CERAWeek 2014 - Energy, Commodities and the Global Economy - Session Report

Andrew Mackenzie, CEO of BHP Billiton, gave a keynote address to a packed IHS CERAWeek ballroom Tuesday morning. He emphasized that the majority of world energy demand growth will come from emerging economies. One-fifth of the world's population still lacked access to reliable, modern energy supplies, he said, but also noted that this situation is gradually changing for the better. In the next 20 years, 1.7 billion people will gain access to electricity for first time-mainly in Asia but also in Africa. This is an important development, he noted, as access to electricity is fundamentally linked to economic development and poverty alleviation.

Mr. Mackenzie said that although two-thirds of global energy demand growth is expected to occur in Asia, each nation in the region will follow a different path in terms of future energy mix, balancing their needs according to affordability and security of supply. Regardless of how these different paths develop, he said, it is likely that "in the next few decades, fossil fuels will remain absolutely essential to the energy mix. Their affordability and the scale of existing infrastructure make them very hard to replace." BHP Billiton anticipates that by 2030, at least 70% of the world's energy will still be supplied by oil, gas, and coal.

Mr. Mackenzie stressed that coal in particular would continue to play an important role. "The fastest-growing Asian economies have far easier access to coal reserves" than to cheap gas, he explained. As a result, coal would remain Asia's largest source of affordable energy, while also being essential for the region's energy security.

Renewables will play a role, and new renewable projects should be encouraged in order to diversify the broader energy mix, he noted. Large-scale use of renewable energy sources, however, would only be viable when cheaper, more effective energy storage options become available.

Mr. Mackenzie said that with fossil fuels consumption expected to stay high, the world must find ways to adapt to climate change while also taking steps to better control carbon emissions. He stressed that future efforts must balance climate change concerns with the continued need to eliminate energy poverty around the world. Mr. Mackenzie stated that, in his opinion, any attempt to solve one without the other would be destined to fail, pointing out that if the gap between rich and poor countries does not narrow in the coming years, the international community will continue to struggle to reach a global climate agreement.

Mr. Mackenzie offered a four-point suggestion to achieve progress:

1) Reduce emissions and improve energy efficiency. 2) Accept that the world will continue to emit carbon and must learn to adapt to the effects of climate change. 3) Contribute more technical and market expertise to climate solutions, such as carbon storage. 4) Encourage the development of carbon policy, including the option of carbon pricing that, in his opinion, would help markets to identify the most cost-efficient ways of reducing emissions.

Mr. Mackenzie concluded by saying that the energy industry should focus on the good it can do now and in the future to improve energy security for the planet and its people while also trying to slow carbon emissions growth and adapt to climate change.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.