BP PLC Energy Outlook 2017

BP.L - BP PLC
BP PLC Energy Outlook 2017
Jan 25, 2017 / 02:30PM GMT 

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Corporate Participants
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   *  Bob Dudley
      BP plc - Group Chief Executive
   *  Spencer Dale
      BP plc - Chief Economist

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Conference Call Participants
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   *  Kingsmill Bond
      Trusted Sources - Analyst
   *  Patrick Harran
      Crown Commercial Service - Analyst
   *  Paul Newman
      Next Group - Analyst
   *  Hugh Lee
      - Analyst
   *  Charles Whall
      Investech - Analyst
   *  Lydia Rainforth
      Barclays Capital - Analyst
   *  John Gearson
      King's College London - Analyst
   *  John Feddersen
      Aurora Energy - Analyst
   *  Sarah Kent
      Wall Street Journal - Analyst

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Presentation
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 Bob Dudley,  BP plc - Group Chief Executive   [1]
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 Hello, everyone, and a very big welcome to the launch of the 2017 addition of the BP Energy Outlook 2035. Thanks to everyone who has joined us here in London and thanks to those of you who have taken the time to join us around the world from the web. We have as many as 7,000 people registered on the network today and for the first time you can actually watch this presentation from an app on your iPhone, I'm told. So welcome.

 And it continues to be a very, very fast changing global environment and a challenging time for our energy sector. Last year was notable for its unpredictability and this year is promising to be more of the same. We have a new president in the White House. The Brexit vote is now about the Brexit process. And there will be significant elections all across Europe this year.

 So I am certain, I'm certain of this, that we can expect a lot of talk about uncertainty coming from lots of different places around the world and that applies to our energy sector as well. Oil prices have risen a little recently following the production commitments from OPEC and others, but prices remain low compared with a few years ago and oil inventories remain at very high levels.

 We're now also seeing the full effects on supply of the cutbacks in investments -- we're not yet seeing that in the new energy projects made over the past two years. These challenges come on top of a longer term trends that are changing the whole global energy landscape.

 As we see in this year's edition of the outlook, the pattern of demand is shifting again with energy consumption continuing to increase out to 2035 but being almost entirely driven by increasing prosperity in fast growing emerging markets. And we are seeing a of shift in the global energy mix driven by environmental concerns and advances in technology, including low carbon technology. Each of us here is trying to understand these forces as we make our decisions. And that's why can we place such importance in the energy outlook.

 For us, this analysis shines a light on the key trends and forces that are likely to shape global energy markets over the next 20 years. It provides us with clearer view of the most likely future energy landscape.

 I'd like to thank our Chief Economist, Spencer Dale, and everyone from his team who have been involved in producing this latest edition. Spencer will take you through those projections shortly but first I'd like to mention three highlights that stand out for me.

 The first is the continuing gradual decarbonization of the fuel mix. This is anticipated due to rapid improvements in the competitiveness of renewable energy and the strong outlook for natural gas.

 In fact, renewables, nuclear and hydro are set to provide around half of the increase in global energy out to 2035. That's a big expansion and natural gas is set to grow faster than either oil and coal with an anticipated annual growth rate of 1.6%. This is helped by the rapid growth of LNG, liquefied natural gas, which is increasing the accessibility of gas all across the globe.

 We anticipate oil consumption to continue to increase over the next 20 years with an annual growth rate of around 0.7%. Of course, policy has been moving significantly in this area and we had the agreement in Paris in 2015 which has now been ratified by 125 of the near 200 parties that signed the convention. And we are active ourselves in the oil and gas sector on a number of fronts including the oil and gas climate initiative.

 The second observation is that while energy demand is set to grow, its rate of growth will be moderated by increasing energy efficiency. Technological improvements will play a major part in helping us use energy more efficiently. In particular, vehicles and vehicle use are set to become much more efficient. That will come from huge gains in the efficiency of conventional cars, internal combustion engine and also the saving associated with the increasing use of electric vehicles and autonomous driving and car sharing. Spencer will tell you more about those later.

 That brings me to the third and final feature I'd like to he highlight which is carbon emissions. The outlook shows that the growth in emissions is likely to slow very sharply relative to the past 20 years. This is due to the two factors I just mentioned: faster gains in energy efficiency, combined with the gradual decarbonization of the fuel mix.

 But despite this slowdown, the most likely path sees carbon emissions continuing to increase. And that flags up the need for further policy action. Should action take place, its timing and form will have a significant bearing on the energy transition. And at BP we continue to believe that carbon pricing has a very important role to play as it provides incentives for everyone, not only producers but consumers as well. Everyone needs to play their part. So those are the three features of note and Spencer will take you through the details of these points.

 I'll just conclude by adding that this work not only guides our thinking, it is important in shaping BP's actions. The announcements and agreements we have made in the last couple months are a testament to that, including long-term deals for competitive oil and gas resources and a strategic position in bio jet fuel.

 These deals are part of our platform for growth as we look beyond the year ahead to future decades. And far from waiting for change, we're adapting and growing our business to be resilient and innovative. As we plan it is extremely valuable to have the projections of the BP Energy Outlook to help guide our way. And I hope this latest edition will make a useful contribution to all of your discussions on the world's changing energy needs no matter where you are in the world.

 Thank you and over to you, Spencer.

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 Spencer Dale,  BP plc - Chief Economist   [2]
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 Thank you, Bob, and good afternoon, everyone. I'm not sure how many people are watching the video. I'm just struck how easy it was for the father to drive through central London to arrive at today's briefing. If only that were true.

 Let me add my thanks for everybody sparing the time to attend today's presentation both here in London and St. James and around the world via the web. As Bob said, I think we have record numbers registered today. So that's great. And you're all very welcome.

 Also just a word of thanks for everyone who's been slaving away at BP over the last few months to produce today's energy outlook. That obviously includes the economics team who are dotted around the room. Thank you very much, guys.

 But when we produce the energy outlook, we draw on expertise from right across the BP family incorporating trends and insights into emerging factors in terms of new technologies, geopolitics, commodity markets as well as all the front line businesses. The energy outlook is very much a team BP product. And so thank you to everyone who contributed.

 This is the third energy outlook I have presented. And when I first joined BP, I was really excited by the idea of the energy outlook. This big stage, the chance to speculate on the future trends influencing the global energy system out to 2035. But the more I thought about it, the more nervous I became.

 Producing an outlook for the next 20 years is a pretty daunting task. Any single projection or forecast 20 years ahead will almost certainly be wrong. Moreover, the slow moving nature of the global energy system means that basic outlook isn't likely to change very much from year to year. The idea of presenting the same wrong forecast year after year started to seem less attractive. Perhaps Michael Fish didn't have it so bad after all, despite the odd hurricane.

 But, stop, don't leave the room, don't turn off your computer. I realize this is not the way to think about the value of the energy outlook.

 Yes, the world will almost certainly turn out differently from the precise point of projection. But the insights gained from thinking through the quantitative implications of different judgments and assumptions for global energy add real value. We don't have a crystal ball. But we do have an adding up machine that helps to calibrate the quantitative implications of different trends and developments. And the risks and uncertainties surrounding these implications can be explored by considering alternative assumptions and judgments.

 Forecasting isn't about getting it right or wrong. It's about better understanding the nature of the uncertainty you face. Moreover, even though the main contours may not change very significantly from year to year, the key questions and issues we want to ask about the future certainly do, especially given the energy transition that is likely to transform global energy markets over the next 20 years.

 So the energy outlook that you will receive on the way out today, or you can download from BP.com now if you're watching the via the web, contains both of these elements: a focus on some of the main issues and questions raised by the energy transition and a series of alternative cases exploring key uncertainties. It even contains a speculative look beyond 2035 at some longer horizon issues.

 Now I can't hope to do full justice to all of that in today's presentation, you'll be relieved. We'd be here until late this evening. But hopefully I will do enough to peak your interest so you can go away and explore the output in more depth. And by way of a teaser, I plan to pay particular attention this afternoon to some of the issues raised by electric cars and the broader mobility revolution, a good example of an emerging issue which is likely to become increasingly important in years to come.

 Okay. So let me start by outlining some of the main features of our base case which, as always, sets out our view of the most likely path for global energy markets and not necessarily what we would actually like to see happen. Global GDP is expected to grow at around 3.4% per year over the outlook, leading GDP to roughly double over the next 20 years.

 Some of that increase is driven by population growth but the majority is driven by increases in productivity shown in the yellow here on the left-hand side, especially in emerging Asia as those countries build up their capital and adopt best practice techniques from the technological frontier. So underpinning the energy outlook is a fairly conventional story of steady global growth, led by increasing prosperity in developing Asia, with more than two billion people lifted interest low incomes over the next 20 years.

 And it's this burgeoning Asian middle class which drives the growth in energy demand. Global demand grows by around one-third in the base case with virtually all of this increase consumed by fast growing emerging economies. Plentiful supplies of energy enable this increase in prosperity and living standards.

 In contrast, energy consumption in the developed world, shown by the green swath on the left, is essentially flat. Total energy demand is projected to average growth of around 1.3% per year, which as you can see on the chart on the right in the purple line is significantly slower than that seen over the past 30 or 40 years.

 GDP growth is similar, but energy intensity, the amount of energy required to produce each new unit of GDP, is projected to decline far more quickly. You can see that by these green bars getting increasingly bigger. That partly reflects a rebalancing of the Chinese economy away from energy intensive industrial sectors but more generally reflects greater efforts to use energy more efficiently.

 In terms of the fuels meeting this increased demand, the outlook points to a continuing shift in the fuel mix with nonfossil fuels providing half of the increase in primary energy. Even so, oil and gas, together with coal, continue to meet the majority of the world's energy needs, accounting for more than 3/4 of total energy supply in 2035.

 Natural gas grows more quickly than either oil or coal, overtaking coal to be the second largest fuel source by 2035. Oil demand increases throughout the outlook, although its pace of growth gradually slows. Coal makes the greatest break with the past with growth averaging less than one-tenth of the rate seen over the past 20 years and with global coal consumption expected to peak in the mid-2020s.

 The big driver of coal's declining fortunes is China. Whether changing pace and pattern of economic growth, combined with China's commitment to reduce its dependency on coal, means the growth in China's coal consumption, shown by the blue bars here on the left, is likely to slow sharply.

 The rapid increases of the 1990s and [naughties] as coal powered the industrialization of China are over with China's coal consumption expected to slow sharply and eventually start to decline. As a result, China's dependency on coal, shown here in the chart on the right, is projected to decline from around two-thirds today to less than 45% by 2035. China's energy needs are changing with an important bearing on many of the energy trends mapped out in today's outlook.

 Turning back to that fuel mix, renewables, shown here in orange, are the fastest growing fuel source with their volume almost quadrupling and their share within primary energy increasing to 10% by 2035, up from 3% today. And this strong growth in renewable energy is underpinned by improving competitiveness of both solar and wind power.

 The EU continues to lead the way in terms of the penetration of renewables. But as you can see from this chart on the right, China is by far and away the largest source of growth, adding more renewable power than the EU and US combined, another consequence of that changing Chinese energy landscape I just mentioned.

 The world also continues to electrify with a share of energy use of power generation continuing to rise. As a result, nearly two-thirds of the increase in primary energy over the outlook is used for power generation. In a new section in this year's energy outlook, which looks beyond 2035, we show that a simple extrapolation of this trend implies the power sector could account for outwards of 80% of the increase in primary energy in the years leading up to 2050. Just to get your head around that, 80% of all new energy produced in the 10 or 15 years leading up to 2050 could find its way into the power sector -- a quite striking amount.

 Indeed, under plausible assumptions the power sector could absorb the entire net increase in primary energy by 2050. My strong hunch is that in years to come, future energy outlooks will devote more and more space to the importance of the power sector in determining global energy trends.

 So that provides a really quick snapshot of this year's outlook. Global energy demand continues to grow driven by this growing Asian middle class, mitigated by accelerating declines in energy intensity. The fuel mix gradually decarbonizes with strong growth in renewables and natural gas, coal losing ground and nonfossil fuels providing almost half of the increase in primary energy and the global economy continues to electrify with the power sector playing an ever-increasing role in shaping the energy transition.

 My plan now is to look at a little bit more detail at some of the key factors shaping the outlook for oil and for gas before considering the implications of these trends for carbon emissions and the prospects of achieving the goals set out in Paris. Starting first with oil, where I want to explore two questions in particular.

 First, how might the growth of electric cars and the broader mobility revolution affect the demand for oil? And second, how might the combination of slowing oil demand and abundant oil resources affect the behavior of oil producers?

 Starting with demand, and just to set the scene, demand for oil and other liquids is expected to increase throughout the outlook, growing from around 95 million barrels a day in 2015 to 110 million by 2035. Transport demand accounts for around two-thirds of that growth, but as you can see from the darker blue bars on the left-hand side here, the stimulus from transport gradually fades. As a result, the overall growth of oil demand slows from annual increases of around 1 million barrels a day in the first part of the outlook to closer to [0.4 million] by the end.

 A consequence of this slowing in impetus -- the slowing impetus from transport demand is that the non-combusted use of oil, particularly within the petrochemicals sector, takes over as the main driver of growth by 2030. You can see here that -- you see that in the chart on the left here by those light blue bars, the non-combusted bars, becoming an ever increasing importance in terms of growth. It's worth pausing a moment just to think about that point.

 So the suggestion here is that the most important source of growth in oil demand in the 2030s won't be to power cars or trucks or planes or even as a fuel source at all, but rather it will be the use of oil as a an input into other products like plastics and fabrics. So quite a change from the past.

 So to return to my question of the role electric vehicles and the broader mobility revolution are playing in this changing picture, my focus here is on the car sector which is most open to electrification. And just to provide some context, oil demand for cars was around 90 million barrels a day in 2015. So around 20% of total oil demand. So that's the sort of magnitude we're talking about.

 We expect the global car fleet to roughly double over the outlook from around 0.9 billion cars in 2015 to 1.8 billion by 2035. The vast majority of this increase stems from that growing middle class within emerging economies I just mentioned with a number of cars in developing world projected to triple. Overall, the global demand for car travel is expected to roughly double over the outlook.

 Estimating how much of this increase in the global car part will come from electric cars is very uncertain. Our best guess is that the number of electric cars will increase from a little over one million cars in 2015 to around 100 million by 2035. So extraordinarily rapid increase but still accounting for only a small fraction of the total carport by 2035.

 Now, to be clear, this estimate depends on a whole range of unknowns: fuel economy standards, battery costs, government support for electric cars, oil prices, efficiency gains in conventional cars and, perhaps most crucially, consumer preferences. It's quite possible that the actual increase in electric cars could be much greater or smaller than built into our base case and I'll come back to that uncertainty in a moment.

 But first, what does all this mean for the growth in oil demand for cars in our base case? And that's what this chart tries to show you. So you start from the left-hand side which is a demand for oil for cars in 2015 of [19 million] barrels a day.

 All else equal, that doubling in the demand for car travel I just mentioned should lead to roughly a doubling in oil demand. And that's shown by the green bar. But this is significantly offset by gains in fuel efficiency as manufacturers respond to ever-tightening vehicle efficiency standards.

 The increase in electric cars also dampens the growth in oil demand but the scale of that offset is relatively modest. The increase of 100 million electric cars is estimated to reduce oil demand by around 1.2 million barrels a day. All told, liquid fuel demand for cars increases by around four million barrels a day in the base case from 19 million to 23 million, accounting for around 1/4 of the total projected increase in oil demand.

 If you stand back a moment from sort of the details of the forecast, sort of two broader points struck me about this chart. First, the impact of electric vehicles on its own is relatively limited and additional 100 million electric cars in 2035 equates to somewhere between 1 million and 1.5 million barrels a day of reduced oil demand. This impact helps to scale -- helps to quantify the scale of the uncertainty surrounding the penetration of electric cars.

 Even if electric vehicles were to grow far more rapidly than expected, two or three times more quickly. This would reduce oil demand only by around three million or four million barrels a day in a market which is exacted to expand by 50 million barrels a day to around 110 million. So even very rapid growth of electric cars doesn't seem likely to be a game changer for oil demand, at least on its own.

 The second point that struck me about this chart is the implications for oil demand of the expected gains in the efficiency of conventional cars on many, many more times important than the growth in electric cars. And this reflects a simple fact that under most scenarios, conventional cars are likely to account for the majority of the global car fleet over the next 20 years. So small improvements in their efficiencies can have substantial benefits. And it's important that we don't lose sight of the potential significance of this efficiency channel when considering how best to reduce carbon emissions over the next few decades.

 But electric cars are only a part of a broader mobility revolution that might affect the car market and, hence, oil demand over the next 20 years. When considering the potential changes to the car market, there are at least three other features in addition to electric cars which need to be taken into account.

 Autonomous vehicles, or self driving cars, which increase the efficiency with which cars are driven and so reduce energy demand, car sharing, where technology has made it easier for people to share cars rather than own their own. In itself, car sharing doesn't affect energy demand, it just means some cars are used more intensely.

 But the important point here is that if the cars which are used more intensely embody one of the new technologies, which seems quite likely, this will act to amplify the impact of the new technology since more miles are traveled in the new technology car and less in the conventional car. And finally, ride pooling, where, again, technology allow journeys to be pooled for easily, reducing total miles driven.

 Now trying to peer into the future and calibrate how these different technologies and behaviors might evolve is clearly fraught with difficulty. In the energy outlook we consider two highly stylized scenarios, trying to get a sense of the broad order of magnitude associated with these different mechanisms and how they might interact with each other.

 But the calibrations are, of course, hugely uncertain and we provide details in the booklet so you can do it yourself. So you can go away and there's enough details in the booklet for you to come up with your own scenarios and think what you think is far more likely. And if you find any good ones, please do send them to me. We're very keen to see. I'll show you my two but I'd be keen to see yours.

 The first scenario we consider is what we call the digital revolution. This assumes that electric vehicles increase in line with our base case, so just to 100 million. But there is significant growth in all these other technologies -- autonomous driving, car sharing and ride pooling.

 The growth in autonomous driving increases vehicle efficiency and so reduces oil demand. This effect is then amplified by car sharing since all the car sharing is assumed to be in efficiently driven autonomous cars. Ride pooling reduces the number of individual journeys and so all dampens oil demand. Plausible calibrations suggest that these mechanisms, which increase the efficiency of car travel, could reduce the growth in oil demand by two million or three million barrels a day relative to that base case.

 But these technologies are also likely to trigger a demand effect acting in the opposite direction. In particular, by reducing the cost of car travel and increasing its accessibility to some groups such as the young or those unable to drive, these technologies are likely to encourage greater travel by car. As a result, the net reduction in oil demand is likely to be less than implied by the efficiency gains and could, in principle, even increase if the offsetting demand effect is strong enough.

 The second revolution -- the second scenario we consider is the electric revolution. That builds on the digital one but assumes a far more rapid penetration of electric vehicles to around 300 million cars and also assumes that all other aspects of the mobility revolution, autonomous driving, car sharing, ride pooling, are implemented only with electric cars. This one's very much an electric revolution.

 And as you can see, the potential impact on oil demand in this case are significantly bigger. The greater number of electric cars directly reduces oil demand. This effect is then amplified since all car sharing is assumed to be in electric cars. Ride pooling further increases the impact.

 Moreover, since these technological advances reduce the cost of traveling by electric cars rather than by conventional ones, the offsetting demand effect only boosts demand for electricity and there is no offsetting demand boost for oil. Now, to repeat, these two scenarios are highly stylized. And I do encourage you to use basic calibrations in the booklet to develop your own.

 My own thinking and our own thinking on electric cars and the mobility revolution is still developing. There are perhaps three main take-aways for me from the work we've done so far as presented in this year's outlook. As I said, faster than expected growth in electric cars on their own seems unlikely to have huge implications for the growth of oil demand over the next 20 years or so. The numbers just don't seem big enough.

 Likewise, a substantial adoption of these new digital technologies, autonomous driving, car sharing, ride pooling, without a rapid increase in electric cars also seems unlikely to have a huge impact on oil demand. But a combination of faster-than-expected growth in electric cars, combined with a rapid adoption of new digital technologies, could have potentially a significant impact. That's all I wanted to say on oil demand.

 The second question on oil producers concerns how they might react to the prospect of slowing growth in oil demand given the growing availability of oil resources. And a simple point here is that there's an abundance of oil.

 So-called technically recoverable oil resources, a measure which aims to capture those resources that can be extracted using current technology, are today estimated to be over 2.5 trillion barrels. As you can see with this comparison of oil demand, that is more than enough to meet the world's likely entire consumption of oil out to 2050 twice over.

 This abundance of oil resources, combined with the prospects of slowing oil demand, may prompt a change in the behavior of oil producers. In particular, the strategy that many low cost producers have followed up to now of effectively rationing oil supplies with the expectation that a barrel not produced today can be produced tomorrow may start to become less compelling. It seems increasingly likely that not all barrels of recoverable oil will ultimately be produced.

 In the outlook we assume that low cost producers, particularly Middle East OPEC, Russia, and US tight oil, respond to this increasing abundance by using their competitive advantage to increase gradually their market share at the expense of higher cost producers. And this would obviously represent quite a radical change in the oil market with implications from both a composition of supply and longer term price trends.

 Given the abundance of resources relative to potential demand, some movement in this direction seems quite likely to me. But how much and how quickly is hard to know and depends on at least three issues: sort of the cost and feasibility of low cost producers increasing their production levels in the short to medium run, even if low cost producers wanted to do this, just how much could they feasibly increase their production levels over a 10 or 15 year period; the impact that such a change in strategy would have on their economies, particularly in terms of some of their physical finances; and third, the ability of high cost producers to try to maintain their market share by competing more aggressively by varying their tax and royalty ratios.

 We have built some shift in this direction into the outlook but whether it's too much or too little is obviously hard to know. So at least two major uncertainties surrounding the outlook for oil: the impact of electric cars and the mobility revolution and the extent to which low cost producers respond to the growing abundance of oil. That's all I was going to say on the prospects for oil.

 Turning next to natural gas. Gas is projected to grow by around 1.6% per year on average over the outlook, far more quickly than either oil or coal. Shale gas accounts for around two-thirds of the increase in total production. This is the shale gas driven increase, driven by US shale, which more than doubles, supported by the emergence of China as a sizable shale gas producer. The largest increase in gas demand comes from the industrial and power sectors with China, the Middle East and the US the main centers of demand growth.

 As you pointed out in last year's outlook, supplies of liquefied natural gas, LNG, are likely to increase rapidly over the next 20 years, growing far faster than pipeline trade such that by 2035 LNG is expected to account for over half of all globally traded gas. As you can see on the chart on the left, the strong growth in LNG supplies is led by the US in green and Australia in yellow. Asia remains a dominant market for LNG with increasing LNG imports supporting strong growth in gas consumption across much of Asia, including in China and India.

 The significance of the growing importance of LNG-based trade is that unlike pipeline gas, LNG cargoes can be redirected to different parts of the world in response to regional shocks or fluctuations. As a result, global gas markets are likely to become increasingly integrated over time. If a shot causes prices to move further apart in one part of the world, further apart than is warranted by transportation costs, there's an arbitrage incentive for LNG supplies to be redirected until prices move back into line.

 Given its location, Australia LNG supplies are normally likely to be absorbed in Asia. In contrast, US LNG exports are likely to be more diversified, providing the marginal source of gas for markets in Europe, Asia and South and Central America. This diversity means US exporters can essentially arbitrage across a number of different global markets. As such, as a global gas market becomes increasingly integrated, US gas prices seem likely to play a key role in anchoring the global market.

 Moreover, the development of a deep and competitive LNG market means there's likely to be increasing scope for long-term gas contracts to be indexed to gas prices rather than to oil. So we're likely to see some quite significant changes to the functioning of global gas markets over the next 20 years, underpinned by this growing importance of LNG-based trade.

 The final issue I want to discuss today is what all this means for the prospects for carbon emissions and the uncertainties posed by the speed of transition to a lower carbon environment. In terms of the outlook for carbon emissions, there's some good news and some bad news. The good news is that the faster declines in energy intensity, together with the more pronounced shift in the fuel mix, means carbon emissions are expected to grow at less than one-third of the rate seen over the last 20 years. You can see that here. Carbon emissions over the outlook grow a number close as close to 0.6% compared to over 2% a year over the last 20 years.

 The implication is that the global economy is able to grow at roughly similar rates to the past but with carbon emissions growing far less quickly. That's the good news.

 The bad news is that carbon emissions in the base case are still increasing, rising by around 13% over the next 20 years. This contrasts with the projected path for emissions in the IEA's 450 scenario which is often used as a benchmark scenario, consistent with achieving the 2 degrees C ambition and which suggests that rather than rising over the next 20 years, carbon emissions need to fall by around 30%. This widening gap highlights that more needs to be done in order to have a good chance of achieving the goals set out in Paris.

 And indeed, when constructing the energy outlook one of the biggest uncertainties we face is the speed of transition to a lower carbon energy system. To explore this uncertainty a little further, in last year's energy outlook we constructed a faster transition case which incorporated a range of policy actions including carbon prices rising to $100 per ton in leading economies and various measures to improve efficiency of energy in both transport and in industry and buildings.

 An updated version of this faster transition case is shown here. Carbon emissions peak in the early 2020s and by 2035 are around 10% below 2015 levels. So significantly lower than the base case but still well short of what's likely to be required to achieve the Paris goals.

 Given that, in this year's energy outlook we also construct an even faster transition case, shown by the orange line, which is calibrated to match the path of that IEA 450 scenario. Now it's fair to say we're getting close to the limits of our modeling capabilities in this scenario and so I wouldn't want to claim too much about the precise policy actions needed to bring this outcome about.

 In essence, we started from the package of policy measures developed in the faster transition case and broadly doubled our efforts. Some of this was defined in terms of actual policy measures. So for example, carbon prices are double that in the faster transition case, reaching $200 per ton in real terms in leading economies. And some was defined in terms of outcomes. So for example, the penetration of electric cars was assumed to be twice as quick as in the faster transition case, 400 million electric cars rather than 200 million electric cars by 2035 without explicitly specifying what policy actions might be required to achieve this.

 One feature of this calibration is that most of the additional abatement in the even faster case comes from the power sector, which you can see on this chart on the right, where by 2035 global emissions from power generation are less than a quarter of their 2015 level. In term of the implications of these faster transition pathways for the global energy system, this chart compares the two alternative cases with the base case. Energy demand continues to grow but more slowly than in the base case. In both the faster transition cases, nonfossil fuels, shown here in blue, provide all the net growth in primary energy with coal falling sharply.

 Oil demand peaks, although in a faster transition case, still grow slightly over the outlook as a whole. Renewables are the main beneficiary with their share of primary energy by 2035 significantly higher than in the base case. But that said, even in the even faster transition case, the world still needs roughly as much oil and gas combined in 2035 as it does today with oil and gas together in both cases providing around half of the world's energy needs in 2035.

 But I would caution about focusing too much on these precise outcomes. There are many potential ways of reducing carbon emissions and the outcomes will depend on the particular policy judgments and assumptions used. To get a sense of these differences, this table shows the two faster transition cases in the first two columns of the table together with four external scenarios that embody similar declines in carbon emissions, shown by the next four columns, and then compares them across different aspects of the scenarios, shown in the rows down the side.

 And the scenarios have some common features. All show both energy and carbon intensity declining at historically unprecedented rates. Most show that the power sector provides the greatest part of the reduction in carbon emissions.

 Likewise, most show oil and gas together still providing around half of the world's energy in 2035. The main difference of the even faster case relative to these other scenarios is that it assumes a greater role for shifts in the fuel mix and less of a role for improvements in energy efficiency. But this is a function of the particular calibration we use to construct the even faster case rather than reflecting any deeply held views. And indeed, the uncertainty as to how different technologies are likely to develop and be deployed means it's very difficult to make any normative judgments about the best path or approach.

 And that, in essence, is why from an economics perspective carbon pricing is likely to provide the most efficient mechanism for reducing carbon emissions. A carbon price incentives provides incentives for businesses, markets and consumers to seek out the most efficient path as technologies and behaviors evolve.

 In contrast, a regulation-based approach essentially requires governments and policy makers to try to guess in advance the best path and then mandate that path by rules and regulations. I used to be a policy maker. I know which one I think is likely to be the most efficient. It's hard for any government to pick winners and losers.

 So changing tactilely -- just make one final point. The faster transition pathways that we just looked at, amongst many other things, highlighted the possibility that stronger than expected climate policies might slow the growth of natural gas. We just saw that in those charts. But it's also possible that the strength of natural gas might be challenged by weaker than expected climate and environmental policies.

 The point here is that some of the strength in gas demand expected over the outlook reflects an assumption of increasing policy support encouraging a shift away from coal towards cleaner, lower carbon fuels, including gas. But what might happen if increasing policy support fails to materialize? This policy is explored in this alternative case in which there's less coal to gas switching such that the share of gas within primary energy actually declines over the outlook.

 Now the policy measures underlying this particular alternative case are quite stark. It's equivalent to assuming a zero carbon price plus less regulatory support, encouraging coal to gas switching. But it does highlight the general point which we show in the right here that the strength of gas demand in the base case could be challenged by both stronger and weaker climate policy assumptions and just highlights another element of the uncertainty posed by the speed of the transition.

 Let me stop there and conclude before throwing it open for questions. Some features of this year's energy outlook are indeed broadly similar to last year. Global demand for energy continues to grow, driven by the developing world. The fuel mix gradually decarbonizes as renewables gain share. The outlook for carbon emissions is improving but not quickly enough.

 But as the energy transition evolves, many more things are changing: the rebalancing and restructuring of the Chinese economy, by far and away the most important market for energy; the oil market as adjusts to electric cars and abundance of supply; the emergence of a globally integrated gas market and the policy and technological response to the challenges of climate change. I could go on. And that's exactly what we intend to do in future energy outlooks. So watch this space. Thank you.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [3]
------------------------------
 Thank you very much, Spencer. And, again, to those of you on the web, welcome. I think -- I'm not sure everyone knows just how complicated the world's energy system is and the size and scale of it. But you've taken that subject and you've simplified it down so that it's very clear. I wasn't clear on what your adding up machine is. I'd like to know more about that later.

 But we're going to take questions today here in London. And, again, welcome all of you who joined us here in London and from the web. This is not a security barrier up here on the stage. There's a lot of web questions here from all over the world.

 We'd like to stay with the subject of the energy outlook. We can because it's one of the you few times we sit down with Spencer and the team. So let's keep your questions focused on that.

==============================
Questions and Answers
------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [1]
------------------------------
 And with that, let me start with a question from London. I'll take one from this side and then this side and then we'll go to the web. Any questions over here? This gentlemen in the second row and then over here on the end.

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 Kingsmill Bond,  Trusted Sources - Analyst   [2]
------------------------------
 Thank you very much for the presentation.

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 Spencer Dale,  BP plc - Chief Economist   [3]
------------------------------
 Sorry. We meant to say -- could you just announce who you are so everybody on the web -- just your name and where you're from would be helpful.

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 Kingsmill Bond,  Trusted Sources - Analyst   [4]
------------------------------
 My name is Kingsmill Bond from Trusted Sources. I've got two questions if I may. My first one is you have a 5% EV penetration forecast for the fleet in 2035. But car companies, for example Ford, has 60%. And I suppose my first question would be given the shift of the automotive sector into that space during the course of this year, perhaps that number is looking a little bit dated.

 And then my second question is the issue of when do you believe the oil center will be disrupted by change. Because you spoke a lot about the fact that EVs could remove, for example, only a few million barrels of oil a day in context of a 95 million barrel per day market. But I would suggest that actually disruption occurs, as the coal sector just found out, not when all demand is lost but when incremental demand is lost. Which from your numbers is much, much smaller -- just 0.7 million barrels of oil per day. So perhaps actually a transition point is far closer than we realize.

------------------------------
 Spencer Dale,  BP plc - Chief Economist   [5]
------------------------------
 So on the first, I haven't seen any numbers from Ford or anybody. But perhaps you have better contacts with Ford than I do that suggests that 60% of the total car fleet by 2035. That would be an extraordinarily number. So as I said, I'm more than happy to think about alternative cases.

 I was very clear about that. I don't have a crystal ball here. We lay out in analysis.

 Some of the highest numbers I've seen are of 300 million or 400 million car stock by 2035, which is still only a relatively small fraction of the carpool. And my basic point there was even 300 million or 400 million, when that does about a 1 million or 1.5 million barrels a day doesn't add up to enormous change.

 In terms of when does change become significant, I'm not sure there is any sort of single point. I'm not sure it comes to the point where it stops growing or slowing growth.

 I think it's -- the world is changing. Many, many aspect of the world is changing. There's a global sort of energy transition going on, and for a company like BP we're part of that energy transition.

 The world today looks very different to what it did 20 years ago and the world in 20 years time will look very different again. I don't think there's suddenly some break point where suddenly everything changes. The world continues to evolve.

 And the main reason why we do the energy outlook is not to make presentations to the outside world. It's to help inform our own thinking, challenge ourselves, see how we should be positioning ourselves to take part in that changing solution rather than thinking, oh my goodness, there's some precipice and where is it going to be and a fear of falling over it.

------------------------------
 Patrick Harran,  Crown Commercial Service - Analyst   [6]
------------------------------
 Patrick [Harran], retired Price reporter and now working for the Crown Commercial Service. This is a question about oil prices really. I think that oil prices have been stabilized by the shale revolution. But my reading of oil market history is that the great changes over the last 50 or 60 years have mostly been caused by -- not by OPEC or anything else but by interventions, executive decisions of American presidents.

 Could you foresee anything the new President of the United States might do to further disrupt the oil industry, the oil market?

------------------------------
 Spencer Dale,  BP plc - Chief Economist   [7]
------------------------------
 I'm sitting here thinking, normally you sit here worrying -- oh my goodness there's going to be a question on oil prices. And I was thinking well that's okay. At least it's not a question about the new US President. (laughter) And then suddenly -- I relaxed too quickly.

 I don't think I have any comparative advantage to anybody else in this room in trying to guess how the new US administration will change. I guess the point I would make, if I look at the American First Energy Plan that the new administration published on its website either the end of last week or the beginning of this week, some of the key themes they highlight in that American Energy plan is sort of key priorities for them. A, to carry on strong growth in US shale gas, strong growth in tight oil, increasing movements towards energy self sufficiency in the US by both producing more energy and reducing its demand for energy.

 All of those things are very much within this sort of central features of this energy outlook. That's sort of a direction of travel is entirely consistent with what's in this year's energy outlook and was in last year's and previous year's energy outlook. Whether there's going to be some significant shift or change to that I'm less clear.

 And I guess the other point I would say is the main factor which is governing the pace of change in terms of those supplies and that shift towards energy self sufficiency is largely due with economics rather than constraints in terms of legislation. So it's not that somehow there's this thing which is ready to burst which has been held back by legislation. It's rather to do with economics.

 And so I'm sure there will be factors and changes and I'm sure next year as we learn more we will change things. But at the moment this seems to be going in the broad direction of travel similar to what the emphasis the new administration has said. And it's economics rather than policy which is holding things back or limiting the pace of progress.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [8]
------------------------------
 A footnote to that, the tax system in the United States is very, very competitive already. It's just the fastest responding market to changes. And I think, as Spencer said, it's the economics that will drive it quickly rather than some new change that would be introduced.

 So, ladies and gentlemen, we've got a lot of questions from India. So let me -- Spencer, if you could take the one that India is projected to be the single largest contributor to energy consumption growth in the world. Contributing one-quarter of incremental growth for the next 25 years, according to the IEA. What are your views on this?

------------------------------
 Spencer Dale,  BP plc - Chief Economist   [9]
------------------------------
 So we see India being one of the major sources of growth for energy demand. Over the 20 years at whole, we still expect China to be the largest contributor for increases of energy. But by toward the end of the outlook, then we expect India to surpass China as the sort of largest source of growth.

 And so that reflects two key reasons. First of all, we expect GDP growth in India to be significantly stronger than that in China on average over the next 20 years. Also, some of those sharp declines that we expect to see in energy intensity in China as it essentially moves away from the industrial sector towards more service and consumer related sector related growth, which is less energy intensive, you're not going to see that same pattern in India because it already has a massive consumer and service sector composition of its growth.

 And so the declines in energy intensity we expect to see in China are less. And so as a result of which, we do see this strong growth in India. Just one other point to note, just since we're talking about India, a key part of that we will see strong growth in coal demand within India with coal becoming the largest growth market for coal.

 Often when I say that, in some parts of the world I hear this sort of slight tut-tuting about all this growth for coal. It's worth remembering, in our outlook we project around two-thirds of that increase in coal will go to the power sector as this economy tries to electrify its economy and tries to lift many hundreds of millions of people, which are currently in fuel poverty and try to allow them to have access to electricity and some of the standards of living that we all enjoy here. And so the emphasis and importance that we place in some, quite rightly, in terms of trying to change the energy mix and decarbonize the [greater to] energy mix, there is also this other imperatives in terms of trying to make sure there's access to energy and electricity in some other parts of the world.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [10]
------------------------------
 Questions from is this side. First, fourth row back and then here. And then one, two -- you two are together. Okay.

------------------------------
 Paul Newman,  Next Group - Analyst   [11]
------------------------------
 Thank you. It's Paul [Newman] from the Next Group. Spencer, I wanted to ask you 12 years ago this month, actually, we were all sitting around watching the arrival of the EU ETS, the European Trading System for Emissions. And that held great promise as a wonderful vehicle of how we were going to contain and manage our future carbon expectations. Do you think that experiment has been a good one? I was rather surprised by the [200] number which you mentioned. That would be, I think, a long way away from where things are now anyway.

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 Spencer Dale,  BP plc - Chief Economist   [12]
------------------------------
 Sorry, Paul. I'm going to give you one of those terrible economist answers on the one hand, on the other hand. At one level it depends a little on how you judge success. If you judge success -- if they said I want to make sure that carbon emissions don't grow beyond a certain amount -- I want to do that at the lowest price possible -- then it's been extraordinarily successful.

 Because what happened, what came along was at the point when they produced that, they didn't expect there to be a significant financial crisis. As a result, with that financial crisis reduced the level of activity and they were able to -- so carbon emissions did not rise more than they wanted them to rise. And they were able to do that with the lowest possible price of carbon as what they had.

 And so in that sense you could say fantastic. It achieved exactly what they wanted to achieve.

 If the counter argument is, no, I didn't want to achieve the lowest price possible. I wanted to have some sort of stable price which then provided incentives for the long term, it clearly hasn't achieved that. I guess my basic point here is, given the many, many difficulties that we face as economists in a whole range of different aspect of the world, designing a carbon market that works isn't one of the hardest ones.

 If there's a political will to design a carbon market that will work, then it's possible to do that. That can be via the ETS.

 There's many different ways in which we can think about designing carbon markets. But I think designing a carbon market that works I think is quite within the wit of policy makers as long as there's a political will to do so.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [13]
------------------------------
 Second question right here, second row. And then we'll come over here.

------------------------------
 Hugh Lee,  - Analyst   [14]
------------------------------
 I'm Hugh Lee, a coal consultant. The Grantham Institute launched their transition pathway initiative a fortnight ago, looking at the carbon policies and climate policies of different companies. And they assess BP at level two and certain other companies, your competitors, much better.

 What are your plans to improve your assessment?

------------------------------
 Spencer Dale,  BP plc - Chief Economist   [15]
------------------------------
 There are many, many people more able than I to talk about BP strategy. So let me make a more sort of general point. I think perhaps two or three points.

 One is, BP's portfolio is shifting as the energy transition shifts. So if I looked at the BP's portfolio five or 10 years ago, it would have been roughly 60% oil, 40% gas. Today it's close to 50/50, and I said that gradual transition moving away from -- sort of shifting that weight away from oil towards gas is likely to continue in the future. I guess that would be the first point.

 The second point I would make is that BP has the largest operating renewable business amongst all the super majors in terms of a very large biofuels business in Brazil and on-shore wind business in the US. So we already have a quite significant footprint in that renewable business. And the key thing for us going forward is to provide a way where we can contribute to this energy transition but to do so in a way which is sustainable and which we have a comparative advantage.

 Many people in this room know BP far better than I. But there's was a period of time when BP had the second largest solar PV panel business in the world, not just amongst the major producers but in the world. It turns out you can mass produce solar PV panels really cheaply in China.

 We have no comparative advantage in mass producing solar PV panels in China. As a result of which, I think we lost a fair degree of money. And so we can't just run around saying let's do things to make us look warm and cuddly.

 We need to make sure that we find a way of doing things where we can contribute to this energy transition -- we spent 50 minutes talking about it -- but in a way in which we have a comparative advantage and which is sustainable in terms of long-term value for the Company.

------------------------------
 Bob Dudley,  BP plc - Group Chief Executive   [16]
------------------------------
 I'll just add on strategy for the Company, we spent most of the last year thinking about this energy transition to a low carbon world. What's the best way for BP to approach it? We know a lot about the energy systems of the world but what we didn't get right in some of those examples that jumped in with both feet and made big bets and investments in technology that didn't evolve the way we hoped.

 So what you will see us doing more and more small things, investments, joint ventures, all the way across the low carbon spectrum to get ready for this world so that we can be ready to make big decisions to enter it, rather than again making a bet. Because our work says it's not clear yet what will be the emerging technology and combination of technologies yet. But we've got a technology team and a strategy team that's sort of obsessed with this very question right now.

 You can both ask one.

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 Charles Whall,  Investech - Analyst   [17]
------------------------------
 Charles Whall with Investech. Spencer and Bob, you both talked about certain uncertainties we have in the world. So although we're all aware of adequate resource, the road map through the energy transition that is very much going to define how we get there.

 And I just wanted to question whether we have enough investment signals that we are going to get sufficient energy in whatever form it needs to be over the next few years, just because the path gets ever more curious and the investment signals more diverse. So how do we actually make the first five to 10 years of that transition?

------------------------------
 Spencer Dale,  BP plc - Chief Economist   [18]
------------------------------
 I think it's a key question, Charles. When we produce the energy outlook, the energy outlook is a sort of a 20 year ahead sort of story. And so I think I've used this analogy before. I should be able to think a better one.

 But this is sort of fact felt tip pen type story -- we're trying to think of those trends rather than thinking about the cyclical story underpinning it. But my sort of interpretation of the next three or four years is sort of entirely consistent with yours. It seems to me there's two or three significant unknowns when we're trying to think about the oil market adjustment over the next two or three years.

 One, we are seeing quite extraordinary cutbacks in investment spending in oil and gas. Some of that has come through but a big substantial part of it hasn't yet come through. And it will carry on building over the next few years -- just how big will those effects be?

 On the other hand, going in the opposite direction, we've already seen as prices have start to firm that rig count in US title has started to pick up. Just how much and how quickly will that US rig count pick up? In some sense -- I said economists don't have a crystal ball.

 They sometimes have an adding up machine. Good economist have a rear view mirror. And they look in their rear view mirror and they try and learn from history. That's how most economists try and do things.

 There is no history for the US and title responding to a cyclical [shock]. This is the first one. So we'll be a lot smarter in 5 or 10 years time.

 But that seems to be the second unknown. And the third unknown is how OPEC behave over this two or three year period where we've seen, as you well know better than I. So a number of OPEC countries increasing their productions quite substantially over the last year or two and now agreeing at least to temporary cut those back. And the role that OPEC plays in trying to balance the market can is the third unknown.

 And how those three things play out will obviously affect prices which is the key signal in terms of the [key] mechanism for future investment. And I think it's hard to know. But that is sort of the three parameters we're looking at or I'm looking at when trying to still think about the oil market adjustment over the next couple of years.

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 Lydia Rainforth,  Barclays Capital - Analyst   [19]
------------------------------
 It's Lydia Rainforth from Barclays. Just going back to the EV question and you outlined the potential scenario for that.

 One of the issues is going to be infrastructure within the countries to be able to access those electric vehicles and for people to want to do them. Within that, how is the marketing elements of BP and the strategy that you might employ there look at evolving?

------------------------------
 Spencer Dale,  BP plc - Chief Economist   [20]
------------------------------
 So, again, one of the nice things about this job, when I do the energy outlook -- because I get shut in my office for a couple of months thinking about the global energy system. But one of the bad things is I don't get invited to all these interesting meetings where they talk about strategy and downstream. (laughter)

 So there are many more people far more equipped to ask. I think perhaps the message to take from this is we're not burying our heads. We're not pretending it's not happening.

 We're not saying it's not happening. We're actively trying to think about this. And this relates to Bob's point about venturing in different types of businesses.

 We with want to be part of this game. This is an exciting progress. The car market 20 years ago looked different than it does today.

 It's going to look different in 20 years time. We want to be part of that.

 And we want to sort of play a role. But exactly how, what role we will play and how we will play it, there are far better people than I qualified to tell you that when the time is right.

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 Bob Dudley,  BP plc - Group Chief Executive   [21]
------------------------------
 We do interface with 11 million customers a day on our retail sites around the world. So the team is looking deeply at what is the future use of those retail sites, the real estate, the customers, the kind of customers -- not only the fuel but marketing other things. And it's another part of the energy system and the transition that the strategy teams and the technology teams are obsessed with right now.

 So let me take one on the web here. This Mark. He's coming from North America.

 Why don't you think going to be more of a significant increase in the use of natural gas for transportation? Aren't you underestimating the use of natural gas transportation? Natural gas is much cheaper than oil on an energy equivalent basis.

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 Spencer Dale,  BP plc - Chief Economist   [22]
------------------------------
 So we do have the share of natural gas increasing somewhat in transportation. It rises from a number sort of around 3% today to around 5% by 2035. So it's still small but it is increasing.

 The key drawback for natural gas as to be to strongly compete with oil is sort of the same answer on electricity, it is an infrastructure point. And so as a result of which we see the most natural growth markets for gas in transportation in both marine transportation and also some long road haulage. Both of those have the property that they're sort of tend to move from one -- the journeys start at one point and end at another point.

 So rather than needing a whole infrastructure of refueling points, you only need a refueling point at one or two different locations. So we do see the strong growth of gas in some of those sectors. But it's a lack of broad infrastructure -- I should be looking at [marketing] them in the US.

 It's that in the problem markets, the lack of infrastructure, which means you don't see a stronger penetration for gas relative to oil in transport -- at least in our central case over the next 20 years.

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 Bob Dudley,  BP plc - Group Chief Executive   [23]
------------------------------
 One more from the web and then one from the back of the room on this side.

 You haven't said much about nuclear power, future supply of energy. It is a controversial fuel that is not encouraged in some places, avoided in other places and yet growing in other places. What is your position on the future?

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 Spencer Dale,  BP plc - Chief Economist   [24]
------------------------------
 For those of you really looking carefully, won't be able -- when I showed the chart of shares, of fuel shares, the nuclear fuel share looks like a he pretty flat straight line. So one's natural instinct is oh that's really dull, nothing's going on there. But that's one of those stories where a relatively stable line hides two really significant things moving in the opposite directions and the net of the two sort of net out to a relatively flat line.

 So on the down side, what's pulling down on nuclear generation over the next 20 years are essentially the traditional markets in the US and Europe where both the economics and the politics of nuclear energy means we will see a number of new -- a number of existing reactors reach sort of 55, 60 years and will start to be decommissioned. And the new investment coming into those will be relatively limited. And so you'll see a gradual decline in capacity in those markets. That's on the downside.

 On the upside, to a very large extent, is China. China has an enormous nuclear program, essentially it's a counterpart -- one of the counterparts to that reduced dependency on coal. To reduce you dependency on coal, you need to grow nearly all other fuels really strongly -- renewable energy, natural gas and nuclear energy.

 I know some people in this room have heard me talk about this before. But the way I remember the Chinese nuclear program is equivalent to them introducing a new nuclear reactor every three months for the next 20 years. For those of us in the UK who just lived through Hinkley, which seems to have gone on for three years or something, just gives you a size of that magnitude.

 And I guess one of the upside risks to nuclear energy in our outlook is up til now there hasn't been -- or in recent years, over the last 10, 15 years, there hasn't been that learning curve in nuclear energy like we see in wind power and solar power. But it's possible if China does implement such a rapid program over the next 20 years that will generate quite significant learning. And as a result of which, some of the economics of nuclear power may improve.

 I think for some countries in Europe and the US, the politics of nuclear power may still mean you don't get strong growth there. But you can imagine countries in the Middle East and in Africa where the politics, the economics of nuclear improve, you could see stronger growth in some of those countries. But that's what's sort of going on, it's the sort of strong growth in the new markets of China offset by sort of diminishing growth within some of the traditional markets in Europe and the US.

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 Bob Dudley,  BP plc - Group Chief Executive   [25]
------------------------------
 Thank you, David. Back row. Yes, sir.

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 John Gearson,  King's College London - Analyst   [26]
------------------------------
 John Gearson, King's College London. I absorbed your full answer to the he question from India but still think it worth asking. To what extent your assumption, which is pretty fundamental to many of your other judgements, of continued growth in the size of the Asian middle class dependent on a punt or a judgment on Chinese success in overcoming the obstacles to their successful transition to the next stage of Chinese development as the first phase is slowing down? It's a political judgement.

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 Spencer Dale,  BP plc - Chief Economist   [27]
------------------------------
 Well let me ask it from an economics perspective. I think you're absolutely right, sir. What underpins growth here for energy is global economic growth and particularly the growth -- and in China, how we're going to achieve significant economic growth going forward?

 It's not going to be by population because of the nature of the demographics there. So it has to be via productivity. If you get increasing productivity, that's what drives hundreds of millions of people out of low incomes into middle incomes is that high productivity gives you higher income per head.

 Your challenge is what happens -- if that doesn't happen, is that a fundamental challenge to this outlook? Yes, it is. I would argue it's a fundamental challenge to more or less every single business outlook because global GDP will be significantly slower.

 But just to give you an idea, what's the story underpinning this story is if I look at productivity levels in China today, they're around 25% of those in the US. Over the next 20 years, we expect to convergence and essentially they adopt the best practice techniques from the frontier and they achieve -- they get to the point of achieving around half the productivity levels of the US over the next 20 years.

 That's the level of convergence we got built into this forecast. They don't get anywhere close to it. They just go from 25% to 50%.

 That's pretty similar. That pattern of growth of convergence is pretty similar to, for example, what you saw in Korea in the 20 years post the 1980s. So it's possible.

 It's very plausible and it's based on sort of economic -- sort of there's many economic precedents for this, this convergence of productivity trend. But if that doesn't happen, you're quite right, that's a fundamental -- that would be a significant change to our outlook but I would also say to more or less every business' outlook, any business requiring global growth over the next 20 years.

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 Bob Dudley,  BP plc - Group Chief Executive   [28]
------------------------------
 Thank you, John. One from Sanjay. Spencer, during the outlook period how much impact is the increasing population, economic growth in Africa expected to have on the global scale and what's built into your forecast?

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 Spencer Dale,  BP plc - Chief Economist   [29]
------------------------------
 Okay. So this is -- thank you, Sanjay. This is a great question. One of the things I've always felt most bad about when I presented the energy outlook is you just never talk about Africa.

 And you think more surely it's got to be a significant part here. Over the next 20 years, we have something like half of the growth of population happens in of Africa. But Africa counts for less than 10% of the growth in GDP and less than 10% of the growth in energy.

 And the quandary in that is they are not getting that pick-up in productivity that we expect to see. In the energy outlook, in the book that you'll see, we sort of speculate, well what could the world look like beyond 2030 for Africa? What role could Africa play in the period between 2035 and 2050?

 The natural instinct I think many people have when thinking about global energy demand beyond 2035 is it gradually carries on slowing over time because some of that impetus from China and India starts to wane and so that sort of [grow slow] slowdown in global growth of energy starts to wear off. And what we show in the outlook in this new section is relatively -- if you have a similar sort of style productivity catch-up in Africa, similar to what you see in India in recent years and perhaps some industrialization leading to more greater increases in energy intensity, that could easily be enough to mean that global energy growth carries on at the pace we see in the energy outlook rather than declines.

 And so I think it's fair to say the Africa within the energy outlook period of the next 20 years is not playing a big role. It's absorbing lots and lots of new people. That's where much of the population growth is happening.

 But that's not translating itself into higher activity and higher energy demand. But it could play an increasingly significant role when thinking about energy trends beyond 2035. And we include some sort of material there in the booklet.

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 Bob Dudley,  BP plc - Group Chief Executive   [30]
------------------------------
 A question in the middle -- probably the hardest place in the room to get to in the fifth row in the middle.

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 John Feddersen,  Aurora Energy - Analyst   [31]
------------------------------
 Thank you. I'm John [Feddersen] from Aurora. Thank you. Great presentation once again, Spencer. I've got a question about the two oil demand uncertainties you spoke about. It seems as though you taken reasonably moderate views on the, 5% of EVs by 20135, subtle uptick in production by low cost producers.

 But you also suggested that there could be potential downsides on both accounts from automated vehicles from fiscal concerns in oil producing nations. Which of those two do you think a multinational oil company should be most concerned about? Which is the extreme downside that you'll be taking to Bob or the strategy team and highlighting out of those two.

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 Spencer Dale,  BP plc - Chief Economist   [32]
------------------------------
 Thank you, John. And for those who don't know John, John heads up Aurora Energy which is I think one of the smartest energy modeling companies around and helps us on this energy outlook and continue to help us. So thank you, John, for your help on that.

 They both impose challenges and opportunities, I think. The shift in the producers, the shift in the supply behavior, I think sort of the biggest challenges that poses are for the owners of that resources. So for the countries who own those low cost -- own the higher cost resource.

 A Company like BP, our capital is mobile. If the production levels shift from one part of the world to another part of the world, we can reallocate our capital to where that production growth is moving to. So I perceive that as sort of really as largely an opportunity because we've got the mobility of our capital to shift around. And the real challenge in terms of that production is to the owners of the resource rather than to us.

 On the oil demand, that is a challenge. But I don't think it's all one sided. So when we do the energy outlook, I pick three uncertainties.

 It's not a sort of coincidence that all three of those uncertainties tend to be downside for BP. It's by design because that's what generates the sort of really interesting conversations in BP. If I go to Bob and say, Bob, it's going to be all right, or could be even better, it's not really going to generate the sort of conversations we want. (laughter)

 So what we highlighted there or which I find most interesting -- always past beneficial. (laughter) So what we've highlighted there is that downside to demand growth. I don't think the risk around EVs are only one sided.

 I don't think 100 million cars is some ridiculously sort of small number. I think there are many others that could have less than that. What we assume -- but another thing is that chart I showed you earlier.

 What's the real driver why oil demand doesn't increase more significantly even though the demand for car travel is doubling is energy efficiency. We have energy efficiency -- we assume energy efficiency increases at twice the rate over the next 20 years as seen as the last 20 years -- twice the rate. Now that's possible.

 That's why we put it in our outlook. And I think vehicle efficiency standards will be a key way in which we try to reduce car emissions from transport sector.

 But if I had to put the risks around that, given this is such a break with the past, I would say the risks around that is energy gains may not be quite as great as that which provides an upside risk to oil demand. So even though I highlight all the downside things, I don't think you should go away and say all the net risks are on the downside.

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 Bob Dudley,  BP plc - Group Chief Executive   [33]
------------------------------
 You're right. We usually do talk about the down side discussions. We're going to greatly disappoint what is many questions from around the world here on the web because we've got a schedule.

 We want to stay to close. I promised one more question here in the room and then we'll need to close and thank you all very much. We've got a question over here -- second row, middle.

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 Sarah Kent,  Wall Street Journal - Analyst   [34]
------------------------------
 Hi. Sarah Kent with The Wall Street Journal. I wanted to follow up on this idea of mobile capital. Could you give a little bit more flavor strategically where BP is likely to move its capital to and from in light of this outlook. (laughter)

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 Bob Dudley,  BP plc - Group Chief Executive   [35]
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 That's a long answer. Well I'll just say that we're a very long-term business. And we try to stay out of the politics.

 But we are living and working in a world today where we have to make decisions today where there may be no revenue from projects 10 years out. So we carefully try our best to think through cycles of oil and gas, the lower carbon transition that's going to happen, where that will happen and try not to be too short-term in anything we do. And we couldn't move our capital base that quickly anyway.

 But I do think about as we think about our capital out and the mobility of it, we will need in the years ahead to continue to be not so much involved in transitions but relationships. We often will have the privilege of stewarding the assets of countries and working around the world. And we have to think about -- and partnerships around the world. These are very strong relationship driven and our business needs to be rather than quick transactions that would shift capital around.

 Now, ladies and gentlemen, it is -- it's about one minute past 4 when we promised our many, many guests around the world. I want to thank all of you for joining us. I hope the technologies worked.

 I'll get the feedback, particularly on the iPhone mobility, being able to watch us today. Is anybody in the room doing that today?

 No. That's why you're here. Thank you all very much. And we'll close and we'll see how wrong your forecast is next year. (laughter)

 Thank you all very much, ladies and gentlemen.




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