WEF 2018: In Conversation With Dev Sanyal

Well, I think you just said it. I think the global economy has been growing. Some would say, compared to last year, sentiment in Davos is a lot more robust. Our forecast this year continues to be very robust. We are seeing fundamentals pointing to a 3.2 to 3.4 percent growth in global GDP. So the world economy is prospering, and that's of course translating into need for energy as economies prosper moving forward.

It's hard to say for the obvious reasons because this is of course a globally traded commodity. But I think the fundamentals tell us a few things. Number one, the inventory overhang that we saw last year and the year before that clearly is being eroded, and we are actually seeing the market going into more of a balance as we look at the second half of this year. We are also seeing robust growth — last year we saw growth of around 1.6 million barrels a day in terms of demand. This year we are forecasting that there will be growth in demand of a similar amount. What the precise number will be, I think, will be determined over time. But also what we are seeing is that there are supply fundamentals playing themselves out. OPEC has been very disciplined, and effectively we have seen the OPEC Accord of November 2016 play itself out in the market. So I think as always there's a combination of supply and demand factors, but I would say on the supply side, the overhang that we saw and the narrative we saw in recent years has abated. And of course there are some political risks — like Venezuela, like Libya, like Nigeria — that need to be looked at very carefully as we look at 2018. And frankly there's also of course the output in the United States. Last year we saw 0.7 million barrels a day growth in U.S. output. This year we continue to forecast pretty strong growth. So I think the markets will adjust accordingly. The exact price is difficult to forecast, but it feels a bit elevated at this point in time. And I think in the second half we'll probably have to see some of the fundamentals and see where it rests. But I think the fundamentals are pointing to a softening, but not necessarily a fall — a softening as we look for the rest of the year from where we are at the current moment.

I never forecast hundred dollars. When it happens, I'm never trying to make a forecast. This time around, it's hard to see fundamentals pointing to that particular price range.

We are making a lot of good progress in India, and I think when you look at the overall fundamentals of India, they're very, very strong. India needs a lot of energy. Our forecasts are that for the next 20 years, India needs 130 percent more energy than it actually consumes today. And by the way, we are going to see a tremendous rise in gas — around 130 percent as well — renewables around 699 percent, oil around 105 percent. So India just needs a lot more energy to meet its economic needs moving forward. Gas is going to be an important part of that narrative. We are actually ramping up our investments in the KG-D6 basin, and what we expect to see essentially is strong progress in terms of monetizing that opportunity. What we are targeting is essentially a narrative where we can get to a billion cubic feet a day of gas production in India over the course of the next four to five years.

I think we're very excited about the current set of investments that we have in terms of the plan moving forward for the next five years. Our industry is a very long-term play. We take a very long-term perspective on any investment. And the fact of the matter is, fundamentals are very important because we have such a long investment horizon. The fundamentals of India are very strong, and I think what we're doing is investing into those fundamentals, which are — I think — what you would hope they would be. In the initial period, we're going through the next phase. The new investments that we've announced essentially will be about monetizing the opportunity from there. The total investment dollars run into many billions. We are looking at over the next five years, and we're also looking at of course the creation of jobs that will support the development of the resource base.

That's why we've got the plan moving forward to ramp up investments to basically monetize the resource base from that area. And by the way, 100 percent of the gas will go into India's energy needs. We have a vision that over the next five years, 10 percent of India's gas needs comes from our production in that area.

We are very, very optimistic about the fundamentals. In every country we invest in, quite frankly, you have as you'd expect the peaks and troughs. But the overall fundamentals, frankly, are pointing to India by the middle of next decade actually overtaking China in terms of absolute demand growth for energy. So India is going to be, whichever way you look at it, very important for all forms of energy. And gas of course meets a very important area for India — clean energy.

We are investing in the alternative energy space, and I would say BP was one of the early investors in this space across the world. Today we have four businesses in alternative energy — it's in wind energy, it's in bio-power, it's in biofuels, and more recently in solar energy. We announced on the 19th of December an acquisition of a 43 percent shareholding in Europe's leading solar company, Lightsource. And by the way, Lightsource will be renamed Lightsource BP. The transaction is expected to close shortly. And indeed, Lightsource BP are actually in the process of building out in Maharashtra a very important development in the provision of solar energy. Solar energy is going to be a very important part of India's narrative. The Prime Minister laid out in Davos his vision — 175 gigawatts — and this is a very ambitious plan. Already 60 gigawatts have been commissioned, more to do. But I think what we are seeing is that solar energy is competing, we are seeing wind energy competing, we are seeing biofuels competing. And effectively what we want to do is make sure that we are able to invest into a business model where we bring our capabilities to create real value for the communities we serve, those governments and societies we partner with. India very much is going to be a big part of the renewables narrative. We estimate over the next 20 years a 699 percent growth in renewables to meet that big number of 130 percent energy demand growth in India. And we will of course look at opportunities. We announced last year an MOU with Reliance to look at the low-carbon offers in India, and we are working towards that. But as I said, more recently with the Lightsource BP deal, we will actually now have exposure to the solar energy business in its first form in Maharashtra.

I think we're still looking at a whole bunch of options, as you'd expect, around the world. Again, I feel the key for the alternative energy business is making sure you're investing in a business model where you can actually drive value. Just looking at cost-of-supply curves is not the way forward, because the cost-of-supply curves are going down because technology is actually creating real opportunity in this space. So I think the opportunity moving forward is: can we bring value, and can we actually bring together a set of integrated offers — maybe combining renewables with gas as well — which I think brings a more integrated dimension. That's one thing that we want to actually look at, and we are studying in India and indeed in other markets around the world.

I think what we're saying is that we want to prioritize. There are finite resources in terms of human and financial capital, and right now we are very focused in India in terms of actually making forward gas investments. But over time we'd hope to participate even more in India's energy narrative and hopefully provide to India what it needs as it actually continues to be one of the dominant forces in the world economy.

I think with every business there are changes that occur because of regulatory actions or indeed actions by governments. But I think the fundamentals of solar and wind and biofuels are pointing to essentially a business model that's competitive against alternatives. Because I don't think there's any good in saying we're going to provide alternative energy which is going to be a lot more expensive. We actually need to provide something which is safe, which is secure, which is sustainable, but also very importantly affordable. And I think what we're seeing now — if we look at the solar space as an example — we've seen supply costs go down by 80 percent over the course of the last five years. We have seen capacity in the last year essentially go up by around 30 percent, and we're seeing that trajectory continue. That's actually not driven by having a higher-cost energy source — it's actually driven by creating affordability, because technology and operating capability and efficiency is driving down the cost. So yes, tariffs do have an impact in the short term, but fundamentally, where's the trend? The trend is your friend here. It is actually heading south, and I think that is actually a good thing, because ultimately any form of energy has to be affordable and competitive. That is very important, and I think we can, due to technology and other factors, create effectively some scale businesses around the world. But again, one has to be thoughtful about the pace and also be thoughtful about making sure the capabilities are there.

Thank you. I'm heading to America. Thank you.