The sixth annual Energy Symposium, hosted in Oklahoma City by the Energy Institute at the University of Oklahoma Price College of Business this spring, took up no less a main theme than the future of energy.

“Companies have to follow their capital framework in terms of funding, whether that is dividends or projects,” said Dave Lawler, CEO of BP America Inc.’s U.S. Lower 48 Onshore business, in a keynote address. “But, if you think beyond single-well economics, you find dollars available. Simply, you cannot optimize the near term [only] and expect to have a long term.”

The University of Oklahoma’s Price College of Business hosted its sixth Energy Symposium in Oklahoma City in March. From the left, Mike Stice, Andrew Bradford, Michael Ming and Joe Stanislaw.

Lawler was on solid ground for the long perspective because the event was held in the same building where he worked for Kerr-McGee Corp. at the start of his career. Lawler was proud that, through BP Plc’s investments in U.S. wind farms, biofuels ventures and other initiatives, it has become “the top renewable energy company in the world.” Yet he and other speakers stressed hydrocarbons will have a continuing global importance for decades. “Natural gas, in particular, has a crucial role,” he said, “not just as a bridge fuel, but as a destination fuel.”

That calculation was hardly the first that Lawler had made on that site. “I started my career here in this building, working for Kerr-McGee 30 years ago,” Lawler recalled. “It was difficult work, doing repeat formation test analysis with very little computer support. That meant doing some calculations by hand. Coffee was 15 cents a cup and did not come out of a machine. There was a coffee cart that came around and rang a bell.”

Reflecting on the changes in the industry over his career, Lawler stressed that “the work of the Energy Institute has never been more important. There is demand for oil and gas, and there is also demand for us to take action on reducing greenhouse-gas emissions.”

He listed five “key realities of global energy. First, the shift to lower-carbon sources that has already started. Second, despite those rapid changes, the need for industry, government and individuals to do more, if we are to meet the goals of the Paris climate agreement.

“Third, energy must be both reliable and affordable. Fourth, even in a highly aggressive low-carbon scenario, oil and gas remain a significant part of the global energy mix for decades to come.” Extending from that was the fifth point that gas is not just a bridge fuel but a destination fuel.

“If current trends continue, and we project to 2040, there will be a 35% [rise], with the entire increase driven by developing countries. Within that, there is going to be a 400% increase in use of renewables. That will account for 14% of total demand in 2040, an increase from just 4% in 2016. That is the fastest gain in history,” Lawler cited from the BP’s 2018 “Energy Outlook” report.

“BP has the largest renewable portfolio of any major,” Lawler said. “We have 12 wind farms and a massive biofuels business. We have a joint venture with DuPont in bio-isobutanol and another venture with Clean Energy Fuels [Corp.], which made BP the largest supplier of natural gas to the U.S. transportation sector. On the global level, we made a $200-million investment in Europe’s largest solar-development company.”

More broadly, Lawler cited the work of the industry group Oil and Gas Climate Initiative (OGCI), of which BP is a founding member. The group has committed $1 billion over the next 10 years to support low-carbon technology. “This is the kind of combination we have talked about—working together, getting everyone on board, for the collective good.”

Within his the U.S Lower 48 Onshore portfolio, BP’s Cooper River chemical complex near Charleston, S.C., recently completed a $200-million modernization project that reduced electricity use by 40% and cut 110,000 tons of carbon emission per year, while boosting overall production 10%, he said.

That “BP is the top renewables company in the world,” he added, “we need to do a better job of getting that message out. That is something we can best do collectively through OGCI.

“The world is telling us that they want to take a different direction. We should not be defensive about that. Twenty years ago. Lord [John] Browne [the former CEO of BP] identified these issues and had the courage to step forward, but, at the time, his message was not well received.”

Lawler advocated carbon pricing. “This would be an example of what government can do. Energy issues have become deeply polarized. But energy production and environmental protection are not mutually exclusive. Governments can help us achieve these objectives by creating a market-based energy framework that encourages competition, efficiency and innovation.”

Andrew Bradford, CEO of BTU Analytics LLC, said that, in the lower-carbon future, there is no question that natural gas will have an enduring role.

The best way to do that, Lawler declared, in BP’s view, “would be to adopt a flexible, well-designed, economy-wide, carbon pricing program. Across the world, carbon pricing has proven to be more effective—both from an economic perspective and from an environmental perspective—than top-down regulations intended to limit growth of oil and gas.”

The role of natural gas

Andrew Bradford, CEO of BTU Analytics LLC, said that, in the lower-carbon future, there is no question that natural gas will have an enduring role. “The easy days of finding demand for gas in the U.S. are over,” Bradford said.

“China still gets 65% of its electricity from coal. Hydro accounts for 20%, nuclear and wind each 4% and natural gas only 3%. In India, coal accounts for 77% of power generation. That is a huge opportunity for gas, but also for wind and solar.”

The first big step in seizing that global opportunity for gas is getting molecules to market. There are now two LNG export facilities—Sabine Pass in Louisiana and Cove Point in Maryland—in the U.S. with four more expected to come into service by the end of 2019.

This past winter, despite some 4 billion cubic feet per day (Bcf/d) directed to U.S. liquefaction-for-export plants, the gas-draw season ended in late April with more than 1.2 Tcf still in U.S. working storage, according to EIA data.

But there was some question at the conference concerning whether the supply could keep up with demand from additional export trains. In addition, roughly 4 Bcf/d of exports to Mexico has to be figured into the equation. But most gas price forecasts are for $5 to $6/Mcf out a decade or two.

The major concerns for producers are no longer availability of the resource, but the availability of water or sand, said C. Michael Ming, vice president and executive liaison for marketing technology at Baker Hughes, a GE company. “The original model of using fresh water one time then disposing of it permanently is now a non-starter,” he said.

“For starters, we have to use water that is not good for people, cows and crops. There are people who think that production of 5 million barrels a day of oil out of the Permian Basin is actually a stretch.” That is not for lack of oil or the ability to get it out of the ground, he explained. The doubt is about the ability to manage the water that would be needed.

Tackling the issues of the time is the important work of the university, the institute and the industry, said Daniel Pullin, dean of the Price College of Business. “We are joined at the hip and the future depends on our joint progress. The university takes a planetary view from geological to meteorological to sustainability and extending into environmental law. It extends from 18-year-old freshmen to 80-year-old business executives still participating in industry.”

Mike Stice, dean of the university’s Mewbourne College of Earth & Energy, asked his panelists how they see the future of hydrocarbons. Joe Stanislaw, a senior partner at Bright Star Capital Partners LP and a founder of Cambridge Energy Research Associates (CERA), said, “The industry has done a good job of responding to questions about our social license, to questions about climate change, induced seismicity, and renewable energy.”

He contrasted that to the 1975 mindset. “The attitude in the oil and gas industry was ‘we don’t like renewables. We have to win the game.’ But the reality is that society needs everything—hydrocarbons and renewables. The two types of energy are not enemies. There are large- and small-scale solutions; whatever is appropriate.”

Beyond petroleum

When industry pioneers turned their attention to the environment, there was resistance, Stanislaw recalled. “When BP started to use the expression ‘beyond petroleum,’ Lord Browne was almost run out of the industry for embracing climate change. Total [SA] is also big in this. There is a challenge, though, that you can’t simply plug an oil and gas executive into renewables.”

Baker Hughes’ Ming added Statoil and Royal Dutch Shell Plc to the list of majors with major renewables operations. “There is a lot more going on among the majors than is evident. In contrast, the independents are sticking to their knitting.”

Picking up the thorny issue of carbon pricing and subsidies, Stanislaw suggested that the lack of carbon pricing is an implicit subsidy for the hydrocarbon sector. He also refuted the argument that carbon pricing limits economic growth. “If we don’t address climate change, we limit growth because the technology to do that is economic growth.”

Ming advocated a similarly dramatic shift in thinking at the micro-level. “Historically, we have used a physics-based model, but we can already see that we don’t really understand the physics when child wells perform differently than parent wells off the same pad. The move now is to a data-enhanced model. We are getting continuous data streams from multiple sensors and multiple points. There is a whole lot going on in the data.”

He recalled that “in my day, a pumper would take one reading a day. And recovery from reservoirs was 50% to 90%. Today, recovery in oil in super-tight rocks is less than 10%, so [an improvement of] just few percentage points is a very big deal.”

BTU Analytics’ Bradford noted that, even with such low recovery rates, U.S. oil—and especially gas—production and exports have blossomed. “LNG is only in the early innings and seems to have passed the first stress test.

“We saw the coldest temperatures in the Northeast and [Cheniere Energy Inc.’s] Sabine Pass terminal chugged straight along at 3.5 Bcf/d. In comparison, Manhattan takes about 3.3 Bcf/d of gas from the three major lines in peak winter demand. This winter, we saw Henry Hub prices peak at about $5 per Mcf, and Sabine kept chugging along.”

With Dominion Energy Co.’s Cove Point facility online now and four additional export terminals under construction, he said, “we are expecting 10 Bcf/d of LNG export capacity to be online by the end of 2019. We have also seen the emergence of a liquid cash market and a liquid futures market for LNG.

“The U.S. can compete in the global market. Good old U.S. contract law is a strong competitive advantage.”

Not only is there gas flowing from gas plays, but Bradford noted associated gas from oil plays. “In the Permian, too many people have had their oil hat on and ignored their gas hat. Now there is so much gas in the Permian that there is dislocation at the local hubs. And that is on top of the 3.5 to 4 Bcf/d being exported to Mexico.”

The growth lever for gas is not really electricity any more, panelists said; the power market, especially residential and commercial, has been flat. Industrial use is still growing strong, especially in petrochemicals, but that has to be kept in perspective with rising LNG exports.

Stanislaw said industry can apply positive pressure to effect change in political and legislative terms. “Industry does itself a disservice every time a regulation comes out,” he said. ”You moan and complain and argue, and, then, two years later you do it, and your overall cost structure is lower. So why moan and complain? Just do it and get credit for the fact you are playing the game correctly.”

He added, “We talk to ourselves too much. We need to talk more to our communities. They are not hearing the message that oil and gas companies have become technology companies. Show your communities the unbelievable things you are doing with technology to the benefit of consumers and the environment. It is an important story, but one that has to be done one by one.”

There was lively discourse among panelists about the consequences of cheap and abundant gas. The sharp, and likely permanent, decrease in coal-fueled power generation was chief among the intended consequences; the deflated market for high-efficiency steam turbines was a surprise among the unintended.

“GE came out a few years ago with a combined-cycle power system” Ming said. That is essentially a static jet engine that spins one generator while the exhaust gases create steam to spin a second generator. “It is 62% thermally efficient—almost twice as efficient as a single-cycle coal plan—and the next one is going to 65%,” he said.

But utilities are going back to single-cycle. Oklahoma Gas & Electric Energy Co. (OG&E) just put in a bank of combustion turbines instead of combined-cycle, he said. “In Louisiana, a utility is building a new gas-fired power plant using reciprocating engines!”

Bradford noted that GE also keeps making bigger and bigger wind turbines. “I question whether we will still burn coal at all in this country in 10 years.”

Ming agreed that “the competition for gas from renewables is compelling, but so far wind is not dispatchable as conventional power is. Natural gas is great for those evenings, and there will be a need for gas-fired power at those nodes.”

He added that, “in most of the developing world, the issue is not fuel for power, it is fuel for cooking. They still use wood or charcoal or dung. The deaths from particulate inhalation exceed those of AIDS and tuberculosis. Yet funding for those diseases is 10 times the research for cooking fuel.”

The major concerns for producers are no longer availability of the resource, but the availability of water or sand, said C. Michael Ming, vice president and executive liaison for marketing technology at Baker Hughes, a GE company.

What is the single most dynamic for fossil fuels? Ming said it is water. Stanislaw suggested education and recruiting. Bradford suggested that, while capital continues to flow into the industry, resource-recovery rates are being scrutinized. “We do a lot of work for private-equity firms, and the big question is recovery rates. At $100 oil, we saw rigs in the Everglades and eastern Washington. People were just playing games. Today Henry [Hub] seems happy at $2.75 an Mcf and crude seems to be holding at $60 a barrel.”

His price outlook is mostly lower-for-longer. “We are looking at 10 Bcf/d of LNG exports. That could go to 12 or 14. Yet 10 to 20 years out, we are still looking at a gas market at $5 or $6 an Mcf.

“We are seeing recovery in the Haynesville. There is a lot of resource left in the Barnett. That play will have its ‘other day,’ even if that is in 10 years. A lot of resource comes of the weeds at $4 and $5 an Mcf.”

Nevertheless he added, “if we have found all the great rock, and production efficiency is relatively flat, then we do move back toward resource constraint. We do start to move up the cost curve.”