By Danielle Spears
Joseph Giljum, an Oil Supply Economist of the multi-national conglomerate BP, paid a visit to UCSD’s IRPS graduate school Monday, Feb. 28 to present BP’s newly published 20-year outlook, spanning from this year until 2030—the first in BP’s history to be viewable available to the public. A fairly recent graduate of the IRPS school himself, Giljum has been researching statistical data and creating this report with BP for only 10 months.
Although the event was hosted in an intimate setting of about 25 graduate students and a few contributing professors, Giljum’s exquisitely professional demeanor seemed to transcend a conventional lecture and bring his audience straight to the boardroom. He swiftly took us through BP’s fascinating accruement of research. Displayed in colorful graphs and power point slides, he illustrated major shifts that are happening in the global economy even as we speak.
Key points to look out for in the next 20 years, according to Giljum, are the steadily growing diversification of energy resources, the shift in energy demand between western nations like the U.K. and the United States and eastern nations like India and Saudi Arabia, and China’s staggering industrial growth and consequently greater need for energy. He confronted climate change issues, predicting that carbon emissions will increase by 30 percent in the next 20 years mainly because of the continued burning of coal for energy. Some difficulties surrounding climate control are due to overwhelming evidence that global energy consumption will increase by 40 percent during the same time span. Still, BP claims that renewable energies are on the rise, with China expected to account for 10 percent of the world’s renewables production by 2030. With a mega economy on the horizon, BP predicts China will need to move away from its current dependence on coal in order to keep up with a rapidly accelerating demand for energy.
Something else to watch out for is the debate between whether or not the US has enough resources to continue our energy-intensive lifestyles. Giljum’s presentation highlighted the idea that shale gas production, a form of natural gas production, will be “game-changing” for the United States.S., and is projected to account for 60 percent of our gas production in 2030. With only 60 years left of use in our current energy resources according to the report, shale gas will supposedly add another 30 years, an outlook that seems unpromising for future generations.
PROSPECT: Why is BP publishing this outlook to the public in 2011 for the first time?
GILJUM: Because of its use in our annual report with investors. BP executives wanted to use our internal research for external purposes, thus we needed to publish it publicly for them to be able to use the research for their public endeavors.
PROSPECT: BP is one of the leading foreign investors in China today, having invested almost $5 billion in commercial projects in the country, according to your company’s website. You also talked about how China is the world’s largest energy consumer, with Saudi Arabia and India following behind it. Is BP’s involvement a reason for this growth? How will BP’s economic relationship with China continue to grow in your 20-year projection?
GILJUM: For this kind of economic projection, 20 years is really agnostic in whom the players will actually be. It’s a very generic supply and demand picture. It’s a template for how the world will work and companies like BP can only try to position themselves for how they think that world will unfold. At this point, China is going to grow irrelevant of BP’s investments and BP is simply going to invest in the best places to produce oil and gas. It doesn’t matter where we invest or trade for this purpose, gas and oil are commodities so we go where the trade is.
PROSPECT: Today you described the multi-national Organization for Economic Cooperation and Development as comprised of “richer” westernized nations. Can you describe BP’s relationship with OECD countries as well as its relationship with non-OECD countries?
GILJUM: The relationship there is going to be split between the two. We’re a western oil company that started in England so a lot of our base is in the OECD but a lot of our production is in the Middle East and in India – we’re focused on what business opportunities exist to take advantage of.
PROSPECT: What is unique about non-OECD countries? In your opinion, what factors keep these countries from joining the OECD?
GILJUM: The OECD is made up of mostly democratic, rich nations. It’s more of an economic standing that brings countries into the organization. This past year Israel, Chile, Slovenia, and Estonia joined the OECD and it’s just a matter of time before certain countries reach the income levels that allow them to join.
PROSPECT: In your essay on Recession and Recovery in 2010, you and Mr. Christof Ruhl analyze economic trends of last year that BP collected through statistical data. One major observation you made was that markets in non-OECD countries like China and Russia are growing while markets in OECD countries are declining. What is the impact of this on the global market? How is BP working to keep up with this shift?
GILJUM: The energy demand will be coming from emerging markets – that’s the simple outcome of the fact that their economies are growing much faster than a place like the U.S. where there is not as much growth. At BP, our strategy is in providing a commodity. We do not care as much about who our consumers are, but we go where the demand is. We do have certain investments that try to leverage apparent growth in certain countries, like our recent investment in India where we are trying to gain access to a growing market. Otherwise we’re just trying to produce energy to sell, and it does not usually matter who consumer is.
PROSPECT: What is the “rapid structural change” of the global economy that you refer to in your essay? Do you feel that the trade of energy resources is at the heart of the global economy?
GILJUM: Clearly, the change is of growing importance in terms of growing economics. Growing countries don’t exactly have resources for having a lot of energy. Certainly I see energy as an important part of emerging markets. Structurally, the demand of economic growth is slow in Europe and North America and there’s quite fast growth in Africa, the Middle East, and Asia. Right now we are seeing it happen drastically and forecasting that shift will continue. In industrializing countries, energy consumption will take over its share of GDP, and our projection claims a continuation of that trend in the next 20 years.
PROSPECT: Although BP shares an extensive market for fossil fuels, the company is forthcoming about finding effective, environment-friendly energies. What forms of alternative energy have the most promise for growth in BP’s future? How is BP developing renewable energies that will diversify future sources of energy?
GILJUM: The world is going to need a large amount of energy growth. Therefore, we will see a growth in all forms of renewables simply because the demand will be there. BP has very significant investments in biofuels in Brazil and the US, and investments in wind power in the US as well.
PROSPECT: In the U.S. we are very conscious of the cost of gas. Although we generally see the price of gas rise in the summer, we are already nearing $4 per gallon in southern California and the price averages at about 3.20 nationwide. BP’s service brand in the U.S. is Arco – how do you predict foreign oil markets will affect us domestically in 2011?
GILJUM: Gas prices are nearly 100 percent correlated with oil prices. For California, the gas is expensive simply because of taxes. As far as gas prices go, it is going to be completely dependent on how price of oil will be. I can’t tell you what our oil forecast will be. The important thing to keep in mind is that what we are witnessing in Libya play a significant role: in other words, there are geopolitical and supply concerns that explain why prices are what they are.
PROSPECT: How has the situation in Libya impacted BP’s business?
GILJUM: BP has had to pull out of Libya and Egypt but outside of that it hasn’t affected our business too dramatically. Basically, trade companies are all price takers – whatever the price that oil is being traded at will affect our revenues. In terms of a production standpoint we have not been impacted that way. We have no production in Libya. Some exploration, but no production.
PROSPECT: How is BP continually involved in the regulation of the Deepwater Horizon oil spill? How has this event impacted BP’s regulations on extraction globally and also, how has it affected BP economically and/or financially?
GILJUM: I would not really be able to address the first one, but the financial repercussions are pretty clear in claims and cleaning up the area – a significant financial event for the company.
Courtesy of NASA’s Marshall Space Flight Center.