WEC: Technology key to energy industry future

Anne Rhodes
Associate Managing Editor-News

Continuing technological advances are the key to the future of the global energy industry, said industry leaders at the 17th Congress of the World Energy Council (WEC) in Houston last week.

Because of the industry's ability to adapt to changes through technology improvements, industry leaders appear optimistic about the future of the industry.

"The spirit of optimism is all the more remarkable, and of course all the more necessary, when you consider the environment in which we're operating," said John Browne, CEO of British Petroleum Co. plc.

U.S. Energy Sec. Bill Richardson said, "The current crisis in financial markets is being felt around the world. But I am supremely confident that, as we enter a new century and a new millennium, the energy sectors and energy resources represented here today will be principal contributors to future worldwide economic recovery and growth.

"Energy is key to economic performance. Energy offers new market opportunities for business. Energy is a global commodity of strategic importance. Finally, energy's impact on the environment requires our continued vigilance and an international commitment."

Global energy use will likely double by 2030, said Richardson. And there will be a corresponding effect on the environment.

As much as $30 trillion will be required to finance new energy projects, he predicted, about $5 trillion of which will be spent on environmental protection.

"Most of this capital growth will have to come from the private sector," said Richardson, "which will be up to the task only if the appropriate legal, financial, commercial, trade, and regulatory mechanisms are in place. To help meet this challenge, governments need to accomplish two things: they must create attractive climates for private investments, (and) they must partner with the private sector to develop and deploy advanced energy technologies.

The environment

There is no single energy source that will enable the industry to meet the energy needs of the 21st century while mitigating the environmental consequences of its production, said Richardson: "There is no silver bulletellipse.This can only be accomplished through a substantial and sustained commitment to science and technology.

"We can strategically and efficiently manage our energy resources through a concerted investment in research and development that will advance all energy options: oil, gas, coal, biomass, hydropower, wind, nuclear fission and fusion, and solar.

"Even so," he continued, "conventional fuels will continue to be the world's dominant energy source for the foreseeable future."

Richardson believes continued technological progress will make it possible to continue fossil fuel use without degrading the environment: "There is no reason why we cannot develop and deploy technologies that virtually eliminate the cause of acid rain and the release of smog-forming pollutants."

Energy conservation is another key to environmental progress amidst a gradually changing slate of energy sources. "Energy-efficient technologies are not just green alternatives to the real business of traditional energy investments," said Richardson. "Rather, energy efficiency is grounded in better use of our conventional energy resources, particularly fossil fuels."

International prosperity depends on energy, said Richardson. "Through smart government policy and investments in energy research and development, we can both grow our economies and protect our environment."

Climate change

Perhaps the most discussed environmental issue at the conference was purported global climate change, which is linked to CO ₂ emissions.

A paper by Shigeru Muraki of Tokyo Gas Co. Ltd. and Michael Jefferson of WEC, London, summarized industry's efforts toward curbing CO₂ emissions. The authors listed a number of key CO₂-reduction technologies, including regenerative combustion, oxygen-fuel combustion, latent heat-recovery boilers, and repowering systems.

The authors concluded, "In contrast to the impression some seek to giveellipsemany initiatives are being taken by the energy industry around the world to curb CO₂ emissions. Many of these are voluntary, though by no means all. Yetellipsethere is only so much the energy industry can do on its own.

"Consumers need encouraging to play their role in raising efficiency in energy useellipseA more widely shared view of what is attainable, at acceptable costs, is a prerequisite for the significant curbing of CO₂ and other anthropogenic greenhouse gas emissions.

"There is large potential for curbing emissions while maintaining and improving the services that people require from energy use."

Yumi Akimoto, CEO of Mitsubishi Materials Corp., said, "The most serious environmental problem facing us today is global warming." Increased use of nuclear power has enabled a continual decrease in CO₂ emissions in several developed countries since the oil crisis of the 1970s, said Akimoto. For this reason, he called for a further nuclear power expansion.

"We cannot halt the emission of carbon dioxide gas as long as we use fossil fuels," said Akimoto, "but we will not be able to solve this problem if we continue to view it in terms of short-sighted equations like: 'control of carbon dioxide emissions equals control of energy.'

"In developing countries, there is a strong link between increased energy consumption and economic growthellipse In advanced nations, too, the spread of information technology is leading to greater energy consumption in homes and offices."

Despite his confidence in technology's ability to control emissions, Richardson is also concerned about the possibility of global climate change, which he called "a real problem."

"Prudence demands a measured but strong response to this threat," he said. "The Clinton Administration believes that the Kyoto protocol is a good first step in getting a handle on our climate-change problems. The flexibility mechanisms set forth by the protocol-international emissions trading, the clean development mechanism, and joint implementation-are key to helping all nations meet their emissions targets without harming their economies."

Renewables

The development of renewable energy sources-such as wind, solar, and biomass-is key to the long-term viability of the energy industry.

Kenneth Lay, chairman of Enron Corp., said, "Renewables are gaining market share as improved technology and greater economies of scale make them more competitive with conventional fuels."

Renewables have a 6.1% market share in the world's energy supply, said Lay (3.7% excluding hydroelectric power). And many energy companies consider renewables a viable business opportunity.

Royal Dutch/Shell says renewables could constitute 50% of its energy business in 50 years. And Enron owns two wind turbine firms and 50% of the largest U.S.-owned photovoltaic manufacturers "in anticipation of renewables' growing market share," said Lay.

"The world solar market, worth $1 billion now, could be worth $6 billion by 2010," he said. "The cost of photovoltaics has dropped by more than half between 1985 and 1995 due to better product design and greater efficiency.

"In addition, we're seeing significant progress in wind energy generation. The world's wind capacity is 7,600 MW. Wind turbines cost $1 million/ MW of installed capacity and last 20-30 years."

Governments are highly supportive of renewable energy sources, for obvious reasons. Lay listed some renewable energy initiatives in key countries:

• In the U.S., President Clinton has proposed that 5.5% of electricity come from renewables by 2010 (about nine times the current proportion).
• In the U.K., a fivefold increase in renewables is sought (to 10% from 2%).
• In Germany, use of wind power has increased 15-fold since 1990, underwritten by the government.
• In Japan, solar energy provides an attractive alternative to high-priced electricity.

"Growth in demand for solar power is fastest in developing countries such as Kenya, Mexico, and South Africa," said Lay, "and India alone accounts for 12% of America's solar exports."

A changing industry

Peter Bijur, Chairman and CEO of Texaco Inc., believes that, in order to survive, traditional oil companies will have to change their very nature. He provided three scenarios that he believes have "a reasonable chance of occurring."

The first scenario is declining access to oil.

"We believe that host governments will gradually exert more control over their own national resources. They will be more selective in the kinds of companies they invite in."

Bijur believes innovative energy companies will offer technical expertise to those governments without requiring an ownership interest.

"These high-tech, high-service, high-solution companies will enable host governments to realize the full value of their assets. These new companies will also have the expertise to link their client countries to the consumer markets."

Under this scenario, said Bijur, "the role of the oil company as an upstream producer will erode. The company that wins will be the company that reinvents itself as a solution provider.

"An oil company's value will shift from the value of its reserves to the value of its knowledge, the strength of its relationships, and the integrity of its reputationellipseTraditional oil companies that do not transform themselves will be reduced to trading oil or focusing downstream, where fierce competition will soon accelerate consolidations."

Bijur's second scenario is a transformation in intercompany relationships caused by new competitors that will insert themselves between the traditional supplier and customer. As an example of this, he cited a California company called Energymarketplace.com.

Through this firm, small businesses can choose over the Internet the types and quantities of energy they use. Energymarketplace.com then puts the business out for bid on a daily basis.

Another example of this type of market intervenor is hypermarkets, which have taken a sizeable quantity of retail share away from oil companies in Europe.

"Webs of relationships between different industries will also begin to form," predicted Bijur. "Eventually, the distinction between oil, gas, and electricity will blur as new competitors offer customers 'units of power' from a variety of sources."

Oil companies who do not think broadly under this scenario "will be reduced to the role of low-margin bulk suppliers."

Under Bijur's third scenario, technological and environmental concerns will become a tremendous force for rapid change.

"We will see multiple ways to power cars: hybrids, advanced batteries, fuel cells, even cars that run on pure hydrogen."

Bijur summarized the dramatic effect of such changes: "The economics of the world itself change when you park a car and then use its fuel cell to generate electricity for the home. The power grid of an entire country begins to look like the Internet, rather than a mainframe.

"If we are to emerge successfully from the old ways-if these are not to be the last days of the traditional oil companies-we must develop new outlooks, new attitudes, and new directions," he concluded.

The role of technology

Browne said, "I'm very struck by (Fortis Chairman) Dr. (Angus) Brun- eau's comment that at no time in man's history has the pattern of primary energy use been ecologically or economically sustainable when extrapolated into the future."

But continual technological improvements have enabled industry to meet growing energy demand.

Among the changes affecting the energy industry in the past decade, Browne listed price volatility, downsizing, fierce competition, uncertainty in the stock market, changing public attitudes, dramatic political change, and "fundamental shifts in the way in which we work."

These factors have driven the industry to learn to adapt to an environment of uncertainty, said Browne. "At the heart of this adjustment is technology," he said.

In real terms, said Browne, oil prices today are more than 40% less than they were 10 years ago, and comparable to the levels seen 25 years ago. "The reason we're all still in business is that average finding, development, and lifting costs have all fallen, on average by almost a third, in real terms, over the last decade."

Changing product quality in response to environmental concerns is another area in which technology plays a key role.

"We can respond to legitimate environmental concerns. We can provide choice. We can supply increasing volumes of oil and gas to meet world demand without destroying the environment for the next generation. Technology is the key."

Browne elaborated: "We can test wells without flaring. We can reduce the energy consumption of our production and refining operations. We can use new boiler technology to cut carbon dioxide emissions. And we can remove CO₂ from exhaust gases and reinject it into deep rock formations.

"Next year, we're going to test that process at Milne Point in Alaska. That will have an environmental benefit, but it will also help to increase oil recovery," said Browne.

He stressed that operating in an environmentally responsible manner makes good business sense: "None of this is about public relations. It isn't about applying a coat of green paint. Progress of this sort is about responding to customer choice.

"Progress is a commercial, competitive imperative, and those who succeed will be the winning companies of tomorrow."

Technology will also help increase the reach of the industry, both in terms of the frontiers from which production is possible and in terms of the proportion of the discovered resources that can be developed.

In today's climate of mergers, acquisitions, and joint ventures, organizational changes will have a major effect on the future of energy firms. "And technological advance is the product, and the beneficiary, of a well-organized structure," said Browne.

He concluded, "There are those who say we can't keep pace with the challenges-that we only cope with one issue at a time, that we can't simultaneously provide world-class returns on capital and air fit for our children to breathe, and the most complex and stimulating jobs available in any sector, without exception. They're wrong."