Today’s unprecedented rate of change leaves many questions about the benefits and risks of new technologies, and how we can best leverage innovation to address our biggest challenges.
In this edition of Columbia Energy Exchange, host Jason Bordoff is joined by Lord John Browne to discuss his latest book, Make, Think, Imagine: Engineering the Future of Civilization -- which serves up an optimistic look at the benefits engineering, technology, and innovation can bring in solving some of humanity’s greatest challenges, such as disease, climate change, and artificial intelligence.
Anyone who studies or works in the energy industry knows Lord John Browne. He has been one of the legendary and visionary leaders in the sector for decades. He’s the former Chief Executive of BP, with a career spanning more than 40 years in the company. He rose from apprentice to heading the British multinational oil and gas company, where he notably engineered a merger with rival Amoco, and was a strong proponent of renewables, famously rebranding the BP initials to “Beyond Petroleum.”
Jason and Lord Browne also discussed his latest endeavor, a merger of Dea and Wintershall to create one of the world’s largest oil and gas independents and other developments in global energy markets and in policy.
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Jason Bordoff: Hello and welcome to Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I'm Jason Bordoff. Anyone who studies or works in the energy industry knows Lord John Browne, who's been one of the legendary and visionary leaders in the sector for decades. He's the former chief executive of BP, with a career spanning more than 40 years in the company rising from apprentice to heading the British multinational oil and gas company, where he notably engineered a merger with rival Amoco, and was a strong proponent of renewables, famously branding BP to Beyond Petroleum.
He's written five books and today, we're here to discuss his latest, "Make, Think, Imagine: Engineering the Future of Civilization," which serves up an optimistic look at the benefits that engineering, technology and innovation can bring in solving some of humanity's greatest challenges such as disease, climate change and artificial intelligence. We also discussed his newest endeavor, a merger of DEA and Wintershall to create one of the world's largest oil and gas independence and other developments in global energy markets and in policy.
Lord John Browne, thanks for joining us today on Columbia Energy Exchange.
Lord John Browne: It's a great pleasure.
Jason Bordoff: And congratulations on the book. I really enjoyed reading it over the last few weeks. Make, Think, Imagine: Engineering the Future of Civilization. When I read it, it seemed a little bit like a narrative about forces of good and evil, almost. The challenges facing humanity and then the role of engineering to solve them, but in some case, exacerbate them as well. So, just talk a little bit about what prompted you to write this and is that a fair understanding of what you're grappling with?
Lord John Browne: It's a fair understanding. I wrote it because I firmly believe that engineering is the fundamental nature, the fundamental driver of civilization. Almost everything that we do has engineering content, whether it is the flint ax that you can pick up in the British Museum and you see this beautifully made tool that actually was used to kill animals, and sometimes people, but it was -- it allowed people to do something different, and begin to survive on a more sustained basis through to my experience of seeing the James Webb telescope being built at the Goddard Space Center, which this telescope which when it's launched, will go a million miles away from our planet to something called the second Lagrange Point and it will unfold like a piece of origami, 140 different folds, and it will look into space close to the beginning of time.
And I think that's an amazing piece of engineering, creating new vistas and civilization. Now, equally, there are some pretty bad things that engineering has created, not least bombs to destroy people, thermonuclear devices, the list goes on. But on balance, engineering is the great driver of civilization. And I always believe that the way to solve engineering problems, problems created by engineering is not to do less engineering, it's to do more.
Jason Bordoff: And I guess that's the history -- we'll come to climate change in a little bit. But the history of environmental progress points along those lines. I mean, we have tremendous engineers, obviously, as you can imagine, on the faculty of a great research university like this, who love to talk about what they can do. I don't know if we talk as much about what we should do.
Lord John Browne: Well, I think the tone has always been post the Second World War, let's just do it because we can do it. But many, many people have commented on, actually, you need to surround engineers, innovators with people who make them say to themselves, should we do it? Stop and think, what this does to all the stakeholders around you? And does it upset society generally? And of course, in a corporate setting that I'm used to, that works very well when you have a great board of directors, some people from the outside who are well-experienced who provide the checks and balances to the heady strength created by generally younger people who are innovating and making amazing things that can upset and we've seen that recently with the impact of Facebook on privacy and so on.
Jason Bordoff: And what's the response to that? These questions of surveillance capitalism and how technology may be used in ways that we don't want. How do we respond to that? When you say engineer our way out of these problems, what does that look like? I presume there's a role for regulation and policy, too.
Lord John Browne: So, there are several things. One is you can actually adjust some of these tools and techniques so that they don't do certain things. You require people to put in devices that stop them doing bad things. But more importantly, I think it's education that's always has a role is teaching people to do the right thing, I believe still remains very important, especially leaders, leaders have to know about what they're doing, what their purpose is and how they fit in the society. Regulation was critical, which is no, you can't take everyone's data and sell it in the bazaar for nothing, and give people no money for it. And then the law which says, well, if you these bad things, you potentially will either have to pay me a lot of money or go to jail. So, I think there's layers of checks and balances but in the end, society directs that of course, why society directs it and we should listen to them.
Jason Bordoff: And how does this tension between human ingenuity and unleashing forces, we might not be able to control a player with artificial intelligence, do you think?
Lord John Browne: So all of this is, on the one hand very -- makes our life much better. So facial recognition, for example, allows us not to bother with tapping in a code to the iPhone, to get into the United States through global entry machines. And that would do many, many more things as we go into the future. AI is already with us. It's specific AI. It helps us in certain things. And what it really does is helps experts become the last link in the chain, not the first link, the last step. So, there are plenty of one or two applications in the medical field. For example, in ophthalmology, if you have glaucoma nowadays, you're measured as people have measured for many, many years, and the diagnosis is presented to your physician who is probably a world expert. And I know this from my own personal experience, and the physician will say, it's about right, or it's pretty well accurate. But for 1% of the time, I need to adjust what this is telling me.
He equally says to me, actually, if I'm not around, it's better to get it 99% right than zero percent right. So, AI is helping the experts at the end of the chain, but it's also democratizing processes that can be applied elsewhere. Now, there are other things that are happening in AI. They're all specific applications. AI after all has been around since the mid-40s, for sure. And the Second World War was one with very primitive AI applications. And many of the tools and techniques have been around for a very long time. It's just that we now have very high speed computing devices, which allows us to do it better.
Jason Bordoff: How will it affect the energy sector, AI?
Lord John Browne: Quiet large. Well, first of all, demand. So, I was amazed that people think about the cloud and they don't really think about the cloud. They think it's just a cloud. It's not. I spent a lot of my life being involved with companies that made the hardware that now is the cloud and 50 to 60 years of massive development of hardware, very high speed computing devices, very big chips. And actually nowadays, they're big physically, these AI chips, and very low cost memory, all stored away in big data centers is absorbing a lot of energy.
So without energy, no cloud. Energy is the foundation of that. But the applications are very interesting. I've seen applications of AI which reduce the learning processes, reduce the number of times you have to intervene for maintenance. It's much more intelligent, much more predictive, equally the same learning processes from accidents, small and big, the data now better understands the pattern of behavior so you can stop things happening in the future, and for hazardous industry like oil and gas, that's absolutely essential.
Jason Bordoff: And the book talks about our perception of risk, which is probably not always very good human understanding of this, obviously, AI in the energy context. One of the ways that gets talked about quite often is with autonomous vehicles. And people sense that the humans will be safer than autonomous vehicles, which may not be correct. Ambivalence about what it will mean for employment in the heavy duty trucking sector. Should we have ambivalence about these technologies?
Lord John Browne: So, we have to strip back I think your question in different bits. So first of all, AI is part of autonomous vehicles, it's not everything. But the big question, I think, with autonomous vehicles is what are people's tolerances for accidents now? I think the data shows us 30,000 to 40,000 people die on the roads in the US through road accidents. And somehow, we think that if a human causes an accident, somehow we say, well, that's human and while it's very bad, and we mourn the loss of people, we go on and carry on that way. If on the other hand, a machine kills people, then we really are outraged. We're outraged in a very big way. The 737 Max, for example, is a machine that should kill people.
There are plenty of other examples. And I think one death on an autonomous vehicle causes a lot of coverage in social media. So, I think our standards are high and whether it's where they have to be 100,000 times safer, 10,000 times safer, a million times safer, I don't know but they've got to be much, much safer. And getting to that point, testing them to make sure that they are that safe, is a task which has yet to be fulfilled. There has to be a formal testing of the system, much like you do for aircraft with simulators and so forth, but very, very different from.
So, there's that problem. There are plenty of other problems to do with what do we do with machines that are smarter than us doing repetitive tasks? I think the way this is developing now is best example is look at some of the car manufacturers, the automobile manufacturers, where robots are no longer these big machines in cages where if you go very close to them, they'll kill you. They're very small things that work alongside humans, because humans are much better at adjusting, are much better at flexibility than any machine could possibly be.
So, if you speak to, for example, Mercedes Benz, I think they argue rather accurately so they make a million models. That's because it's every car anyone buys is customized and so they need flexibility. And I think it's this flexibility of a human to machine interface is quite interesting. Final point I think you made is about the work week. So I think if we were sitting here over 100 years ago, we'd be saying, well, everyone's working on average, 70 hours a week. And we'd say that's what are they going to do if they work 35? And it's a pretty, in some ways, a rather arrogant question. It's as if it's the manifest destiny of humans to work 70 hours a week.
We now have the same situation. We work on average, 35 hours a week. I'm sure plenty of people listen to this say that's out of the question. I work 100 hours. I'm talking about averages in the industrial nation. But it's not our manifest destiny to work 35 hours a week. We could work 17 and a half. And the question is what to adjusts in society to make that happen? What are the tasks and skills needed? What do people do with their time?
For example, as people live longer, do we have to spend more time looking after each other? Probably yes. Probably not a compensated activity, but equally, for the hours we work, we would expect to be compensated more for each hour that we do work, because it will be much more efficient. The machine won't get compensated but human beings still need to be compensated appropriately. That's a big public policy debate, which was yet to be entered into. Some of it's happening at the moment with minimum wages, things like this. But more of this has to happen.
Jason Bordoff: Probably a public policy issue that the pace of disruptive change is accelerating and those averages may mask the fact that for some hard hit communities as a result of globalization of technology.
Lord John Browne: Now, I grant that the big problem with these macro numbers is that the transition is rough and very unstable in certain parts. And what is always true to say that in the end, we adjust the working week and everything is fine. The transition is massive for that for some people, and we need to recognize that.
Jason Bordoff: The idea that we respond to the challenges graded by engineering not with less but with more engineering, talk about how that plays out with the problem of global climate change where for some, it is we fly less, we have fewer children, we eat less red meat. Are those the right kinds of solutions to think about? Or is it more technology that's going to solve this problem?
Lord John Browne: They could be, discipline on behavior and doing less is a way of doing things. However, it is very unlikely to be effective, because we are not built that way in many parts of the world, we're not built to sacrifice. We are built for convenience. So we have to, I think, recognize that. Maybe not universally true, but at least we have to recognize that. So I think that --
Jason Bordoff: Especially when you have 80% of the world's population, I think has never been on an airplane. You have people coming up from various income levels in emerging markets.
Lord John Browne: And people are not in the same condition as we are sitting here in New York City. Absolutely not. So, I think we have got to do it the other way around, we have to ask ourselves, what can we do to engineer the carbon dioxide out, given what we have to use for energy and the demands for energy in the world which rise with GDP energy, total energy. So, 85%plus of all energy is derived from hydrocarbons today and the change in that amount will be slow, will be slow over time. Coal is probably the one which is used to be at risk. It's stabilizing at the moment, but it's a very carbon intensive activity. Oil today is probably going to diminish after a time in its -- in the amount we use. It's very clear from data --
Jason Bordoff: Not as a share of a total you think oil, peak oil will come relatively soon?
Lord John Browne: I think, probably because if you look at -- it's quite, we have a very long run intensity of oil against GDP from 1985 until today, it's a straight line decline. It's a straight line decline.
Jason Bordoff: The total volume has risen but as a share of GDP has declined.
Lord John Browne: Yes, right, because the world is growing. And the world will continue to grow. But now, we have which is going to whip? The growth rate of the world or the decline rate of oil against GDP? And there, we're finding there's probably a balance because in the end the world has slowed down generally. If you look at GDP growth over the last 40 years, it's all coming down and tending towards 2% or so for all the major economies in the world. And that's not surprising, because if we keep growing at 10%, we'll sooner own the world and that's an impossible thing to do.
So, I think that will see a steady plateauing of the oil and gas is indeed growing. Because it's ubiquitous, and it's been regarded as a very good fuel for industrial purposes and power generation.
Jason Bordoff: And that's lower local pollution.
Lord John Browne: Have much lower level of pollution.
Jason Bordoff: As well as depending if you --
Lord John Browne: But nonetheless, this still says lot of CO2 coming from that. And while renewables are important, it's like 4% of the world's energy. It's tough to see it taking over from hydrocarbons, at least for the next many, many years, many years.
Jason Bordoff: So, that leads you to, what? To carbon capture or -- ?
Lord John Browne: So, we have to get rid of the carbon. So, carbon capture and storage, I think is absolutely essential. Carbon capture and use which is helping the oceans along with what they do with carbon, they actually capture it, make limestone with it effectively. And so, doing these things, is very important indeed using biological mechanisms, growing plants with probably bigger roots, that will help. Stopping the destruction of the rainforest, that will help. Direct carbon scrubbing from the atmosphere, amazingly expensive at the moment, but it can be done.
I think I've made the point that all of those techniques plus techniques and renewables, and indeed in probably lots of smaller scale, nuclear energy, all these engineered products are available. Some of them are very, very expensive, very expensive. But there is a rule in engineering, which is very simple. The more you do of something, the cheaper it becomes. It's called the learning curve or the experience cap. Actually, there's one exception to it. It's the building of large scale nuclear power plants, seem to get more expensive over time than cheaper, but there are regulatory reasons for that.
Jason Bordoff: Right. So, how do you -- you were one of the first oil chiefs over 20 years ago to talk about the role of burning hydrocarbons and climate change. You can tell us a little bit about the reaction to that at the time but also, I'm interested then how do you think the oil and gas industry is responding today to what you just talked about, about the need to see that transition happen that it might come a bit quicker than we think and the role of technology beyond just renewables to be part of it?
Lord John Browne: So in 1997, I stood up at my alma mater at Stanford University, and made a speech to say it's the oil companies are part of the problem here. We didn't intend to create all these CO2, but we did. And look what it's doing. We need to do something about it. At that time, and I gave a plan, a direct plan, which BP followed with, as the typical almost like business plan with KPIs and things like that. So, because we wanted to do something for that. So, the reaction was bewilderment, I think. And certainly, the American Petroleum Institute use this wonderful phrase which said he's left the church. I've never quite understood what church I left. But I'd left it.
And so, people were very confused. They thought it was an existential threat to the oil and gas industry. And my line was no, it's not an existential threat. Doing nothing is an existential threat, because we will build up resentment of distrust with everybody. And we will not get a seat at the table to discuss what we're going to do. So, almost 25 years, I guess, 23 years coming forward, I think the oil and gas industry has now got a seat at the table and is beginning to do things which make a difference. Not enough and too late, I think we've left 25 years old on the table, and we should have used it, but the old industry is coming along now definitely. They're investing and when I say that, it's the majors.
So, the majors are the super majors are investing in -- and this is mostly the quoted sector, the publicly listed. They're investing in new tools and techniques in energy conservation, carbon capture, various things like that. They're also doing things like capturing a lot of methane from their operations, which is a very destructive methane, greenhouse gas. So they're doing quite, quite a lot, I'd say. And they're encouraging people to go to electric cars, electric automobiles. I think that's good provided we make the electricity in a way which is carbon free.
So all of these things are different. And it's really been the last two or three years where this has taken off. And so, I want to see whether it's sustainable. I always worried that things on the margin -- and this is a marginal activity, if there is an economic downturn, will they survive.
Jason Bordoff: Yeah. And you -- I mean, as you said, they're growing quickly and critics say there's still a very small shares of total CapEx. And one response to that, actually, the chief economist of your old firm Spencer Dale was here not long ago, and said that is not -- that's to be expected that you can't expect a company like BP to -- when you have rising global oil and gas demand to dramatically shift away from investing to continue to meet that demand, invest in different forms of energy ahead of where the market is. And so, you, you famously built a renewable energy fund at BP, some people look back and point to it as a cautionary tale of getting out ahead of where the market is.
Lord John Browne: I don't think so.
Jason Bordoff: Okay.
Lord John Browne: I think how you calculate whether it did badly or well is in the eye of the beholder. Just after I left BP, I did -- I was co-head of the world's biggest renewable energy private equity fund, which was $3.5 billion. And we'd leveraged, that was $10 billion of investments. And that did amazingly well for investors and it's almost doubled their money.
Jason Bordoff: But the point of that, like how far would -- I guess the question for the oil and gas industry today is how far out ahead to get?
Lord John Browne: So, I think it is unrealistic to expect people to invest at negative returns on a big scale, if not a very small scale. So, this requires more policy activity. And the policy activity that I think is the single biggest thing to do, it's not the only thing, is to enact a carbon tax. I used to call it the carbon price and hoped that we could do this with some global trading mechanism, too complicated. We tried it inside BP, your project with the ETS, it wouldn't work because of the number of exceptions applied to the system. Essentially, carbon taxes look like they're the right thing to do.
Jason Bordoff: Well, Europe has just taken steps to significantly increase the permit trading price for the ETS.
Lord John Browne: Yes, they've taken some, but it's still nothing like high enough. We need to get a carbon price of, in my view, getting towards $100 a ton.
Jason Bordoff: Do you think that's at all politically viable when people look at Yellow Vest protests and [crosstalk] [00:26:28].
Lord John Browne: I do. Well, I do because it's very important that if you tax people for this, you redistribute the money to them to do something different with it, and make sure it's a progressive, not a regressive tax. Standard Flat Rate taxes on gasoline is a regressive tax on the people who don't have enough money and are required to drive, that's not appropriate. So, this has to be progressive tax, and one also which taxes people at the border if they don't do the same thing to their goods and services. Otherwise, you're simply importing the CO2 in another way.
So I think there are plenty of other tweaks to it, some regulatory points to be made about how you build buildings, various things like that. A lot of things need to be done. But the dialogue is, is there? And I do think that the more people see, that more people equate weather with climate, and they see extreme weather and they equate it with climate, whether that may be true or not, the more pressure there is politically to do something about climate change. And I'm all in favor of that.
Jason Bordoff: Is the oil and gas sector falling out of favor with investors, do you think?
Lord John Browne: Yes, generally. I think they buy the shares, obviously, they do where they can, provided that one, they don't destroy value. I think that's oil and gas companies have destroyed a lot of value, not least by going on wild goose chases and exploration. So one, they don't destroy value. Two, that they pay very strong -- they pay out their cash flow. And three, they demonstrate that they recognize they must do something about the environment and the social impact thereof. So, that's very important. I think for the smaller companies, they can't actually do anything in that area because they've got enough money. So, there has to be another way of getting the smaller companies involved here. So, that's something I'm giving some thought to as chairman of the Shoulder Committee of Wintershall DEA at the moment.
Jason Bordoff: The new merger that one of the largest of --
Lord John Browne: Very, very large, and the largest, independent EMP companies, and the largest privately owned one.
Jason Bordoff: And an IPO for that.
Lord John Browne: We would expect on the second half of next year.
Jason Bordoff: Yeah. So the -- and how do you think about the investor appetite given what you just talked about?
Lord John Browne: Well, I think three things have to get. One, I think, I do firmly believe that investors need to be convinced that you are a serious player, you have strong management, and highly disciplined. So disciplined, strong management's number one. Number two, a very clear plan, which can be actually done. And number three, don't sit on the cash, don't sit on the cash and don't overinvest. So make sure that investors get a proper cash return. And number four, because there was four things, making sure that you have the right approach to the environment, carbon and society, very important things.
Jason Bordoff: And just in our last couple minutes, in addition to talking about engineering and innovation and climate, we also spend a lot of time here at the Energy Center thinking about global energy markets and geopolitics. You've looked at this for a long time, we have a whole program here looking at economic statecraft and sanctions, we've written about the potential risks of overuse or misuse of this tool. And I suspect you may have some thoughts about how sanctions are playing out right now in the global energy market. And I'd be interested to hear them.
Lord John Browne: Well, sanctions, of course, are very powerful tool if used carefully. If they're used at a great deal, then people begin to think that they can get away and get around them. So I think sanctions have been effective in the past to an extent. They've clearly did something, for example, in South Africa. But the widespread use of sanctions there.
Jason Bordoff: In response to apartheid.
Lord John Browne: Apartheid, which I think was a very good thing that they were used that way. But in some cases, they're not effective because they can be wide around, and not everyone, not everyone abides by the rule of the biggest user of sanctions, which is the United States. There are two great powers, United States and China. And China doesn't have to abide by the rules of the United States. And as we see today, let's hope this doesn't go to a bigger conclusion. There's the two per world gap, China and the United States, and now, probably going to apply very different ways of thinking about sanctions, about relationships, about long term relationships with different countries.
Remains to be seen what happens to Iran. Iran is really suffering I think significantly with the sanctions being applied. And of course, today, engineering makes you -- gives you the ability to see what's going on with the oil. Where is it actually going? Is someone transferring oil ship to ship in the deep sea for reasons that aren't clear, in other words, white washing it from one oil to another oil? So, there are plenty of things to at least understand a bit more what's going on?
Jason Bordoff: How do you see people responding to the unpredictability of this and sanctions risk in terms of business strategy for the oil and gas majors, or people around the world trying to think about how to insulate themselves from the US financial system in the dollar, if that's possible?
Lord John Browne: So, I think geopolitical instability has been part and parcel of the oil and gas industry forever, whether it's sanctions, whether it's local disturbances, whether it's wars, whether it's regime change, you name it, there's a lot of it and there's a lot of it around it today. Every day, you look at the newspapers, and you read on the web, something different is happening. So, I don't -- I think that's business as normal. It's unstable and that's part of the oil industry. How do you manage these big investments and these big activities in a world where there is not a huge amount of certainty? It's why, for example, people like investing in the Permian because that's pretty stable. It used to be like Alaska, was pretty stable. The Gulf of Mexico, pretty stable, the North Sea, pretty stable, but things change and there are lots of places in the world which aren't as stable as those and we have to invest.
Jason Bordoff: What do you think the looming trade war portends for the energy sector?
Lord John Browne: Well, I think it could cause a weakness in demand, which is what we're seeing at the moment, but that's being responded to. I do think there are plenty of oil producers, state producers who do need a higher price for oil and they will move as they are doing to maintain that price. A price which is appropriate for them. So, I think that demand will weaken. And there will be, I think some interesting tariff rules to do with commodities, hydrocarbons included in the commodities, which will be a new thing, a new, new thing.
Jason Bordoff: And then one final geopolitical risk out there, just what do you think we will see with Brexit in the coming months?
Lord John Browne: We'll know quite soon. There's plenty of things going on at the moment. The United Kingdom is an unusual place and that unlike the United States, it doesn't have an unwritten constitution. It relies on people doing the right thing. And when they don't, that opens up brand new vistas for all sorts of political maneuvering. I don't know which way that's going to go. Whether we have an election and the election, we based on Brexit in or out, or whether we have some other mechanism of stopping that and having a referendum, whatever.
I would expect as you see it today, but I could be wrong in the next 24 hours, we will leave, we will leave, and we will leave probably with a pretty hard Brexit. But let's see, this is all negotiating. And one of the things I know, I do know, is it's impossible to read a negotiation. Because if you can read a negotiation, you know what the answer is and everybody knows what's the answer, and therefore, the answer never comes.
Jason Bordoff: Well, a lot of uncertainty. That's good for a research institute like ours looking at policy uncertainty, geopolitical risk, technology disruption. So things look quite different a year from now, hopefully we can have you back again to talk more about how the outlook is changing. And thank you for making time to be with us today to talk about the new book, Make, Think, Imagine: Engineering the Future of Civilization. I've really enjoyed reading it. Congratulations on it. And thank you for spending time with us this morning.
Lord John Browne: Thank you for having me.
Jason Bordoff: Thanks to all of you for listening. For more information about the Center on Global Energy Policy, please visit us online at Columbiauenergy on social media and online at energypolicy.columbia.edu. I'm Jason Bordoff. Thanks for listening. We'll see you next week.