January 12, 2017

Atlantic Council
Global Energy Forum

The Year Ahead: The Energy Agenda for 2017

 

Moderated By:
John Defterios,
Emerging Markets Editor,
CNNMoney

Participants:
H.E. Suhail Mohamed Faraj Al Mazrouei,
Minister of Energy,
United Arab Emirates

Patrick Pouyanné,
Chairman and CEO,
Total S.A.

Adnan Z. Amin,
Director-General,
International Renewable Energy Agency

Marwan Lahoud,
EVP International, Strategy & Public Affairs,
Airbus Group

Lara Sidawi Moore,
Chief Strategy Officer and Chair, Executive Committee,
Energy Intelligence Group

 

Location:  Al Maryah Ballroom, Four Seasons, Al Maryah Island, Abu Dhabi, United Arab Emirates

Time:  10:45 p.m. Local
Date:  Thursday, January 12, 2017


ANNOUNCER:  Please welcome emerging markets editor of CNNMoney, John Defterios.

JOHN DEFTERIOS:  Good morning.  If I can have everybody at the doors there go ahead and take a seat, we’ll get started.  We had a wonderful opening ceremony.  I said to his excellency the minister that everybody was succinct but they really were able to tie together what we have in front of the table for us this week, starting with the Atlantic Council, the IRENA General Assembly that takes place over the weekend, and the World Future Energy Summit.  And I’m happy to say that CNN is involved in all three of them.  And I really want to congratulate Governor Huntsman and Fred Kempe for pulling this together in a span of less than three months.  To be able to assemble a group of this quality in a short period of time is nothing short of extraordinary, to have it as a complete energy offering over the next 10 days.

First, I want to apologize.  I couldn’t get the memo to Fred.  We see the CNN logo.  We changed it overnight to FNN, as the Fake News Networks.  I have to apologize, we couldn’t get it.  (Laughter.)  I have to give my congratulations to Jim Acosta, our White House correspondent, who is the man who is dogging Donald Trump, trying to get a question in at the press conference.  We have the five Ws in journalism – who, what, where, when and why – who, what, where, when, and why.  I wanted to add a sixth, just for a little bit of fun this morning.  That would be whoa, like what was that all about, W-H-O-A, whoa, that was quite a press conference. 

I have three Ws for us this morning, apropos, to all seriousness, about the energy sector as well.  And that would be what a year, what a rollercoaster, and what a result.  If we stood together in January of 2016, if I walk to the edge of the stage – and I will – it felt like we were on the edge of a precipice, that oil went to a 13-year low.  We felt what $27 a barrel felt like for North Sea Brent.  And at the time, nobody was blinking.  There was a kind of high-stakes game to see how this market would shake out.  Would it be the shale producers that caved in?  Would it be the major producers of the GCC, or the Gulf Cooperation Council, countries who would cut back?  Would Russia participate?

Roll forward the clock to the end of 2016, and four major meetings that took place in Doha, Vienna, Algiers, and then back to Vienna again, and we have an agreement of 18 countries looking to trim 1.8 billion barrels in the first half of 2017.  Markets responded very well.  We’ve seen prices go from that low of $27 a barrel and hovering around the mid-50s today.  But our aspiration in the next hour, and then the subsequent panel that’s going to start right after that, is to give a very clear energy outlook for 2017. 

I see Fred just came back into the room, and as Fred mentioned in his opening remarks we call this the sand to snow coverage, because as part of the debate that’s taking place here in Abu Dhabi we are covering it, with my colleague Becky Anderson, and taking that with us to Davos.  And this will round up with the Global Energy Outlook roundtable that’s going to take place a week from today, as a matter of fact, at the World Economic Forum.  We have convened many of the OPEC players, leaders from the industry, leaders from renewables, and leading strategists as well. 

So let’s give a warm welcome, after I introduce all of our panel members:  His excellency, who made comments this morning, Suhail Mohamed Faraj al Mazrouei, administer of the UAE, and congratulating on his 2050 plan; we have Patrick Pouyanné, who’s the chief executive officer and chairman of Total, second in from the right; Adnan Amin, the director-general of the International Renewable Energy Agency, next to the minister on his left; Marwan Lahoud, the executive vice president of international for the Airbus Group, on the far corner of our stage here; and the first time here joining us in Abu Dhabi, Lara Sidawi Moore, she’s a chief strategy officer and chair of the executive committee for the Energy Intelligence Group.  Let’s give a nice, warm, round of applause for the panel group.

I think it’s only apropos that we start with the minister.  I haven’t seen him for ages, as a matter of fact.  He’s so tired of me chasing him, he’s probably going to make sure I get my visa revoked in Abu Dhabi.  We just did a roundtable yesterday and had a very healthy discussion about the 2050 plan and where this market is going.  I think – and I want to invite my panelists here to bring the microphones – because they’re the goose-necked mics – close to you.  Thanks very much. 

I wanted to invite you to tell us where we are today.  I think we’re in a much better position than we were, as I was suggesting, 12 months ago when we were sitting on the edge of that precipice and prices looked very dangerously close to $20 a barrel.  Do you feel at this stage that this band that we’re in right now, $50 to $55 a barrel, if the disciplined is adhered to within the OPEC-non-OPEC structure, can be maintained in 2017?  Are you comfortable – and that’s a tough word to use in the energy environment – are you comfortable where we are today?

MINISTER SUHAIL MOHAMED FARAJ AL MAZROUEI:  Thank you, John.  It’s always a pleasure to talk to you.

And I think, to answer that question, every time that we are asked about prices we try to be honest and not to give a simple answer.  And where are the prices today?  I think it’s a fair movement toward the correction.  But the real correction will happen when we see the actions from all of those group of concerned nations who came together to try to help the market and help bring in more investments to the market.  And I personally have lots of trust on the commitment that all of those countries have put together.  And I would like to thank his excellency, the Kuwaiti oil minister, for taking that leading role.  And they will be meeting in Vienna next week to look, evaluate all of the commitments, and hopefully encourage the rest to come forward with an action plan of how to do it.

There is definitely a sincereness on everyone who came together and put that deal together.  Are we at a price range that is comfortable?  I think the price range that is comfortable for us, as major producers, is that price that will encourage major investments to come to the market.  If we did not achieve that, then still we’re not there yet.  And the market will decide what that price is.  What is the reaction of the shale oil?  What is the reaction of the geopolitics in many countries driving their production?  I think all of that, to be seen.  But most importantly, we are, I think, in the right trajectory for balancing the market.  And we are hopeful that the commitment that OPEC and non-OPEC put in place will help the market recover more.

MR. DEFTERIOS:  You know, you made reference to his excellency the minister from Kuwait.  He’s got one of the toughest jobs going.  He’s the global oil policeman, if you will.  He’s the chair of the monitoring committee that you were making reference to today. 

Patrick Pouyanné, we spoke in November here at OPEC at the major conference.  And you said:  Not only do the countries of the Middle East and the major oil producers know what $40 feels like, because we had to experience it for such a long period of time, but you’re much more comfortable in this $55 a barrel range that we’re in today.  But you said there was a significant shift, that we had the major players – Khalid al-Falih, his excellency, is here from Saudi Arabia today, and Russia, with Alexander Novak, decide to commit to each other as the number one and number two producers.  Do you think that is a significant shift in terms of stabilizing and, as the minister suggested, rebalancing the market?

PATRICK POUYANNÉ:  I think really that the commitment of Russia to discuss and to engage with the OPEC countries is historical news, in fact.  It’s the first time that we see in this market such a real dialogue between the OPEC countries and the non-OPEC countries, led by Russia.  I’m convinced that all these countries were – are committed to what they decided.  It’s very important because the market is still fragile.  We should not forget that you have very high inventories, that we accumulated 1 billion barrels of inventories crude products in the last two years.  And we have seen even last week the news that Libya could improve its production, we lost $2 in one day.  So there is some uncertainty.  It’s still fragile.  And clearly the market will observe very seriously if the, like his excellency said rightly, if really the agreement is implemented.

We know that if we want to really rebalance the market, which means bringing back inventories to a more normal level, it will not take six months.  It will not take one year.  It will take two years, at least.  And so that means that the commitments we see today, this agreement which is in place for six months, will have to be first put in place and renewed.  So I think that everybody today is happy in this room.  I remember last – I will be to Davos last year.  Last year in Davos, we were down from 55 (dollars) to 28 (dollars).  So oil was collapsing.  It was a bad year.  This year, coming back from 28 (dollars) to 55 (dollars), you know, it’s positive outcome.  But let’s be clear, its volatility isn’t over.  So market (still can tango ?), when you look at it.  That means that every event, every news will be very – looked seriously.

OK, it’s clear for everybody – and I think for the – (inaudible) – countries, for the countries, for the companies, but we need this type of price if we want to reinvest seriously, because one of the big threats that we have in this industry, we have dropped the investment from $700 billion to $400 billion in two years.  Another year of bad – of low price, and then we don’t invest enough because, in this industry, if you don’t invest enough you don’t fight against natural decline.  And that means that for the consumers they could face in two, three, four, years some bad news.  So I think it’s a – what has been done by OPEC and non-OPEC thanks to dialogue, thanks to a real commitment, is very important. 

It was welcome, and I would say we’re waiting for that in the market.  But again, it has to be implemented seriously.  It will have to be maintained not only for six months but for two years.  And then, we’ve some – I think we also have some good news on the demand side, because we can see around the world some states that want to have investment growth policies, monetary policy.  We are shifting to some fiscal policy which will be more in favor of investment, which will be good for demand.  So some good news from that point.  But we also know that in the U.S., our U.S. shale friends are reinvesting again.  So we will see second half of ’17 production growing a little again, which will have, again, another uncertainty in the market.

So very good news.  I was in my – when I answered you – quite convinced –

MR. DEFTERIOS:  Yes, you were.

MR. POUYANNÉ:  Because when I was discussing that with the various ministers, that we’ll have an agreement – no, it’s a good step, but we’ll need to be able to maintain that commitment for some coming months.

MR. DEFTERIOS:  Good.  For those who follow the energy market, the headline out of that comment was you thought that OPEC and non-OPEC players should renew this after six months.  Our friend, the minister of energy, doesn’t quite agree, I think.  So before I go to the rest of the panel would you like to make a commitment to that in January of 2017?  That’s the industry speaking saying it would provide a lot of clarity.  I’m sure our man from the monitoring committee, his excellency the minister of Kuwait, is listening carefully.  Is it premature to make that declaration, in your view?

MIN. AL MAZROUEI:  I think it’s premature to jump to the conclusion of what is the result of committing for six months and seeing where is the market at.  But OPEC historically, being always responsible when it comes to taking fair actions – and when I say fair actions, it’s not going to be OPEC alone, in my view, that is going to voluntarily go and make cuts, like what we used to do before, without the contribution from the rest of the producers around the world.  and I think that is fair.  I think what we have seen, for the first time, that we have seen a coalition of other producers outside OPEC who are agreeing that we should help the market.  And I am expecting that coalition to increase, actually.

And there is a factor that we did not account for, which is there is an actual decline happening.  So many countries who did not come to Vienna and commit to cut 50,000 or 5,000 or 20,000 or 100,000 are actually cutting it by force.  Mother Nature is doing that for them.  So the reservoirs are losing that 5 percent, 4 percent.  And we’re going to see that in the next two to three years because we did not invest.  And the combination of all of that is going to make up the fundamentals of making the decision in six months.  So it’s premature to come and say we have to do it.

At the same time, we need also to watch the production that is coming from other sources.  Example:  shale oil.  If the shale oil rebounds is huge, then it’s not going to help what we are doing because we are cutting production to help the market and someone is not helping the market.  That is not going to be helping.  I think it needs to be balanced.  We will monitor that for six months.  And in six months we will see what we should do.  I tend to believe that the market can and should balance itself in six months, to each equilibrium at least, putting all of those factors together.  But again, the market always prove us wrong, so.

MR. DEFTERIOS:  (Laughs.)  Well, hold on.  I wanted to bring my slide up here, if we can bring that full screen.  One more time, sorry.  The break-even price for oil producers.  Sorry, I was doing all the clicking myself.  I have only myself to blame.  You brought in the idea of the break-even price.  Patrick Pouyanné said it’s very painful at $40 a barrel.  This is from Wood Mackenzie in the last week.  The major oil producers – and I’d like to get Mr. Pouyanné and Laura’s thoughts on this as well – break even at $54 a barrel.  This is cash flow break even, by the way, for those who are wondering.  Russia and its producers at $46 a barrel.  And some of the Asian NOCs breaking even at $42 a barrel. 

In this climate, Lara, there’s going to be more destruction.  Do we see the shale producers and the projections of $60 billion going back into that sector in 2017 snap back?  The shale producers are already seeing a recovery of some 300,000 barrels from their low already, having lost 1.2 million barrels during this dislocation.  How do you see it shaking out?  And do you agree with these numbers that you see on the screen?

LARA SIDAWI MOORE:  I think, first of all, you know, as we’re discussing the OPEC agreements, I’d like to say that it is really quite a breakthrough in terms of the fact that Russia has come into play as a non-OPEC producer.  And what we see here, in my opinion, is effectively a big shift to a regulatory environment that’s changing the entire economic landscape.  So, with American coming on board, the next hundred days we’re going to see what next for Russia, the U.S.  That’s going to also put into play question marks about the regulatory environment for the future of shale production, how much more supply is going to come out of the U.S.

So I would say, you know, yes, I think these prices look approximately right.  But something could shake it up and it could rise very rapidly.  And I think we’re looking more right now at the regulatory environment and the politics at play than the market supply/demand curve – though, naturally, that in itself with China – the China issue is going to play a role.  And then looking at what America does.  Are they going to tax the oil coming in from abroad?  And in that case, are they going to become a supplier?  All these different macroeconomic as well as geopolitical factors are going to shake this up.  So no one can really say, I think, right now.  We just have to watch the next hundred days and –

MR. DEFTERIOS:  Well, it’s a great point you bring.  Let me just follow up quickly with you, and then I want to bring in Adan Amin and our chief – not – the executive vice president of Airbus.  Do you really think the Americans would tax imported oil?

MS. MOORE:  Who knows?  With Trump in power – (laughs) – it could happen.  You know, and I think we’ve seen crazier things.  And I think we’re also in a difficult position right now to really assess, you know, the sort of wildcard that we’re dealing with.  So, you know, I do think America’s focus is America first.  And so they will be focusing on the supply of oil, shale oil.  So that’s going to grow.

MR. DEFTERIOS:  Good.  Patrick, you made an acquisition in December, at least an equity stake in a gas company in the United States.  We hear that Donald Trump’s going to be more advantageous – setting aside the tax on imported oil and gas.  But I’m suggesting more advantageous to the oil producers – the domestic oil producers.  Does that entice you to invest even more in the U.S. market as a result?  How are you sizing it up, because you’ve already made a recent investment?

MR. POUYANNÉ:  I would say, first, you know, when you are an oil and gas major, you go where you find resources and reserves.  You know, it’s not so complex.  So you have huge reserves and resources in the U.S.  I have 36 percent of U.S. investors among my shareholders.  They love the U.S., you know.  So each time I am making a small investment in the U.S., they are happy.  Having said that, then it has to be profitable.  And if you see – I fully agree with what you said.  I think – I’m not sure to fully understand what will be Mr. Trump’s policy.  But I’m sure it will be America first, and that they will do a lot in favor of the U.S. economy.  And so investing in this economy is probably not a bad bet today.

So this is why we have done some few move, acquiring a big position in the U.S. shale, in the Barnett Shale, and investing in Tellurian, which is still a startup for being able, maybe, to export energy in the future.  So this season we are planning also to build, to invest, and to announce sooner a new cracker – I think cracker – in Texas.  So, yes, we are looking.  Obviously, it’s a big market with huge resources.  And globally speaking I can’t say, but the U.S. are welcoming investments.

MR. DEFTERIOS:  And do you think –

MR. POUYANNÉ:  As they were before, by the way.  Not only today.

MR. DEFTERIOS:  One more – they were welcoming them before.  I’m going to bring the screen back up and show this U.S. oil production.  This is for shale.  And if you see the left-hand corner of your screen, January 2011, the peak there.  This is just oil.  This is not liquids yet.  This is just crude oil, peaking at about 7 million barrels a day, March 2015.  And look at the correction down to about 6.2, 6.3 million barrels a day, and the projection going back up above 7 million barrels a day. 

This is the elasticity you were talking about in the market.  And we have to see what happens in shale.  Do you think it will snap back that quickly, your excellency?

MIN. AL MAZROUEI:  I think there are fundamentals.  When we saw the retraction, the number of rigs was going down very steeply.  And that is easier to do when you have – when you have a capacity, then to drop the capacity, it’s easier.  But now to come back – because that came at a price as well, to those service companies.  The cost now for those service companies to grow their business is going to be totally different than the cost of maintaining the business.  And I think people are mixing between the efficiency that was achieved due to reducing the cost.  And I think that was part of it, was done by force, because either you lose your business or you kind of cut and help the producers.  And I think that’s what happened. 

Now there is a rally to increase the production.  Number of rigs will climb, but the cost – the operating cost will also go up.  And this is the nature of that business.  We have seen those cycles between the oil prices and the services charges so many times within recent history – 2008, when we have the – and then even before that.

MR. DEFTERIOS:  Yeah, a 25 percent correction, I think, in U.S. overheads, right?

MIN. AL MAZROUEI:  Yeah.  So my expectation – I think it’s going to be – they will try, but they will see some resistant.  And there will be some greediness in the system to try to take advantage and hike the prices.  You are not going to see it in one month or two months, but I think on a span of a year or two you will see – you will see the retraction.  I think it will take, for the first six months, it will take some time.  That’s my expectation.

MR. DEFTERIOS:  Good.  I’ll circle back to our other oil specialists on the panel.  Let’s bring in his excellency, the director-general of IRENA, Adnan Amin.  I was thinking in the context here, looking at the notes that you had prepared before this meeting, 18 percent of final consumption – am I reading this correctly – around the world is coming from renewables.  I mean, I would classify that as an energy revolution.  I’m almost wondering if we’re having a dangerous conversation here about fossil fuels, and if we roll forward the clock in 10 years it’s going to be quite a radically different game.  We won’t be talking about OPEC/non-OPEC, but an energy mix almost requiring a new level of cooperation.  How radical is the change, would you suggest?

ADNAN AMIN:  Well, John, you started off talking about the cliff, and you were talking about oil prices.  But there’s another cliff.  It is the cost of renewable electricity.  And over the last five or six years, the cost of solar has fallen by 80 percent in terms of –

MR. DEFTERIOS:  Eighty percent?

MR. AMIN:  Eighty percent.  The cost of onshore wind has come down by about 40 percent.  The cost of offshore wind is continuing to fall.  And we are projecting now, from our database of cost for renewables, that every doubling of capacity for renewables results in about a 20 percent decrease in cost of technology.  Looking forward 10 years, we’re going to see further declines in cost for solar in the region of 60 percent, and for wind in the region of 40.  Now, that comes at a time when in more and more countries around the world renewable power generation is cost competitive on the grid with any other source.  If you look at the latest outcome of the option in Dubai, where we achieved, I think, somewhere below 4 cents – 3 ½ cents a kilowatt hour power generation from solar – that’s well-below the cost of new gas. 

So, in cost terms, renewables are happening.  But I think the more complex picture in terms of looking forward in terms of what’s possible is that the integration of variable renewables into the grid has to come together with the broader understanding of how the energy system and ecosystem has to change, which includes how do we integrate big data, how do we digitize grids, how do we decentralize energy, and how do we manage decentralized energy, and how does efficiency play into this?  Now, in terms of power generation, I think the game is over.  The last three years, every year in a row, new renewable power capacity added to the global mix has been greater than any other source, and by all conventional energy combined.  Three years in a row.  And we see this trend continuing.  Especially as costs fall, capacity will continue to increase.

So I think on power we’re going to see this transition happening.  And it has to be accompanied by these broader trends.  It’s the end-use sectors that are really the challenge – which is the heating, the cooling, the transportation.  And I think one of the very interesting things about efficiency is that we are beginning to see in countries around the world – and the UAE is a prime example of this – new building designs that are slashing the cost of power to run those buildings.  We have sustainable – I’m in one, you know.  The UAE build us a headquarters which is probably one of the most efficient buildings in the entire region, totally powered by renewable energy.  We’re going to see more and more of that.  So I think the heating and cooling burden from efficiency will come down.  But at the same time, we’re going to see new renewable technologies come in there, especially geothermals and others.

MR. DEFTERIOS:  Let me follow up.  I see that headline number of 18 percent, just above 18 percent.  Then I saw the projections going to 2030.  And the growth between now and 2030 seems to be capped.  Is it distribution?  I’m only see 21, 22 percent by 2030.  So there’s a huge surge because of investment, but it seems to be bulging, if you will, a little bit.

MR. AMIN:  The business as usual scenario that we have is about 22, 23 percent by 2030.  The scenarios that we are looking at, where we project the cost declines and we project the impact of the climate agreement and we project what policy changes we are seeing around the world can actually take us in excess of 30 percent.  So by 2030, our projections are that we can get close to doubling the 18 percent by that period.  And I think that will be – that will be a fundamental change to the world’s power mix, and a sign of how it’s going to evolve in the future.

MR. DEFTERIOS:  No kidding.  I’m going to circle back to the minister, but, Marwan, I wanted to bring you in to see if it actually applies to jet fuel at this stage.  I remember two years ago I had a chance to go to the Masdar Institute, into the basement where they were doing algae research.  And saying that, believe it or not, we think we can make jet fuel out of this over time.  But how is renewable and that sector – the renewable sector fitting into planners or is it just pie in the sky?  One of the comforts they get here in the region is that transportation is the primary driver of the rules, and it’s fossil fuels for the foreseeable future.  I think we could have a pretty good debate about this, but what are you planning for?

MARWAN LAHOUD:  Yeah.  Just maybe to set – to set the scene, two or three – two or three numbers.  Air transport is a drop in the oil ocean we were talking about earlier.  We’re talking about 2 percent of the world – of the man-made emissions in 2015.  Compare that to 16 percent for land transport, 44 percent for electricity production and heating.  So we’re talking about a drop.  Nevertheless, the growth of aviation, the fact that if we take between 2005 and 2016 the number of passengers has increased by 76 percent, the number of aircraft has increased by 65 percent, means that we are on a – if we don’t embark on a renewable or on a – I’d rather say, emission reduction roadmap, we are on diverging paths.

So what are we doing in this field?  First, we are trying to improve our own – our own technologies, our own aircraft.  But this has – this has limits.  This is business as usual, like was mentioned a little earlier.  We need breakthroughs.  And we need breakthroughs in electrification and, in fact, in hybridization.  We have demonstrated last year that we cannot assume that we will be able to fly a passenger aircraft full electric in the foreseeable future.  The power onboard will not be enough, will have too much heat.  So we’ll need to go to hybridization.  We need to work on air traffic management.  We’re losing a lot and we’re admitting a lot because air traffic management is not optimal.

MR. DEFTERIOS:  Well, ironically, we’re sitting at the crossroads of East and West with all the Gulf carriers.  But I don’t think the system’s kept pace with all the demand.  Am I correct?

MR. LAHOUD:  You’re absolutely right.  I mean, we need to renew completely – we need to renew completely the air traffic management on those crowded areas.  Europe is one of them.  But also on the fast-growing areas.  And the Gulf region is a really fast-growing area to air traffic.

And last, but not least, we need to work on all those biofuels initiatives.  And we have – we have a very specific demand there.  We cannot work on anything but drop-in biofuels, those that are fully compatible, mixable, interchangeable with traditional ones.  We have plenty of initiatives there.  We’re working with the oil producers.  We’re working with labs.  We’re working with – and especially in the UAE.  How fast will this develop?  I think that the technologies are really developing fast.  Today it is the business model – it is the economic model that is still – that is still weak.

MR. DEFTERIOS:  OK.  I want to bring in Patrick Pouyanné after his excellency the minster.  You just this week revealed your 2050 road map, along with the leaders of the UAE, suggesting in your opening remarks 50 percent from green energy by 2050.  A mix with nuclear, 6 percent natural gas hovering around 38 percent.  That’s kind of the base case scenario.  Can we have the breakthroughs that Airbus is suggesting that they really need?  Do you think we can generate those – hit those goals, realistically – or are they just benchmarks, number one?  And number two, are we not thinking out of the box, that innovation could take us much further than we’re anticipating today.  You have to look at the holistic approach as the minister of energy.  Go ahead.

MIN. AL MAZROUEI:  No, I think – I think we – when we looked – and we worked, as I said in the introductory remarks – we worked almost more than 2 years on the strategy, bringing all of the knowledge that we got from discussion with countries, looking at policies, looking at our own system, and looking at where the technology have breakthroughs in recent history, and what is the forecast of that?  So the reason we elect to go – to choose renewable energy to be the highest is the major breakthrough we needed is the commercial storage of electricity.  I think that will improve the likes of 20 to 24 percent solar PV to higher percentages.  And solar PV is the breakthrough numbers that Amin was talking about.  And we were lower than that.  The lowest we got in UAE is the recent bid in Abu Dhabi, which was lower than 2.5 cent per kilowatt hour.  That was unheard of before.

So as a generation, this is probably the lowest, not of even gas, out of the system.  But the problem is the availability of the sun for that PV solar.  So if we could solve the storage, then we could build huge plants, store it, and then – and part of that storage would become innovative.  Dubai came up with an idea of hydro in the UAE.  We don’t have rivers, don’t be mistaken.  But what they will do –

MR. DEFTERIOS:  It can all be solved.

MIN. AL MAZROUEI:  What they will do, they will recycle the water from the top of a mountain down – and I think it was done in the United States before that – and they will use – it’s basically storing the energy and bringing the water up, and then you bring it down at night, and then you can have more availability.

MR. DEFTERIOS:  You have a canal now in Dubai, right?  You can do all this –

MIN. AL MAZROUEI:  Yeah, yeah, why not?  (Laughter.)  We keep dreaming and making those dreams.  So it’s not –

MR. DEFTERIOS:  It does make it happen.  Listen, there’s no doubt about that.

MIN. AL MAZROUEI:  And I think – I think we are realistic when it comes to our plan.  So it’s not aspirational, I have to answer you.  It’s realistic and it’s based on our knowledge of the R&D and gas as well.  I think we did not talk about gas.  We talked about oil.  I think gas and oil will have to go separate ways.  Linking them together will not make sense.  With that competition, most of the gas goes to the power. 

And if the gas is going to the power at $8 or $9, generating electricity at 7 or 8 cents, then they will find it difficult to compete in the power sector 10-15 years from now, when that – when that hurdle, which is the storage, has got resolved.  So I think we will see in the prices of gas in the future we need to have another breakthrough in the liquification costs to bring it down so gas can compete.  Otherwise, it will not be able to compete, I think.

MR. DEFTERIOS:  OK, thanks very much.  Patrick, you made an interesting remark recently:  I’m not in the renewable space for corporate social purposes.  I’m into it because it’s good business.

MR. POUYANNÉ:  It will be.  I hope so.  Frankly, it’s just – when we look to the future of a company like Total, we are an oil and gas major.  We want to remain an energy major in 20 years.  And it’s a question of markets.  So markets and energy makes for a change.  So of course we’ll need oil and gas combined with carbon capture use and storage, if we want to be net zero emissions – which is a technology where we need absolutely to make big breakthrough in the coming years – because we’ll need oil and gas, because you have plenty of emerging countries around the world who are going to have access to available, cheap, and clean energy – but availability and cheap is very important as well.  We should not forget that.  It’s not only a question of having clean energy, but the affordability of energy is of essence, because energy is at the core of any economic development of any country around the world.  So this is very important, to always remember that. 

So, yes, there will be an energy evolution.  We are thinking that the oil market will somewhat peak in 2014, I don’t know when, but because of electric vehicle, because of an evolution.  Gas should have a bright future.  There will be a fight between coal and gas.  And, frankly, this is why we are advocating for CO2 pricing, because if we do nothing when you look to coal reserves around the world – in China, in India, in the U.S. – this fight will be lost by gas against coal and then we will never be on the 2-degree road map in the world.  And when you have renewables which are emerging, and we have decided that we want to have – to be a responsible company, I would say, and to see this evolution as an opportunity.  And what we want is to be able to refer to our customers a product mix where the carbon intensity will go down according to the 2-degree road map.

Which means for Total, in fact – and it’s not – it’s feasible, which means that today we are 54 percent oil, 45 percent gas.  We should be in 20 years 35 percent oil, 45 percent gas, 20 percent renewable, and energy storage – because without that it doesn’t work.  Then we will offer to our customers a mix of energy products which will fit with the 2-degree target.  So it’s feasible if you think it like that.  But this, of course, I need to take part of the revenues I’m today having from oil and gas to reinvest back into renewables.  We have $25 billion of assets.  To be honest, it’s not fully profitable, but the utilities are very happy today with the cost of solar modules.  I can tell you, when you are, like we are, producers of these modules, we are not happy at all. 

The upstream part of the solar chain – of the solar value chain today is losing a huge amount of money.  When we offer – when they offer three cents per kilowatt hour, upstream in this industry, we don’t amortize at all – so capex are the plans to produce these modules themselves.  It is not a sustainable model.  So, of course, the technology will help us.  But we have some tension.  So I hear a lot of news – and I can tell that, because we have invested heavily – you know, the number-two company in the world in solar, which is called SunPower – (inaudible) – so I can be there and discuss with figures.  And we are committed.  Let’s be clear, we are committed. 

And the strategy of the company will be not only to be, by the way, an upstream company in solar, but a downstream one, to become a solar farm – a solar farm producer, power producer from solar.  And we have invested in a battery company because the minister is perfectly right, without a breakthrough in energy storage, renewables will have difficulty to be a sustainable profitability.  So it’s very important.  So we are committed.

Biomass, which were explained by Marwan, it’s difficult, to be honest.  What we can do – I will be able to provide to Marwan and others in two years some bio-jet from a biorefinery.  We are converting in Europe a refinery into bio-refinery.  But we use farm oil and used oil.  This is 1G – and I would say, 1.5G biofuels.  But to be honest, when we speak about 2G biofuels coming from biotechs, today we are very far.  And not in oil, we have invested also there, to be able to produce that at an industrial scale.  It’s very – there is an upscaling challenge there, to go from something in a lab with nice cells to go to something which is the amount – even a 15-percent drop-in in the volumes of jet fuels.  It’s challenge.

MR. DEFTERIOS:  OK.  Could you wrap it up, if you can?

MR. POUYANNÉ:  But we will do some bio-jet first.  And I think, again, the – we need to go step by step.  It’s important to be able to cooperate with – to find solutions in order to limit the emissions globally.

MR. DEFTERIOS:  Great.  I’m going to do two quick interventions, then I want to get to the geopolitical side, and then I want to open the floor up for five minutes.

Do you agree with what Patrick’s saying, Adnan?  And then I’m going to go to Marwan.

MR. AMIN:  Well, I just say, one thing is that Total was one of the early movers.  So I have to pay tribute to Patrick for that, on solar in particular.  But I’m a little disappointed, because I thought French dreams would be much more exciting than 20 percent.  (Laughter.)

MR. POUYANNÉ:  Well, you know, I wouldn’t say – (inaudible).

MR. AMIN:  (Inaudible.)

MR POUYANNE:  I need to – (inaudible).

MR. DEFTERIOS:  It’s got a new nickname in the industry, by the way.  It’s Patrick the cost-cutter.  He doesn’t like it.  (Laughter.)  But he’s been the hammer with the ax on cost, so he’s being realistic.

MR. AMIN:  No, I hear what he’s saying.  But you know, let’s look at the examples around the world, because Total is one example.  We have Statoil joining us in the next couple of years.  It’s the Norwegian national oil company.  Statoil has started to move very aggressively into renewables.  And they are the principal investors in the new offshore wind off New York State.  So I think that is a signpost to the future.  I think the ambitions are going to pick up, because I think that the module cost is one issue, but the cost of system transformation – which utilities had always projected as a main barrier – is falling away.  That argument is falling away.

The second trend that we’re seeing, which is very interesting, is that looking at countries – we have a deputy minister from Morocco here.  It was remarkable that Morocco in 10 years can go from virtually 100 percent imported energy to having an ambition by 2025, 52 percent renewable energy in their system.  And it’s not just a vision.  It is happening today.  And it’s happening on the basis of technologies that are being networked into the system.  And one of those is solar – concentrated solar with storage.  They’re generating power from concentrated solar with storage between 18-20 hours a day, at a cost of around 9 cents.

Now, these are the kind of developments that we are seeing that are happening in country after country which are lowering the costs.  You know, Sultan mentioned a very important thing this morning, is that we see 25 percent growth in energy demand.  But that’s going to be in emerging economies.  It’s not going to be in the economies of the north, with efficiency and, you know, economic slowdown those are going to be stable if not declining.  It’s going to be in emerging economies.  They have the opportunity today with the technology we have the cost declines we have to do a leapfrogging, which is going to be, in my view, one of the big changes in the future, comparable to what we saw with information communication technologies.

MR. DEFTERIOS:  OK, good.  If we can get the lights on.  I’m going to see if we can take a couple of questions if there are questions from the floor – on the floor.  And we can bring the microphones to the floor.  Raise your hand if you want to ask a question.  I just ask you to be brief.  There’s one from the floor, if you can stand up, please.  And we’ll get you a microphone.  Just identify yourself quickly, and –

Q:  OK.  Good morning.  My name is Sean Evers with Gulf Intelligence.

I’d be curious of the panel’s comment on the recent Eurasia report last week, which indicated that, from their analysis, in 2017 the world is entering a period they called G-0, as compared to G-2 or G-7.  But G-0, meaning nobody is running the world.  And I’m wondering, does anybody have an opinion on what – on that analysis, and what the implications of that may be for the global energy industry?  Thank you.

MR. DEFTERIOS:  Thanks.  I’m glad you shifted for us, Sean, to geopolitics.  Lara, do you want to tackle that, because I think from the energy intelligence standpoint you can take the most neutral position.  Ian Bremmer has been talking about G-0 for a while.  It didn’t formulate.  In fact, I would think we’re almost leaning towards a G-2 with Donald Trump and Vladimir Putin.  But how do you see it with the – and I don’t mean that as a joke, unfortunately.  But – go ahead.

MS. MOORE:  Well, we touched on the geopolitical environment.  And it’s clear that, you know, the world has so many different elements at play right now that we can’t really tell what specifically is going to be the next force that’s going to change the environment, the economic picture, but there are a lot of them.  I think, in my view, the world is moving so rapidly with new technology, R&D, that in itself is going to be – renewables are going to be enhanced by the potential, you know, hike in the oil price, or at least where it stands now is already a better picture.  And we can continue to see improvements. 

My view is that the – all the different forces at play are going to take different positions.  But ultimately the carbon capture environment is going to continue to grow.  We have to be efficient.  Technology will grow – it’s going to be a regulatory game, more so.  And so I this idea of a G-0 is – you know, who is going to put money towards funding what.  But if the oil price grows and the market makes it that much easier for renewables to grow, I think we’ll see a great deal more. 

In fact, speaking about aviation, we had the Solar Impulse that landed here in Abu Dhabi in – at the end of July, 26th of July.  Now, that was a manned, solar-powered planned, naturally not commercially driven.  And we have some, you know, time, I think, before we see any of that.  Next is this offshore boat race that’s all solar powered.  I think there’s more and more to come.  I understand that naturally gas is the next play and, you know, various countries are coming into the mix for that.  So –

MR. DEFTERIOS:  Let me just wrap here because of time.

Patrick, your biggest political risk for 2017 as a CEO.  How do you navigate it?  What do you think is the biggest political risk, going back to Sean Evers’ question?

MR. POUYANNÉ:  You know, as it was said by one of the speaker in the (inauguration scene ?), the world is facing today a lot of instabilities, particularly in this region.  In my life, I’ve never seen so many conflicts.  So what we can expect?  First, to be honest, we are a little uncertainty.  We need to – I want to see more than tweets.  I want to see what will be done really by the President Trump, Vladimir Putin.  We are – I think we are all observing, will observe what will be the first steps on the geopolitical scene by President Trump.  It’s important. 

I feel the situation can only improve.  I hope so.  And but to do that, again, it’s like between OPEC and non-OPEC countries only a dialogue can help diplomacy.  I don’t – I’m fully against all these sanctions policy.  It never works.  It never works.  The only thing which can work is to find a way to discuss, to speak, to find agreements.  And so my only message there – but, again, I don’t know what will happen – you have people – you have human person who have maybe ideas, we’ll see how they will act.  And I can only encourage these big powers to engage in a real dialogue in order to find a way to lead the world to a more peaceful situation.

MR. DEFTERIOS:  But I have a quick follow-up for you.  You took – you were the first Western company, if you will, to go into Iran recently, in a big natural gas project.  And I know you gave it a lot of thought before you did.  Would it be a mistake for the U.S. in six months to cancel that agreement, at least as one of the parties?  Is it better to stay engaged?  I posed the same question, and the minister had a very solid answer for it yesterday.  What’s your view?

MR. POUYANNÉ:  My view is that if Mr. Trump wants really an agreement with Mr. Putin, he will have to take care also of other countries around the world.  That’s all.

MR. DEFTERIOS:  So Iran stays within the tent?  I think we can finish it there.

In the next – final question here.  I was going to say, we may have to wrap it up.  Quick question, if you please.  If we can get a microphone.  If you can stand up for me.  Thanks.  And this will be our final question and we’ll wrap for our planning.  I just want to alert those in the audience we’re going to go straight to the next session, so I would invite you not to get up off your seats and exist.  Final question from the floor.  And if can keep the mics on the center aisle, that would be great.  Please.

Q:  Yes, thank you.  Chip Comins with the American Renewable Energy Institute.

I’d like to focus back to G-2, the original we were talking about would be, of course, the U.S.-China nexus, and the fact that the two largest economies in the world – also the two largest carbon emitters I the world with approximately I believe half the world economy.  The recent announcement that China is going to deploy 350 billion (dollars) in capital by 2020 on some very ambitious solar projects – and in terms of the emissions reduction, and how that can relate to the meetings that are taking place starting here today and then throughout the week.  Thank you.

MR. DEFTERIOS:  Good.  I think that’s for you, Adnan.

MR. AMIN:  Yeah.  Well, just to come back to the previous question, when you said who will be running the world in 2017, I had always thought Elon Musk, but, you know, in hindsight probably not a good idea.  (Laughter.)

MR. DEFTERIOS:  You had been dreaming over there at IRENA.  (Laughter.)

MR. AMIN:  But let me say, I think that’s a very important question, because I think what we are seeing – I spend a lot of time in China and in the U.S.  And what we’re seeing in China is a commitment to energy transformation that is not going back.  It is programmed into the structure of their economic development in the future.  It’s part of the 15-year plan, they have big ideas around it, and they have actually increased the level of ambition from about 23 percent to 27 percent penetration of renewables in 2025.

Now, that is – if you look at the size of China and the size of power capacity addition that goes into that, it’s massive.  They have no choice.  They are decommissioning coal at a much faster rate than they ever have done.  They have a very positive scenario, because essentially the synergy between gas and renewables is very good because you’re able to run gas up and down very well.  And they’re looking at developing a much cleaner mix, not only for climate – because they are beginning to project international leadership much more.  Climate is part of it.  But it’s because people in their big cities can’t breathe anymore.  They have a very pressing political burden to deal with, which is decarbonizing but reducing pollution.  And I think that is going to be one of the drivers of renewables in the coming years.

In the U.S. I was just recently invited by Goldman Sachs – never would have happened five years ago by the way – I was invited by Goldman Sachs to come and talk about renewables with some big institutional investors.  Goldman’s has just announced that they’re going to elevate their investment in renewables to about $125 billion.  BlackRock was there, and others.  And there was a discussion about the U.S. market.  And the consensus was – and many of them will use investors – is that the role of the states in renewable energy investment, and the fact that this is an industry that has acquired its own business logic, means that it has become an unstoppable momentum in the United States.  And I agree with that. 

I think that in terms of federal policy, the tax credit issue, that’s there for a while now.  And we’re going to see that’s going to have people trying to take advantage until we can see what the next state of policy is.  But by that time, there will be a logic and momentum for renewables in the U.S., as one of the largest markets in the world, that’s unstoppable.  So –

MR. DEFTERIOS:  OK.  And sorry to limit you for times, but I want to get your thoughts on whether the 2050 road map that you’ve put forward can be transferred within this region.  Because there was criticism that we’re too dependent on oil, putting gas into the mix, but not forward thinking enough when it comes to renewables, is it a policy that can cross borders, in your view?

MIN. AL MAZROUEI:  No, I think definitely here in United Arab Emirates, we have so many dialogues between us and our brothers in the GCC states and OPEC and other venues.  And everything we do, we do it to share knowledge with others.  So we are not going to be protective of all our plans not to share it.  I think you will find in the details of the numbers and everything that we have done, it’s going to be up for all of our brothers to share it.  We have done the restructuring with it and fuel back in 2015 was mimicked by most of the states.  And most of them visited with us, we shared with them all of the information.

I think what we’re trying to do in UEA, we’re trying to set a model for ourselves first, but for everyone who wants to take that.  And we are very open.  And one element that we put in that equation, which I think Amin touched on, is how happy the people are in term of the city that they live in.  Because at the end of the day, they are not happy because of the environment or because of the cost or because of anything.  There you will have problems.  They are what forms the society.  So we put happiness or achieving happiness of the people as important as affordability, reliability and sustainability of the energy forum.

MR. DEFTERIOS:  And even have a minister by the same, the minister of happiness.

MIN. AL MAZROUEI:  Yes.

MR. DEFTERIOS:  Which is a woman, by the way, which is forward thinking as well, and a very young woman in a Cabinet filled with women.

Let’s give a nice round of applause.  Or actually, I was wondering how I was going to mix a traditional energy and the renewables and aircraft and the rest, and it all came together nicely.  A nice round of applause for this distinguished audience.  (Applause.)

I would ask you to stay in your seats.  We’re going to bring in our next distinguished panelists up to the stage.  I we could have you exit right here.

(END)

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