dynamics in 2012. As a result, inventories fell.

 2013 also was yet another year of turbulence in oil production. We all know about the ongoing story of rapid growth in the US, but it was also yet another year of significant supply disruptions, most notably in North Africa and the Middle East.

 Why did prices remain so stable? I'll come back to this after we look at consumption and production in more detail.

 Global oil consumption last year rose by 1.4 million per day, or 1.4%. This is higher than both 2012 and the long-term average. As has become the norm, growth was driven by the emerging economies of the non-OECD, which, for the first time, accounted for the majority of global consumption. OECD demand remained relative stagnant.

 In the OECD the US stood out, as its consumption grew by 400,000 barrels per day; the fastest growth of any country last year, and, in volume terms, outpacing China for the first time since 1999.

 In contrast, consumption in the rest of the OECD fell by a larger than average 380,000 barrels per day, led by a decline in Japan, where oil was backed out of power generation by renewables, coal, and improved efficiency.

 European Union consumption also dropped 130,000 barrels per day, with the largest declines seen in the countries most affected by the economic recession, such as Spain, Italy, or Greece.

 Non-OECD consumption rose by 1.4 million barrels per day, or 3.1%, well below the 10-year average. This weakness was especially pronounced in China, where demand grew by only 390,000 barrels per day, which is the lowest since the recession in 2009.

 Growth in India fell to its lowest level since 2001, as subsidies were removed. While in the Middle East growth was limited by civil unrest, and also by the rising share of natural gas in Saudi Arabia's power production.

 A review of oil consumption by product can help us to identify the underlying economic forces. Light distillates, such as gasoline, are typically regarded as more dependent on prices, and they were the fastest-growing product category for the second consecutive year, whereas middle distillates, typically more dependent on the economic activity, grew only very slowly.

 The slowdown in middle distillate demand growth was, again, entirely driven by the developing world, where growth almost halved. And within this group, it was, again, China, which accounted for, by far, the largest part of the slowdown.

 Distinguishing by product category also helps to disentangle the question why the US saw such a dramatic increase in oil consumption last year, up 400,000 barrels per day, against an average annual decline of 110,000 barrels over the last 10 years. It cannot be explained by economic growth, which slowed from 2.8% to 1.9% last year.

 The rise in consumption was focused in the industrial sector, which includes refining and petrochemicals, which contributed almost 80% of net growth. Much of this growth was for light products, in particular for LPG, facilitated by the robust growth of domestic natural gas liquids, which has driven down prices significantly over the last few years.

 Now turning to production, 2013 can, again, be characterized as a tale of two major stories; supply disruptions and historic US growth. We will address both of these in turn, but first look at the data.

 Global output rose slightly last year, due to the largest increase in non-OPEC countries since 2002. The main contributor to this growth was the US, but supplies also grew in Canada and Russia. Russia posted a record high for the post-Soviet era. Canadian production reached an all-time high due to continued oil sands growth. These increases more than offset continued declines in mature areas, such as the North Sea.

 Meanwhile, OPEC production contracted by 600,000 per day. In addition to unplanned disruptions, which we'll discuss in a minute, Saudi Arabia cut output by 110,000 barrels per day, after producing at record levels in 2012.

 The declines were only partly offset by an increase in the UAE, which set a new record for itself. Average OPEC crude production was near the Group's 30 million barrels per day production target, which has been in place since December 2011.

 US oil production exceeded 10 million barrels per day last year, reached the highest level since 1986. Driven by tight oil, US production rose by over 1.1 million barrels per day last year. This is the second consecutive year of above 1 million barrels per day growth, and the second consecutive biggest increase in US history.

 Indeed, only Saudi Arabia has ever had a bigger increase than the US in 2013. And they had one nine times in total to be precise. But in six of these nine times, the increment resulted from the ability to tap existing spare production capacity.

 So in terms of organic growth, with capacity expansion, what we have seen last year in the US was, therefore, the fourth biggest increase in global oil production at all times.

 As in recent years, supply disruptions were large and concentrated in North Africa and the Middle East. Libya has been a focal point. Following initial outages of 1.2 million barrels per day in 2011, due to civil war, production staged a nearly full recovery in 2012. But renewed unrest in the second half of 2013 led to an average annual decline of more than 0.5 million barrels per day last year.

 Iranian production also declined as a result of continued international sanctions. And significant losses were reported in Syria, the two Sudans, and in Yemen. Cumulative supply disruptions, since, the advent of the so-called Arab Spring in early 2011 from these countries alone, have reached an extraordinary 3 million barrels per day.

 This now puts us in a better position to return to the question of why oil prices were stable in these three years, despite these violent shifts which I've just described.

 For the biggest part, the answer has to be that the supply disruptions in Africa and the Middle East were matched almost exactly, almost barrel by barrel, by the shale-related production increases in the US.

 It is an absolutely fair conclusion to say that oil markets would look rather different today had we only witnessed supply disruptions on the scale that actually happened. And it's an equally valid conclusion to say, oil markets would also look very different today had we only witnessed the shale revolution in the US.

 Now importantly, the match is basically sheer coincidence. Higher prices may induce more shale production over time, but virtually nothing else of logical substance connects these two developments. Therefore I think markets will remain on edge, or to use a more appropriate phrase, eerily calm, as we've seen in prices today, until one side gains the upper hand.

 In an interesting way, this current standoff finds itself reflected in the relationship between prices and inventories. Commercial inventories contracted last year, ending the year down almost 100 million barrels, the lowest yearend level since 2004.

 At the start of the year inventories were ample, following strong production growth in 2012. But stronger demand growth soon corrected this and when Libyan supply collapsed in September OECD inventories started to fall rapidly. Stocks have remained low so far this year.

 But there is a more settled dimension to this. The relationship between the level of OECD commercial inventories and prices has shifted since the advent of significant disruptions in early 2011.

 The shape of the forward curve since then indicates that market participants are willing to pay a higher premium relative to future prices, to hold physical inventories than was the case a few years ago. A clear indication of an increased desire for precautionary stock holdings, actually as clear as I have seen so far.

 Even as inventories fell in late 2013 and so far this year this higher premium has remained in place. An alternative way of saying this would be to say current inventory levels and under the old pre-distribution regime would have corresponded to lower spot prices or higher future prices.

 Let's have a look at refining. Global refining has been struggling for years squeezed between excess capacity and slower throughput growth. Regional disparities are adding to the woes of the sector with more capacity being added east of Suez and in the US -- sorry, east of Suez and US throughputs rising as a result of tight oil production growth.

 Since crude exports from the US are legally constrained, US refineries are processing the discounted domestic crude at home and exporting products instead. This is a trend which we have seen continue in 2004 -- 2014.

 Global refining capacity grew by 1.4 million barrels per day last year, the highest net capacity addition since 2009. Capacity growth was led by China with the Middle East not far behind.

 Global crude runs in contrast grew by only 0.4 million barrels per day. As a result global spare capacity is now almost 7 million barrels per day higher than it was in 2005, the lowest point in our data series.

 Despite this dismal background, global refining margins were strong during the first half of 2013, due to a combination of cold northern hemisphere weather and refinery outages.

 Last year's capacity and throughput developments meant that global average refining utilizations slipped to the lowest since 1987. Utilization in the non-OECD failed because of the fast pace of capacity additions. But OECD refinery utilization improved a little with US crude runs benefiting from continued price discounts for domestic crudes and because of refinery shutdowns elsewhere in the OECD.

 The US added new crude oil pipeline capacity that helped to alleviate the transportation bottlenecks, which drive the relative price of WTI. But with tight oil output rising at a very rapid clip, logistic additions are inevitably less uniform than the ramp up in crude supplies and, as a result, the differential continues to be volatile.

 The new pipeline infrastructure has made it possible to move more crude to the Gulf Coast, but export constraints mean that the price discounts have now spread to a wider range of crudes.

 As a consequence, US refiners exported recorded volumes of distillate last year rather than replenishing domestic stocks. Its reduced dependence on long-haul crude inputs may well have facilitated a longer-term drop in working inventory for the US.

 Conversely, Europe crude runs in 2013 fell to their lowest annual level since 1985. European demand is contracting and, different from Asia, today's problems can only be fixed by reducing capacity.

 Natural gas markets are slowly transforming themselves on the back of two developments; the shale gas revolution in the US, of course, and the increasing integration of hitherto segmented regional markets supported by the rapid expansion of liquefied natural gas, LNG. In 2000 these two forces took a breather, US shale gas production growth slowed and LNG expansion remained very modest.

 Globally, growth of consumption, production and trade all slowed. Regional price differentials narrowed. As in all other fossil fuels, the demand slowdown was more pronounced in the developing world. Natural gas, in fact, was the only fuel where OECD consumption growth outpaced non-OECD growth.

 Like oil, tracing OECD growth in gas leads to the US. But unlike oil, China was not the reason for the weak growth in the non-OECD.

 Again, to disentangle what happened let's start with the latest chapter of the evolving US shale story. This chapter starts with slowing production growth from 7% in 2011 to 5% in 2012 and 1.3% last year.

 Now this has nothing to do with running out of shale, as some pundits have claimed. But it has everything to do with the tangibility of drilling rigs and the power of price signals. US gas prices hit a 13-year low in 2012 and started rebounding in the wake of a cold winter early in 2013. For the year last year they were up 35% on average almost offsetting the 2012 decline.

 However, because of the persistently high oil and gas price differential this was not enough to trigger accelerating production growth. It did remain more attractive to chase liquids, i.e., to continue to divert drilling rigs from shale gas to tight oil production. Almost all of the growth in gas production last year came from associated and wet shale gas, dry shale gas was down.

 Higher prices, low storage and the demand for heating signify an increase in residential and commercial demand, however did induce a dramatic pull out of natural gas from power generation. Power generation is the point where natural gas chases heads on competition with other fuels.

 Total US consumption grew by 2.4%, but gas fired power generation declined by 9% substituted by coal, which increased by 5%.

 For the first time since 2008 gas lost market share in US power generation falling back almost 3 percentage points and this in turn is the biggest such loss since 1973.

 LNG projects are large and investments there can be lumpy, currently supply growth is in the middle of a multi-year lull with very limited capacity expansion.

 In 2013 supplies expanded by merely 0.6%, this is keeping markets tight allocated flexible cargoes only to those willing and able to pay high prices. Small wonder then that we are witnessing massive adjustments. Asia, where fully 81% of all natural gas imports are met by LNG remained the price destination with almost 75% of all cargoes heading towards that region.

 In Asia, Japan remained the world's large LNG importer with post-Fukushima demand for LNG persisting at record levels but Japan's gas fired power plants are now operating at full capacity and Japanese imports have stopped growing. Instead South Korea assumed the mantle of reporting the world's largest import growth and again triggered by nuclear outages.

 Meanwhile in China big strides were made towards a stated political goal of increasing the share of natural gas in the energy mix, currently only 5%. At 11% China locked the biggest increase in gas consumption in the world last year.

 Although production also listed the second largest global increase, this was still leaving a large gap for import growth. The gap was filled by rising LNG as well as pipeline imports, the latter mostly from Central Asia. And within Central Asia, it was Turkmenistan that supplied the most where tentative steps towards domestic price reform, coincidence or not, lowered consumption by roughly the amount of pipeline export growth.

 Now the flip side of higher demand growth and limited LNG availability can be that it puts the spotlight on problems with domestic production. India is the prime example.

 Caps on producer prices have stalled investment and last year led to the world's largest declining gas production. Lack of cheaper price domestic gas and the huge price advantage of coal over LNG imports has caused large scale substitution of gas with coal and that, in turn, assigned to India also the world's largest decline in gas consumption. Ironically, most of that coal replacing gas, a third of it, itself was imported.

 Europe took a rain check on the competition for LNG, helped out by Russia. European Union production appears in terminal decline and consumption reached the lower level since 1999. Last year consumption fell 1.1% and production 0.5%. Imports, therefore, declined slightly.

 As in the US, the year has started with a cold winter and low storage levels. Demand for heating drove up spot prices by 12% for the year, whereas oil index contract prices fell gently and in line with oil.

 Gas lost the competition in power generation against cheaper coal and against non-fossil fuels. In power its market share declined by more than that of coal, while non-fossils gained.

 Overall though, EU gas consumption still fell less than coal because of the increased demand for heating.

 As was the case for global oil markets, European Union gas imports were affected by the social unrest flagging large parts of North Africa. Falling exports from North Africa, Nigeria and also from Norway meant a need for alternative deliveries.

 In the event, Russia stepped into the void, eliminating Europe's need to compete for expensive LNG. The net result was a big shift in the composition of imports, with imports from Russia rising by almost 20% in 2013, a marked reversal of 2012, if you recall, when Russia had lost 12% of the EU gas markets to Norway, because Gazprom maintained oil price indexation, while Norway adjusted its prices closer to spot prices.

 In 2013, the rapid increase of European spot prices eroding much of the previous differential. But Gazprom, by its own financial accounts, also offered discounts and rebates to sell gas on more competitive terms.

 Russia in this way bucked one global trend. Gas production increased by 2.4% or by 12.4 bcm, the largest production increase the world. It happened on the back of higher capacity utilization, but also because of increased output from independent gas producers; that is all producers except Gazprom, which still holds the export monopoly.

 Last year, these independents accounted for 28% of Russia's production and because they sell gas cheaper, for 39% of Russia's domestic gas consumption. And, the erosion of its market share at home, allowed Gazprom to direct more of its resources abroad.

 A drop in domestic gas consumption also helped. This happened because last year -- in early last year, Russia's Far East had suffered from severe flooding. And the one silver lining in this disaster was the second biggest growth in Russian hydropower on record. Together with falling electricity demand, this reduced the call on all fuels for power generation including natural gas and this way, also making more room for more exports. All told, exports grew by 19% or 10.7 bcm.

 How do these differing regional stories affect the evolution of global gas trade? Trade has grown at more than twice the rate of global consumption for at least two decades, with an LNG expanding even faster. But since 2011, this relationship has started to decouple, with trade growth slower than consumption and with LNG losing market share.

 In 2013, the gas trade expanded by only 1.8%, slightly above consumption but considerably below its longer-term trend, with pipeline trade again expanding faster than LNG. The temporary lull in LNG supply growth cannot obscure the general direction of travel towards a more interconnected gas route.

 There's a nice episode in 2013 which illustrates the degree to which international gas markets have already been integrated. The gas displaced by the strong hydroelectricity growth in Russia on the back of bad weather was exported to Europe, while LNG destined for Europe was re-exported to drought-stricken South American markets.

 In effect, hydroelectricity from Russia with too much rain was shipped halfway around the globe to South America with too little rain and all of this in the form of natural gas.

 Let's have a quick word on coal. Coal runs out the fossil fuel picture. In developing economies, the fuel of industrialization often is a reasonable indicator of economic health. In the OECD, coal markets are more characterized by competition with other fuels and power generation driven by politics as much as prices. 2013 was no exception.

 Overall, coal markets slowed as well. Consumption growth remained below its long-term average and production growth was the weakest since 2002. Prices fell in all regions on de-stocking and long demand, while regional price differentials narrowed with intensifying competition between suppliers.

 The big story in coal markets is China, where coal accounts for 67% of the national energy mix. Coal consumption rose by 4% last year, which is less than half the 10-year average of 8.3%. New policies to conquer local pollution by shutting down coal-intensive production and encouraging coal substitution may have played a part. But they kicked in late and the scale of such measures is limited by the restricted availability of natural gas, only 5% of the mix.

 In China, the share of the service sector and GDP exceeded that of the industrial sector finally and for the first time last year, and so moderating industrial production growth was one contributing factor. Still, to me it remains hard to reconcile the coal slowdown with the steady official GDP growth.

 Elsewhere, we find the data corresponding to the fuel-switching stories described earlier. In India, rapidly declining domestic gas production and the price advantage of coal over LNG imports caused coal consumption to rise by almost 8%, the second largest volumetric increase on record.

 In the OECD, US consumption of coal rebounded on higher natural gas prices. Whereas in the European Union, in a shrinking energy market, coal contract faster than gas, losing market share also to renewables.

 Coal production and trade mirrored these developments. Chinese coal production slowed to the lowest increment since 2000. For the first time in 15 years, China did not record the world's largest increase in coal production; Indonesia did. China is now the world's largest coal importer and cheaper foreign coal has made further inroads into Chinese markets.

 Seaborne trade slowed by in an environment of falling prices and rising transport costs, producers were quick to adjust. And so coal production increased the most amongst the players with easy access to Pacific markets, such as Indonesia and Australia. And it declined in production in the US and Colombia, quite in line with the falling demand in Europe and global price differentials.

 Now many of you, like me before, will not be aware that the share of non-fossil fuels in total world power generation was actually on a declining trend through the 1990s and the early 2000s, as renewables were too small to make a difference, and the growth of hydro and nuclear failed to keep up with total power generation. It's only over the past decade that faster hydro growth, and in particular the scaling up of renewables has, actually halted that decline.

 2013 was a big year for non-fossil fuels growth; growth above average, their share of global power generation increased to almost one-third and they crowded our fossil generation in the EU and US along the way.

 Of the non-fossils, nuclear made the smallest contribution, simply by ending two years of decline. Post-Fukushima safety reviews were scaled down and fewer reactors were out of operation. In Japan, generation continued to fall, but from extremely low levels. At the time of writing of this presentation, all of Japan's nuclear reactors are offline.

 Elsewhere decline in a number of countries were compensated for by increases in the US and China.

 Hydro growth slipped to 2.9%, down from 2012, largely because of slower and slower capacity additions in China. But otherwise, how could it be differently? Global hydro production is affected and rain and precipitation patterns. It may have been slow growth, but it was enough to lift the share of hydro power last year in global primary energy to a new record.

 This leaves us with renewables, the largest contributors to non-fossil fuel growth in 2013. Power generation from renewables grew by 16%. But this was the lowest growth rate since 2009, while growth in volume trends recorded an all-time high.

 Renewables made a larger contribution to primary energy growth than natural gas last year. As a share of global electricity generation, renewable power reached 5.3% last year, up from 2.7% five years earlier, still moderate.

 Now, as a share of total primary energy, renewables for power generation, wind, solar, geothermal and biofuels, stood at 2.2% last year. And if one adds in biofuels, renewables and transport, the total for renewables last year in primary energy globally was 2.7%.

 Renewables grew in all regions and almost all countries. The EU as a block is still ahead of the US and China, both in annual increments and in the share of renewables in power generation.

 The EU now generates 15% of its power from renewables. At the same time, EU growth rates are slowing and they have slowed from 21% in 2011, to 18% in 2012, and to 13.5% last year, leaving even the 2013 volume increment smaller than the 2011 and 2012 increments.

 It is no accident that this slowdown affects the very region where penetration rates and, therefore, subsidies are highest.

 The coincidence which we see here between slower growth rates and high volumetric contributions points at the underlying dilemma; renewables has [to be] subsidized. Sizeable annual increments reflect the scale they have reached, while the slowdown of their growth indicates the weakening of financial support as they scale up and as the burden of rising subsidies becomes harder and harder to bear on society.

 An easy way of weaving the annual fuel-by-fuel changes, we have gone through the worst now, into one coherent pattern is to look at how they affect the global fuel mix.

 With the exception of gas, which saw its market share dip, the shares of each fossil -- of each fuel pushed into unfamiliar territory last year. Oil share declined to almost 33%; a new low in our data and extending a 40-year falling streak that goes back to the first world price drop in 1973.

 Coal share took another step on the steady upward march that had started in 2002 when non-OECD industrialization took off in earnest; its share increased to 30%, the highest since 1970.

 Why does this matter? Carbon emissions, a unit of energy, vary among fossil fuels, and so the evolution of the fossil mix -- of the fuel mix has implications for carbon emissions.

 In 2013, non-fossil fuels and power enjoyed strong relative growth, increasing the aggregate share of primary energy. Despite this, global carbon emissions grew almost as rapidly as total primary energy, because of the rising share of coal.

 Now, this has been a very important trend over the years. Carbon emissions have grown less rapidly than GDP courtesy of improved energy efficiency, but they did keep pace with energy consumption. In other words, there has been no change in the carbon intensity of the global fuel mix over the last decade.

 In the OECD, carbon emissions per unit of energy declined in 2013, due to the decreased share of non-fossils -- to the increased share of non-fossil fuels.

 In the non-OECD, the rising share of non-fossil fuels was more than offset by the rising share of coal and the declining share of natural gas and emissions, therefore, grew at the same rate as primary energy.

 The net result is that carbon emissions continue to rise too fast for comfort, restrained by improving energy efficiency, but not really affected by changes in the global fuel mix. In the US, for example, much of the large decline in emissions recorded in 2012 was reversed last year as the power sector switched back to coal and away from gas.

 Now, from the dimensions of the system, it is easy to see how even small switches between coal and gas can dramatically impact global emissions growth. The one region which reaped benefits from changes in the fuel mix was the European Union, where a strong growth of renewables and hydroelectricity has contributed to declines in both coal and gas use in power.

 EU emissions in 2013 were more than 13% below their 1990 level, almost back to where they were in 1969. But, for the world as a whole, emissions are 55% above the 1999 level -- sorry, the 1990 level.

 Now, let me conclude by returning to one of the issues raised at the beginning; the linkages between energy and the economy and, in particular, to an example of how the remarkable shift in physical energy balances, which has occurred over the last decade, will affect the global economy.

 China, the US and Russia are the world's top three consumers and producers of energy today; in this order and for both consumption and production, China, the US and Russia. Russia is the world's largest exporter of fossil fuels, while the US and China are the second and third biggest importers after Japan.

 Over the last 10 years, physical energy balances for these three countries, simply by the differences -- this is simply the differences between domestic production and consumption, have shifted.

 Globally, the US had the biggest increased in oil and gas production and also had the largest decline in oil and coal consumption last 10 years. China had the biggest increase in coal production and in the consumption of every single fossil fuel. Russia had the second biggest increment in oil production.

 Working out the net result of changes in physical production and consumption shows China's deficit for oil and gas worsening by almost exactly the same magnitude by which the US deficit has improved.

 As a result, the Chinese primary energy deficit overtook that of the US for the first time last year. Russia's surplus improved for every fossil fuel over this period, so far allowing it to maintain its position as the world's champions and as the world's largest holder of an energy surplus.

 These were the physical balances. But these shifts in physical energy balances do have macroeconomic implications. One of them is a global balance of payment effect. Global energy trade amounts to roughly 15% of the global trade in all goods and services. Changes in national energy balances, therefore, typically have a sizeable effect on the national balance of payments.

 In the US, energy imports still make up about half of the trade deficit, half of all goods and services synergy inputs. However, on the back of diminishing oil and gas imports, this deficit is shrinking fast.

 China, on the other hand, sees the increasing import dependence eating into its trade surplus. By now, energy imports account for half of the Chinese trade surplus. Despite rapid economic growth, energy imports, as a share of GDP, almost tripled over the last 10 years.

 Russia has a sizeable trade surplus, different from the others, due to its energy exports. However, if expressed as a share of GDP, the non-energy-related deficit doubled over the last 10 years, while energy exports were in line with GDP. If expressed as a share of GDP, Russia's overall trade surplus is falling fast.

 Now, if you would have asked any economist over the last 10 years or so what the potential sources of trouble to the global economy, global trade imbalances would have loomed large in the response. From today's point of view, it seems as if global energy balances by eating into the US deficit, as well as into Chinese surplus, are becoming a part of the solution.

 Where does this leave us? I've done this -- have -- doing this for nine years now and you -- Bob mentioned is the last time, so allow me for a short personal and general conclusion, but it applies to this stats review as well to the others before.

 Energy goes directly or indirectly into any type of economic activity. It clearly matters and we have just seen that the link to the economy is not a one-way street; energy can impact the economy as well. But few economists devote time to it. By taking energy matters out of this wider context, the discussion suffers and often does not reflect the attention the topic deserves.

 Secondly, every year when we do this, we encounter strange twists and turns in the data and every year in the journey to find out what happened and why, it is rigorous interrogation of the data which delivers answers. This is another aspect where more work could benefit both us an industry and also those who need to understand what we are doing and why.

 And finally, there is an old adage which always comes up in the end of every preparation; markets matter. It comes with an addendum however; if you let them. In global energy and in energy politics perhaps more than elsewhere in policymaking, we see both sides of this coin, like it or not. That's not what the statistical review is about, but it was falls out of the data we collect every year.

 And with that, thank you very much and I look forward to our discussion.

------------------------------
 Dan Yergin,  IHS - Vice Chairman   [5]
------------------------------
 Thank you. Thank you very much, Christof. You asked, today, a lot of questions; you provided a lot of answers. That's a really extraordinarily rich presentation that you have done; terrific graphics. Congratulations to you and your team for the work on it.

 And congratulations, Bob, to you and BP for your commitment year after year to this great service to making sense of the world energy industry.

 We now have the opportunity for a -- what I hope will be a very vigorous dialog among the participants here. The one thing I'm supposed to announce is that the press briefing will occur just afterwards, outside in the lobby.

 There are so many different things to take away from that discussion, what Christof talked about in terms of consumption, the changing balance of the US and China, which might not have been expected.

 One of the things I learned from it is that this growth in US oil consumption is largely related to the growth in petrochemical and the industrial sector in the US, it's not motorists on the road.

 It was very striking, Christof, when you talked about what you called the sheer coincidence that rising oil production in the US has offset the disruptions elsewhere.

 Also, that picture that you presented of integrated markets, how Russian hydropower led to more gas. Russian exports to Europe, in turn providing opportunity for gas that would have gone to Europe, to go to a drought-stricken Latin America, as you said.

 It's noteworthy that coal's the fastest growing energy resource. And, when you look at the numbers, it looks like what you're indicating is that renewable electric generation is starting to really catch up on nuclear electricity generation.

 So there are lots of things to talk about. What I'd like to do is first ask Deputy Minister Kirill if either you have any brief general comment. Otherwise I also did want to ask you a little bit more about European gas markets. But let me turn to you first.

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 Kirill Molodtsov,  Russian Federation - Deputy Minister of Energy   [6]
------------------------------
 (interpreted) My brief comment, first of all, is about me wanting to say thanks to both Robert and Chris for the statistical review. And for the way Russia's role was described in the global energy market, because that does coincide with what our analysts think.

 We have indeed, been able to considerably grow our production volumes. Similarly, we have grown the production of gas. These are the indicators which are very important to us on a systemic footing.

 But what are the important things, which I have derived from this presentation, is the energy efficiency trends in European market, which is a considerable trend in terms of the way it leads to the changing fuel basket. This is the kind of signal that we are going to be very actively observing.

 Now, the second thing is the kind of changes which are taking place in the shale gas production and the shale oil production in North America. It has been mentioned that the availability of rigs considerably affects the kind of output in terms of the fuel that you have to deal with in this part of the analytical work that the ministry does.

 In terms of the Russian Energy Agency, this is something that we are very much cognizant of, and we cooperate with Gazprom and the independent producers. We do put together our valuations in terms of how the oil and gas production evolves in the United States, because we believe this to be a considerable effect over the current global energy market.

 Another thing, which we see as a very important factor, is the changing of the LNG role, how it is developing and evolving in terms of its displacement of the oil consumption and possibly coal.

 So there are some of the ideas that I totally agree with. Others would definitely provoke me to go back to them with a deeper analysis, and this is what we are going to be busy with.

 But I should say that even the last year's statistical review that Christof came to the Ministry of Energy in Russia to present, and currently what I hear, do pose a very material breakthrough, so as to be able together to work over the energy market trends in the future, so as to enrich ourselves with the knowledge. Thank you.

==============================
Questions and Answers
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 Dan Yergin,  IHS - Vice Chairman   [1]
------------------------------
 Minister Kirill, let me ask you one question that follows from that.

 Christof, of course, noted that the Russian gas exports to Europe actually went up last year, as opposed to the year before, when there was more competition.

 How do you see competition evolving in the European market, in the next couple of years, and the thinking about pricing? And how Russia will maintain its position in the European gas market.

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 Kirill Molodtsov,  Russian Federation - Deputy Minister of Energy   [2]
------------------------------
 (interpreted) Well, I do agree with what Christof stated; that the price indictors in the European market have contracted in terms of the spot market, in our supply, and the long-term contracts that the differential has narrowed.

 But simultaneously that points to the current structure that is being pursued, and the one that Gazprom has always been pursuing with respect to the long-term contracts, and its ability to develop the long-term supply and demand, which definitely can be met by Gazprom in terms of the growing volumes towards the European market.

 So all of these ideas and the strategy which is currently being developed by the Russian Government and the companies which are authorized to export, which is Gazprom and Gazprom Exports, so this strategy is a correct one. We do believe that the development of the gas market longer term, and the possibility to come up with a substantive offering, depending upon what the needs are, is the kind of trend that we are going to adhere to.

 But I should say that the price indictors are narrowing down and that means that the market is very competitive.

------------------------------
 Dan Yergin,  IHS - Vice Chairman   [3]
------------------------------
 Right, let me ask Bob Dudley a question. Bob, you spoke very -- just mentioned about the pressures of capital markets, or capital discipline in the oil and gas industry and greater prioritization, I think you described it as.

 We -- this seems to be a theme that's emerged in the global oil industry, among IOCs and so forth. Can you elaborate on that, and what that means?

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 Bob Dudley,  BP plc - Group Chief Executive   [4]
------------------------------
 Well, thanks, Dan. As you know, all private oil companies and many government oil companies, they have to work within economic boundaries.

 The industry has, for the last decade, invested enormous amounts of capital in large projects. At least with private companies, it has developed somewhat of a reputation of generating lots and lots of cash, from our business and investments, and taking that cash and putting it back in the very large projects which tend to be overrun, both in terms of budget and in terms of cost.

 As a result of that, the value of international oil companies has come down and the pressure, I think, is also there on government companies as well.

 So as a response to that, you'll see the industry I think being very, very careful and selecting its projects very carefully. So that we can begin to generate the kinds of returns on investment that we must do, as an industry.

 I think we're starting to see that all across the industry. I think your cost of suppliers and contractors have been -- have gone up quite significantly, over the last decade. And so, I think what you're beginning to see is right now the beginnings of a reduction in capital spending, and capital discipline, that comes through with not only BP, but all the companies, now realize this is vitally important. And I think I'm also seeing it with national oil companies as well.

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 Dan Yergin,  IHS - Vice Chairman   [5]
------------------------------
 So are you seeing it -- this obviously is a subject that will affect discussions between resource-holding countries and companies. Do you see that perception of this new reality about discipline and selectivity? Is it being recognized around the world, by the countries that are the resource holders?

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 Bob Dudley,  BP plc - Group Chief Executive   [6]
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 I think there's -- the words competition for capital can't be overdone, whether it's inside a company or around the world. And all companies have limits on how much capital they have.

 So there are some countries around the world that are realizing very quickly that they need to create environments outside the market that spur investments. And other places that may not, they'll be left behind; those investments won't happen. And I think the market will work very effectively in that.

 I think in just -- in the same way, technology needs to be used carefully and we'll see economic investments. You see it in the United States, dry gas, for example, companies are moving to wet gas, which is more economic, and other places are being left behind.

 But to your point, I think that countries who don't understand that this great energy industry is under pressure and how it allocates its capital, that don't move with that, will be left behind. And be left to import fuel rather than generate it themselves.

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 Dan Yergin,  IHS - Vice Chairman   [7]
------------------------------
 Thank you. By the way, as we're doing this, if others want to come in on the questions, feel free to.

 Let me ask Minister Kirill, the point that Bob has just made, obviously we heard this morning about some discussions about changes in the tax regime to make -- ensure that Russia stays competitive in some areas. Can you share with us your thinking, the ministry's thinking on this rather sensitive but very important question?

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 Kirill Molodtsov,  Russian Federation - Deputy Minister of Energy   [8]
------------------------------
 (interpreted) Yes, indeed. This is a very important question. It is very important for the stability of the resource production industry, related to the volumes of the resource gas specifically, which is being produced and transported as part of the development of the petrochemical projects that Russia is having. So it's a very comprehensive, very classic issue which does require a very weighted, very systemic approach.

 So based specifically upon this premise, the Russian Government is being very attentive, looking at different corporate initiatives affecting taxation. It is looking with scrutiny at the way the taxation of production and refining in Russia should be balanced in between each other; the way they should affect each other.

 Specifically based on that, we are calm in going towards the submission of our ideas and proposals to the government which will take place very soon, but as [Alexey Kontorovich] mentioned, this is a multi-faceted task and so we're going to entertain a very confident and slow approach based on well-informed decisions, so that the efforts, which had been applied during the past four years, at creating the necessary stimulus in order to increase the production and increase the refining; so for the good things to stay and only to become better in order to make the oil and gas companies work.

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 Dan Yergin,  IHS - Vice Chairman   [9]
------------------------------
 Did anybody else want to add anything?

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 Bob Dudley,  BP plc - Group Chief Executive   [10]
------------------------------
 I was going to mention, rather than talking about the concepts of the rest of the world, there's three countries right now I think our industry has a lot of attention to right now, recognizing the world is full of competition of capital.

 One is India, which, as Christof showed, is importing lots of energy, has resources but the market conditions are not there yet for more investment.

 The world is watching Norway carefully with events that are unfolding.

 Then as Mexico opens up its energy markets as well, I know there's a lot of thought going on in Mexico about what it will take to attract large amounts of capital. So this is all part of the real-life mix of the energies.

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 Dan Yergin,  IHS - Vice Chairman   [11]
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 Well, and certainly, one of the changes that we've seen in Mexico is that Mexico has observed what's happened with the unconventional revolution in the United States and just Texas oil production now exceeds that of all of Mexico. And so I think there is that sense, as you say, that they want to be competitive.

 India, we'll certainly hear more about it, but needing a pricing system that encourages development seems to be at the top of the agenda for the new government.

 We've talked about the unconventional revolution in the United States and the 66% growth in US oil output since 2008, which has had, as Christof suggested, actually a pretty major impact on the US recovery from the recession.

 In our own work, it's -- we've seen over 2 million jobs that are supported by it and a substantial addition to the GDP growth. It is a pretty amazing thing that's happened faster than any projection would have anticipated.

 So let me ask both either Bob or Christof, you can divide it up as you want, the ministry have said that obviously they're following these developments very deeply, why has this happened? What has made it possible for this dramatic and largely unanticipated turnaround in US oil production, either, Bob or Christof, you -- Christof?

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 Christof Ruehl,  BP plc - Chief Economist   [12]
------------------------------
 I think it's a good example what competition and markets can do for you ultimately. The intuitive answer to your question would probably be, well, must be the US or maybe Canada where the resources are.

 And I don't think that would be the right answer, because we know that over these last 10 years was high demand and rising oil prices, there are resource-rich countries where nothing happened, even though we know that Venezuela is more heavy oil than Canada. Geologists tell us that China has more shale resources now maybe than the US.

 But the only response came from North American countries, Canada and the US. And the reason it came from there was that this is an area of the world where you have free access; everybody can invest there and then everybody did.

 When you step back to how it actually happened, it is -- for an economist it's almost a textbook example. So in the 1990s, you had very high gas prices that started with gas as we know, and you have known resources -- shale resources, which were just not economic to produce. So what you saw was a small number of small/medium-sized companies going in there trying to connect the two and by doing so, develop these technologies.

 Truth be told, the big companies came in only after these technologies had been developed.

 I am convinced, since unconventional resources are different in every place that the spread with which they will widen around the global will also depend again on having the right investment conditions in place to attract technology and capital; and, on having a competitive environment which makes it possible for companies to come and to compete.

 This, I think, is the most important lesson you can get out of it. The effects we see among producing and consuming countries are all around the world. As Bob has mentioned, there are some countries which have troubles in their energy policy, in the energy sector.

 When I look from an economic point of view, at where this end of quantitative easing in May and so has created the biggest instability and repercussions, it was always in non-OECD economies --

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 Dan Yergin,  IHS - Vice Chairman   [13]
------------------------------
 Quantitative easing, are you talking about the bad policy switching to central banks?

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 Christof Ruehl,  BP plc - Chief Economist   [14]
------------------------------
 Yes, and the fear of high interest risk, but it was always in countries which had a trend deficit and almost everywhere, this was actually driven by energy policy.

 You have the example of India where domestic production is kept down and imports are rising too much. You have the example of Argentina, which turned from energy exported to an importer. You have countries like Indonesia.

 So it is a tremendously important thing to allow for this competition and for this adjustment to happen. The consequences are going beyond the energy sector; as soon as the world becomes more difficult, those countries play a price.

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 Dan Yergin,  IHS - Vice Chairman   [15]
------------------------------
 Natural gas, Russia has its proportion of natural gas and its overall energy economy is higher than most other countries. But it's striking in the overall data, which you see from what you just presented today, Christof, is a -- well, it looks almost like a horserace between oil and coal, that they're converging around 33% and 30%. Natural gas is 23% of energy.

 Be very interested what the panel thinks about expectations. Is natural gas going to get into that horserace there and be -- start to pull up even with oil and coal?

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 Christof Ruehl,  BP plc - Chief Economist   [16]
------------------------------
 I think so. I think what we are starting to see in this data also is how oil demand -- coal demand in China is slowing down. China has to rebalance its economy. If it succeeds, coal demand will slow down considerably; if it fails, it will also slow down.

 At the same time, we're seeing, I think, a lull in gas now, but with all these energy projects in the pipeline, with shale resources being pursued elsewhere, you will see natural gas picking up.

 And in our long-term energy outlook, we actually think that fossil fuel shares will converge by 2030/2035, so that oil, coal and gas will have similar market shares for the first time ever overall, without a dominant fuel. That, I think, is on the cards.

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 Dan Yergin,  IHS - Vice Chairman   [17]
------------------------------
 Right. Bob, what does that do to the strategies in the industry?

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 Bob Dudley,  BP plc - Group Chief Executive   [18]
------------------------------
 Well, it's a good question in the sense that with the globe still needing 40% more energy than it does today, by 2030 the world's going to need all forms of energy and companies like ours will focus on what we're good at, which is finding oil and gas, developing big projects and turning it into products.

 There's more than enough there for us to do in terms of strategy for long time to come. The figures of renewables, 2% today rising to 7% by 2035, does give you some indication that the world is going to go through a long, slow -- long wavelength transition to low-carbon energy. I've no doubt it will happen over time.

 But in the meantime, the world is going to need hydrocarbons with efficiency done as sustainably and cleanly as possible to allow that transition to happen. So strategically, we will continue to do, in our case, what we focus on best, with some focus on biofuels as well.

 I am optimistic about mankind's ability to make this long-wave transmission to low-carbon energy. Mankind burned fuel and wood for many years, then coal and it shifted to oil. Now there will be more emphasis on natural gas. I have no doubt that technology and transitions will occur, but it won't happen in the next decade.

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 Dan Yergin,  IHS - Vice Chairman   [19]
------------------------------
 Let me ask the Minster what you all are looking for in terms of we've heard about Arctic, the development this morning, but what you're looking for in terms of its contributions?

 And then come back to Bob, and ask about what about the deepwater in terms of the contribution you talked about, pushing technology?

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 Kirill Molodtsov,  Russian Federation - Deputy Minister of Energy   [20]
------------------------------
 (interpreted) From the point of view of the energy strategy by Russia, which is currently being debated for the period coming up to 2035 and the correlation between all of the energy resources, oil, gas and coal, and an ability to maintain the current sort of ratio.

 We have to state that every now and then because of the demand growth in the Asia Pacific we -- and the demand for coal we do see the trends, which are currently related to the development of the gas transportation system, like the power of (inaudible).

 This is the response to the challenge, which is coming from the need to expand the pipeline gas to deliver to the Asia Pacific.

 I certainly agree to what Mr. Dudley stated; we do predict the increase of the overall consumption of the energy resources in Europe, which undoubtedly will bring about a stronger competition, but simultaneously will increase the consumption.

 But, at the same time, one has to be aware that the energy efficiency and the utilization of the basic criteria related to the calorific properties of all of the energy fuels is something that, essentially, all of the companies are putting into their strategy. So the ability to utilize our little calorie in every type of fuel is the kind of trap that is going to be actively pursued.

 So these are the trends, which we would do -- think about in application to the Russian domestic market, understanding that that is going to be the trend globally. So in the sense we do predict the overall increase of the demand, but simultaneously we are aware that the correlation between oil, gas and coal will remain.

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 Dan Yergin,  IHS - Vice Chairman   [21]
------------------------------
 So two quick questions before we wind up then; one for Bob, if you just want to say a word about the deepwater and then I have a final question for Christof.

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 Bob Dudley,  BP plc - Group Chief Executive   [22]
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 Well, about the deepwater, I think that the ability to image sub-surface, the ability to manage higher temperatures and pressures, which is an inevitable evolution of the industry will provide more and more deepwater opportunities out there. It will just be part of a very, very large mix.

 Those countries that have deepwater who encourage investments, I think that's an inevitable part of where we're heading. Obviously, it has to be done safely and reliably and we are poster child for having a terrible accident, which means that us and the entire industry has to focus on safety to a newer and higher level, and I think that's happening. As every industrial accident in history happens changes occur.

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 Dan Yergin,  IHS - Vice Chairman   [23]
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 So the final question for Christof, although it says our time is over, as he winds up his nine years having done this and, Christof, I'm sure you're not expected -- prepared for this question of what's the big questions that you're left with from doing this last statistical review? What are you scratching your head over?

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 Christof Ruehl,  BP plc - Chief Economist   [24]
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 My time is over.

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 Dan Yergin,  IHS - Vice Chairman   [25]
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 It says his time is over, but we're not going to let him get out of here without answering that question.

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 Christof Ruehl,  BP plc - Chief Economist   [26]
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 The big question is to what an extent -- for me, energy is terribly important in the economy and the degree of hindrances by politicians, regulators, all these, is much bigger than in other comparable sectors, which are much less important.

 And so the biggest question is to me: how long will it take until we have more Mexico's, and less countries which get themselves into trouble for no good reason?

 And how long will it take until people understand that energy is not only important, it's subject to the same basic forces, which we have everywhere else. It's not different in that respect and it's not a special thing called security; it's something which should be produced competitively under competitive conditions for everyone by everyone.

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 Dan Yergin,  IHS - Vice Chairman   [27]
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 So I guess that's sort of not a question, but an answer. But what we do know is that when the next statistical review is done there will be new insights that will come out of it.

 But I think today we've had -- both to you all here in the audience and to all of those who are watching this from around the world, we've had an extraordinary insight into how the energy world is changing, where we are today and what trends are ahead. So please join me in thanking Christof for the presentation, and Bob and Deputy Minister Kirill for their comments in this presentation.

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Editor   [28]
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 Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.




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