Atlantic Council

01/12/2019 | News release | Distributed by Public on 01/12/2019 01:21

Atlantic Council 2019 Global Energy Forum Day One

January 12, 2019

Atlantic Council

2019 Global Energy Forum

Official Opening of the Global Energy Forum

Speakers:

Frederick Kempe,

President and CEO,

Atlantic Council

General James L. Jones, Jr., USMC (Ret.),

Executive Chairman Emeritus,

Atlantic Council

H.E. Dr. Sultan Al Jaber,

Minister of State, United Arab Emirates and Chief Executive Officer,

Abu Dhabi National Oil Company

H.E. Suhail Al Mazrouei,

Minister of Energy and Industry,

United Arab Emirates

Location: Abu Dhabi, United Arab Emirates

Time: 9:00 a.m. Local

Date: Saturday, January 12, 2019

Transcript By

Superior Transcriptions LLC

www.superiortranscriptions.com

ANNOUNCER: Ladies and gentlemen, please welcome Atlantic Council President and CEO Fred Kempe. (Applause.)

FREDERICK KEMPE: Excellencies, ladies and gentlemen, what an immense pleasure it is to welcome you to the third annual Atlantic Council Global Energy Forum. For those who have joined us before, welcome back in this new and exciting venue. And for those who have joined us for the first time, we find you - we hope you find it valuable and return for years to come. It isn't just what you will learn in the next couple of days that you'll find profitable, but also the set of relationships, friendships that are built here.

There is no better place in the world for this conversation than Abu Dhabi. It lies at the crossroads of so many key energy trends, trade flows, and technologies. There are, indeed, few places that have such a balanced foundation in the energy sources that have dominated the 20th century, and the new energy sources that will come to dominate the 21st century. And importantly, for our discussions today, there are few places in the world with such a far-sighted commitment to driving innovation across all of these energy sources.

It is our greatest honor to hold this forum under the patronage of his highness Sheikh Mohammed bin Zayed Al-Nahyan, crown prince of Abu Dhabi and deputy supreme commander of the United Emirates armed forces. The patronage of his royal highness and the engagement of this sort of high-level group underscores the relevance of the themes we discuss over the coming two days, and how central they are to ensuring a global order that is inclusive, prosperous, and peaceful at a time when so many forces are pulling in the opposite direction. The UAE recognizes the crucial role that energy plays in the global order, and we thank the UAE for its generous hospitality.

We're also particularly delighted to gather here in the Year of Tolerance - the UAE's Year of Tolerance. The UAE's promotion of tolerance carries on the legacy of Sheikh Zayed, and the Atlantic Council is pleased to play its part in the dialogue that takes place in this country between many faiths, nationalities and backgrounds.

Our mission - the Atlantic Council's mission, since our founding after World War II, has been to foster constructive dialogue and cooperation among partners and allies to secure the future, working together to secure the future - a simple sentence very hard to execute.

In today's world where intolerance so often takes precedence over tolerance, our mission has never been so urgent nor so important. The UAE role in its region in the world has never been this crucial.

This event has brought us together today in an important time, and it would not have been possible without the tremendous support of our key presenting partners. I first want to salute Minister Suhail Al Mazrouei and the UAE Ministry of Energy and Industry. Thank you so much. Dr. Sultan Al Jaber, UAE minister of State and CEO of ADNOC, and Khaldoon Al Mubarak, CEO of Mubadala. Thank you, gentlemen. (Applause.)

Thank you for your generous support and partnership, and commitment to continuing to develop this forum as the agenda-setting event that kicks off the energy year where trends are untangled, deals are done, and priorities are issued. And I know that there are as many questions as answers in the next two days.

We're also extremely grateful to the forum's platinum co-chair, Majid Jafar, CEO of Crescent Petroleum; to Tony Douglas, CEO of Etihad Airways, our official carrier; and to Adam Sieminski, president of our knowledge partner and the King Abdullah Petroleum Studies and Research Center. And Majid, we're also happy to have your father here, as well. Thank you to all of these gentlemen as well. (Applause.)

Thanks also to our other partners and sponsors who have made this event possible, and finally, thanks to our international media partner, CNBC, and other key media partners: Abu Dhabi Media, the National Oil and Gas here, Sky News Arabia, and Quartz.

We are pleased to be playing our role in also kicking off Abu Dhabi's Sustainability Week, which has cemented its role as the focal point for the future of energy and sustainability trends. It is a tremendous honor to play this role in conjunction with ADSW, the largest gathering on energy and sustainability in the Middle East and probably the world.

In kicking off ADSW and the annual global energy calendar, we will address three main issue areas. Number one, the future of oil. The volatility of oil prices has left many wondering where the market will go in the next 12 months, and thinking long term, we need to ask, what is the role of the crucial oil and gas industry. Number two, digitalization. New technologies promise to generate efficiencies across the energy sector, enhancing energy security and reducing emissions. But new risks could emerge as competition for technology leadership creates new geopolitical risks. Some of us had our own introduction to the digitalization question visiting the breathtaking Panorama room of ADNOC yesterday. Number three, diversification of countries and companies. For overlapping reasons, both energy-producing countries and energy companies are looking to diversify their efforts, moving downstream into renewables and even into nuclear. What strategies can companies and countries leverage to maximize revenue and ensure stability over the short, medium and long term?

So these are three big questions, but we also added a fourth region this year. We will address these issues in the context and the challenges and opportunities in East and Southeast Asia that will change both supply and demand for energy. We are pleased that we have exceptional experts, business leaders from that region.

And now I'm honored to introduce the Atlantic Council's executive chairman emeritus, General Jim Jones, who will formally open the forum. General Jones graciously answered the call to the Atlantic Council Board of Directors to serve as our chairman not once, but twice, having just finished his second term at the end of last year. He is the only person to serve twice as the Atlantic Council chairman alongside General Brent Scowcroft. General Jones's previous service from national security adviser to President Barack Obama to supreme allied commander Europe to commandant of the United States Marine Corps illustrates the incredible depth of his commitment to causes larger than himself. General Jones, thank you for all that you've done for the Atlantic Council, for the world and for our country.

Let me turn the floor over to General Jones. (Applause.)

GENERAL JAMES L. JONES, JR. USMC (RET.): Thank you, Fred, very much for that kind introduction.

Your excellencies, ladies and gentlemen, it's been a great honor for me to work with Fred Kempe for almost a decade and to have served twice as chairman of this great organization called the Atlantic Council. And I particularly enjoyed the last year-and-a-half of service as Atlantic Council chairman while the board searched for a permanent replacement for Chairman Jon Huntsman, who, as you know, is presently our ambassador to Russia.

I'm very pleased that the Atlantic Council has found an impressive new chairman of the board, John Rogers, who officially started his term on January 1st. Jon is executive vice president of Goldman Sachs. He serves as the firm's chief of staff and as - and as secretary to its board of directors. He also possesses a wealth of experience in the public sector, including at the White House and at the U.S. Treasury.

I have no doubt that he will be a great leader for the Atlantic Council as it concludes this decade and enters a new one ripe with opportunities and challenges.

I'm honored to continue supporting the Council's exciting global activities by serving as executive chairman emeritus. And I hope John is able to join us here in Abu Dhabi next year so you can all meet him personally.

Our Atlantic Council is driven and in fact informed and led by a Board of Directors and an International Advisory Board. And I want to personally thank the members of these boards with us here in Abu Dhabi for their engagement and support: Philippe Amon, Mark Bernstein (sp), Helima Croft, Ankit Desai, Claudio Descalzi, Gianni Di Giovanni, Paula Dobriansky, Murathan Günal, Amos Hochstein, Yongsoo Huh, Majid Jafar, Ernie Moniz, Dick Morningstar, Dan Poneman, Ellen Tauscher and General Chuck Wald, all names that are very well known to you I'm sure.

Your Royal Highness, excellencies, ladies and gentlemen, friends, thank you for being here today. It's terrific to be back in Abu Dhabi for the third year of the Global Energy Forum. Abu Dhabi is a key hub for development not only in the region, but across the global energy sector.

Last year, we met here to discuss and shape the energy agenda for 2018. One year later, many changes later, the need for this forum is more apparent than ever before.

As a former national security adviser to the president of the United States and former military commander, my area of expertise is peace and security. And the role energy plays in ensuring that stability and prosperity has always been very clear to me. The reverse is also true that peace and security are crucial for functioning energy markets.

So now more than ever, energy leaders must be prepared to respond to a rapidly changing geopolitical environment. This includes the tectonic technological shifts that increasingly determine our energy destiny, from those that are unlocked - from those that unlocked the shale revolution in the United States to the next-generation technologies that will feature very prominently in this year's forum.

Energy, just like the world of defense and security, is increasingly leveraging new digital technologies, including artificial intelligence, big data, blockchain, 5G and beyond. And these technologies are not just unlocking new opportunities for producers and consumers. They also play a tremendous role in the global fight against climate change. The seed of these changes may be borne out of labs and boardrooms but they will end up having significant geopolitical implications for those of us used to sitting in situation rooms and that's the rationale behind the Global Energy Forum and at the heart of our task today.

If you'll permit me, I'd like to read a message that I just received this morning from the deputy secretary of energy of the United States, the Honorable Dan Brouillette, who cannot be here, unfortunately, but he did author a brief statement that I would now like to read:

Dear colleagues and friends, I'm writing to offer my greetings and best wishes to the Atlantic Council and its leaders, to the gracious UAE hosts, and to all attendees of this year's Global Energy Forum. Regrettably, circumstances have prevented my attendance this year. Each year this vital forum brings together key representatives in governments, businesses, and organizations to analyze and discuss the global energy landscape.

In recent years, something monumental has been happening across that landscape. The world has entered in a new era of energy abundance, one that is filled with potential and astounding promise. If this era proves to be long lasting, it could dramatically advance the energy security, the economic security, and the national security of countries and the overall well-being of humanity. This new era has emerged in no small measure due to the development of the United States. Once an energy-dependent country experiencing energy shortages, the U.S. now finds itself on the brink of energy independence and a rising exporter of its growing energy bounty.

So what sparked this transformation of the United States, making the U.S. a major energy player beyond its borders? The question may be answered as follows. After a long battle in the U.S. between innovation and regulation, innovation finally prevailed and innovation has spurred a technology revolution leading to the astonishing energy progress. Due to a cascade of technological breakthroughs, the United States uses energy more cleanly and more efficiently, obtains it from a wider range of sources, and produces it more affordably and in greater abundance than anyone predicted just a few short years ago.

Many of these breakthroughs occurred at the National Laboratories of our Department of Energy. The Department of Energy's research aided the rise of hydraulic fracturing and horizontal drilling, as you well know, leading to a natural gas renaissance. It also led to technologies that dramatically increased energy efficiency. The DOE's clean coal technology program laid the foundation for technologies that produce clean energy outcomes. And beyond DOE and a number of our states, the same innovative spirit produced similar outcomes. By reducing taxes and holding the line on regulations, such states provided both the incentive and the freedom to innovate. Thus, from fossil fuels to renewables supply rose, costs fell and efficiencies increased. Today, the United States is the number-one producer of oil and gas across the globe.

At the same time, thanks to innovation and technology, the United States has been leading the world in reducing carbon emissions, cutting them by 14 percent between 2005 and 2017 with further reductions likely over the next generation. And today, we export our natural gas to 32 countries on five continents with more expected in the coming years.

By exporting this energy, the United States is using its abundant supply as a tool of liberation, not subjugation. We are liberating allies from dependence on any nation that wield its energy supply as a political weapon. We believe all nations have the right to chart their own energy future and achieve energy security without being held financially hostage by other countries. And across the globe the U.S. is promoting energy security among its friends, working with them to repel the malign influence of those seeking to undermine free markets and energy independence.

In the case of Iran, the U.S. is partnering with regional players like energy-rich Iraq to ensure energy market stability. Iraq has the potential not only to achieve prosperity for itself through energy, but also to play a key role in strengthening regional and global economic stability.

In Europe, we seek to strengthen the energy security, and thus the economic security and the national security, of our transatlantic partners, preserving Europe's achievement of being whole, free, and at peace since the close of the Second World War. We continue to seek a more inclusive approach towards a complete Europe, one that identifies threats to the transatlantic energy security and provides effective solution.

To that end, Secretary Perry announced the Partnership for Transatlantic Energy Cooperation in order to give policymakers and civil society stakeholders the tools they need to promote prosperity and bolster energy progress and national security. In addition to sharing our energy bounty with others, we're also sharing the same energy technology and know-how that at least our own - that unleashed our own energy progress. And we invite other energy-producing countries to do likewise. And as we do, we can transform societies caught in the grip of heartbreaking poverty and want. As they unleash their own energy, these societies can provide the life-giving power of reliable, affordable electricity - in some cases, for the first time ever. Energy development can also ignite economic growth and foster development, creating jobs and other opportunities, and providing the wealth to improve nearly every facet of human existence.

So besides exporting our energy supply and know-how, we also intend to export the most important lesson we have learned on energy policy. For any nation that seek to proceed - to produce energy cleaner, more abundantly, more affordably, more efficiently, and in more diverse forms, it must allow innovation to work its magic, so all of these goals can be advanced. For any nation, there is no surer path to energy security than that of energy innovation unleashed by sound energy policies. And with energy security comes greater economic growth and opportunity, and with it greater national security and peace.

Because our policies are working in the real world, I'm excited about America's new direction in energy. I'm excited about what this means not only for the United States, but for our friends, our allies and trading partners abroad. I'm excited about what this means for every nation and people who want to fulfill their dreams for a better prospect, a brighter future, and a more prosperous tomorrow. And most of all, I'm excited about the prospects for every nation that is willing to embrace a better tomorrow by pursuing sound and sensible energy policies today. May this year's Global Energy Forum be a productive and successful one for its leaders, its speakers, attendees, and its participating nations.

Ladies and gentlemen, it is now my honor to turn the stage over to his excellence Dr. Sultan Ahmed Al Jaber, minister of state of the United Arab Emirates, and chief executive officer of Abu Dhabi National Oil Company. Thank you so much for your attention. (Applause.)

SULTAN AHMED AL JABER: (In Arabic.) In the name of Allah, excellencies, distinguished guests, ladies and gentlemen, good morning. And it gives me great pleasure to welcome you to the third Atlantic Council Global Energy Forum. This forum, in fact, provides a very important platform for industry, policy, and academic leaders to engage on key energy issues in a very complex world. This platform also helps shape the global energy agenda for the year ahead.

As 2019 begins, geopolitical and economic factors are weighing on markets around the world. And it is only right that we face this period of uncertainty with some caution. Yet, while global economic growth may slow down in the short term, the long-term fundamentals remain strong and robust. Prosperity is spreading from traditional centers to the rest of the world at an unprecedented rate. This year, for the first time in history, most of the world's population is now in the middle class. And by 2030, there will be 3 billion new consumers. And as breakthrough technologies continue to enhance human progress, demand for energy over the coming decades will only increase.

For energy companies, this multilayered landscape balancing current market conditions with future growth requires a careful, calibrated and an agile response. This means we must focus on what we can actually control through unwavering operational efficiency while staying ahead of projected demand as we enter the fourth industrial age.

We at ADNOC are calling this mission Oil and Gas 4.0. For ADNOC, Oil and Gas 4.0 means embedding a tech-focused digital mindset within every aspect of our business, driving our performance, energizing our partnerships and empowering our people. As we prepare for any market uncertainties that might - that may lie ahead, minimizing costs and maximizing margins is, in our view, mission critical.

By embedding artificial intelligence and digitization, we are building resilience and driving profitability across our operations. Predictive analytics is helping to reduce our maintenance costs, prevent shutdowns and avoid system failures. Big data is allowing us to make real-time decisions in response to market movements and in line with industry trends. And blockchain is generating valuable efficiencies by transforming how we track every hydrocarbon molecule we produce from first oil to final sale.

Ladies and gentlemen, as we prepare to cater for the world's future energy needs, we are reinventing our approach to partnership. We are engaging strategic partners, partners who will actually put skin in the game, bring new technologies and open up new growth market opportunities for ADNOC. Through creative collaboration, we will maintain the UAE's position as the second-largest oil producer in the region. In addition and by thinking differently, applying technology creatively and adjusting our business model, we will, for the first time, unlock huge reserves of previously uneconomical gas. In short, we have finally cracked the code that will put us on a path to gas self-sufficiency and ultimately transition the UAE to become a net exporter of natural gas.

As part of our strategy to increase our oil and gas capacity, last year, for the first time in our history, we opened up a set of new onshore and offshore exploration blocks for competitive bid. The exploration area covering 30,000 square kilometers contains vast amounts of oil and gas. And today, I am pleased to announce that a consortium comprising of Eni and Thailand's public exploration and production company have just been awarded the first two blocks. (Applause.) These two - these two offshore blocks covering 8,000 square kilometers represent the beginning of a new wave of exploration that will leverage our resources and further enhance Abu Dhabi's position as an essential energy provider to the world.

Distinguished delegates, our new approach to partnership does not end with our upstream operations. It is also at the heart of our 45 billion U.S. dollar investment downstream. As demand grows for plastics and polymers that will enable the modern world, we are working with value-add partners to stretch the dollar of every barrel we produce by moving further along the value chain. Partners will benefit from our existing, world-class, fully integrated refining and petrochemicals asset base - (inaudible). They will have access to our high-grade, flexible feedstock and a dependable and credible business-friendly environment in the United Arab Emirates.

And today, together, those partners, with ADNOC, they will develop an ecosystem that connects refining, petrochemical, conversion and manufacturing facilities into one state-of-the-art industrial hub, a hub that will only capture greater value from our hydrocarbon resources, maximizing return on investment and helping diversify the UAE's economy.

Distinguished delegates, ladies and gentlemen, at its core, Oil and Gas 4.0 is about transforming culture to enable organizational progress. This is helping make ADNOC a destination, in fact a true destination of choice and an incubator of young talent, young talent who are today actually rewriting the rulebook of how the oil and gas company of the future should operate and should be run. By embracing rather than resisting disruptive innovation, we will be a leader, not a follower, more able to withstand unpredictable market headwinds and be a reliable partner for long-term sustainable growth.

I thank you again for being here and I hope you enjoy the next two days. Thank you. (Applause.)

ANNOUNCER: Ladies and gentlemen, please welcome to the stage His Excellency Suhail Al Mazrouei. (Applause.)

SUHAIL AL MAZROUEI: Good morning, ladies and gentlemen, excellencies. Welcome back to Abu Dhabi and to the third edition of the Atlantic Council Abu Dhabi. It's really a great pleasure to see the number increasing year on year. It's something that we started building three years ago and to tell you the truth we did not anticipate the success. So I would like to thank Fred and his team for making this happen.

I will not make my remarks long because I think General Jones, Fred and Sultan have said the main things that inspire us to stay together here. I will shed some light on how do we - how did we see one year ago, 2018, and what have we achieved and how do we see 2019.

If you remember, when we met last year, oil prices in the previous year was around $53. And this deal of OPEC and non-OPEC continuing to work together was a bit questionable. Are they going to stay together or not? The market was not - the investments coming back to the oil and gas market was a bit shaky, it was not solid. And today, we look at an average - an average year of around $70 for Brent from 53 (dollars). So it's remarkably a good year for the investors. And I think that is what drove companies like ADNOC and others here in the region to embark on major projects for the next five years. ADNOC alone, if I'm not mistaken, put first $109 billion of investments and then complemented that with the downstream forum where they - where they have attracted around 40 (billion dollars) to $45 billion, I mean, in addition to that. Same in Oman, same in Saudi Arabia, same in the other countries.

So we manage as an industry to attract new investments not only on the oil and gas but I think, in general, in energy we have seen great projects in renewable energy, in new technologies of the CCGT happening here in the region and its quiet transformational thinking - transformational in the minds of the regulators. Now the regulators are convinced, at the end, to let the private sector lead in giving solutions and making energy more reliable and we will focus more on the environmental side and making sure that the old forms of energy in the future are cleaner. That's what we will do as regulators and we will encourage this competition among the front forms of energy.

I'm confident that the geopolitics always going to play a key role in either making those investments or delaying such investments. Therefore, we are, as a country, a promoter of peace, a promoter of tolerance, and, as you know, this year, 2019, is the year of tolerance. So within this year you will see us as a country promoting tolerance and trying to promote peace and development in the Middle East because we need to start that yesterday. The new generation, there are millions and millions of young people lacking jobs, lacking futures, and even lacking energy. So we need to help them see a better future and become, rather, builders of their - of their societies rather than joining some of those radical groups.

The relationship between the Atlantic Council and the expertise of its members that brings here to Abu Dhabi is crucial to help us see the future and to help us tackle and try to think together about some of those problems that we will see in 2019. There is definitely a more financial - a rather financial problem that we will face. We are - in the future - we are almost at the beginning of a crisis that could happen in the next two years if we did not plan for it, and even though in the energy sector I think we are - we are on top of things, making sure that investments are coming, but there are other issues that we need to talk about and we need to address. And I'm sure during today and tomorrow and this week - the sustainability week - we will focus on some of those important issues and, hopefully, we could bring some recommendations to the leaderships of the different countries who are participating here, trying to learn from this distinct group of the Atlantic Council as well as some of the - some of the guests that we attracted this year.

I look forward to the remaining of the program and, again, welcome to Abu Dhabi. (Applause.)

ANNOUNCER: Ladies and gentlemen, we will now take a family photo. The first - speakers of the first session, please proceed to the stage.

Scene Setter: New Energy Technologies and New Energy Geopolitics

Introduction: Frederick Kempe, President and CEO, Atlantic Council

Speaker:

The Hon. Ernest Moniz, President and CEO, Energy Futures Initiative; former Secretary, U.S. Department of Energy

FREDERICK KEMPE: So ladies and gentlemen, before I welcome to the stage former U.S. Secretary of Energy Ernest Moniz, let me just thank again Minister Mazrouei - Al Mazrouei for being such a great partner for this. Let me thank Dr. Sultan, also, for breaking some news this morning of the new concessions and the view into oil and gas. And it is a shame that the secretary - deputy secretary of energy could not be here - complications also involving the government shutdown, but I think that is an important statement that will go into the records of this session.

Ladies and gentlemen, it is now my distinct pleasure - and we have two senior officials from the U.S. government, Frank Fannon and Brian Hook, who will be speaking to us in the next two days. We will hear from Brian shortly, but we're delighted that they could be here in person.

So ladies and gentlemen, it is now my distinct pleasure to welcome to the stage former U.S. secretary of energy and Atlantic Council international advisory board member, our good friend, Ernie Muniz, who will provide a scene setter for today's discussions with a global tour of new technologies and trends shaping the global energy environment.

Secretary Muniz served as the 13th U.S. secretary of energy from 2013 to January 2017. As secretary, he advanced energy technology, innovation, nuclear security, and strategic stability, cutting edge capabilities for the American scientific research community, and environmental stewardship. He now hangs his hat at the Nuclear Threat Initiative where he is chief executive officer and co-chair of the board of directors.

Secretary Muniz, with that the floor is yours. (Applause.)

ERNEST MONIZ: Well, thank you, Fred and Jim, for the opportunity to address this group, and excellencies, colleagues and friends, and I want to assure you that those are not exclusive categories. They highly overlap, and that includes Sultan and Suhail as well.

So I was asked to give a few remarks along the lines of the themes of the conference in terms of oil, and digitalization, and diversification of energy technologies. And let me first say, of course, on the issue of energy geopolitics, of course, that has historically been tied to oil, and then in the 1970s, with disruptions in the markets, that led to great change that we see today: the diversification of suppliers, and - often not mentioned enough, the change - the fundamental change in terms of market structures and futures trading and the like.

But today, with this market, of course, we still have a situation where transportation globally is virtually a hundred percent - not quite, but very, very close to a hundred percent dependent upon oil because of its unique properties, meaning that of course we still have these issues of energy security to deal with. I might add that of course we all know the United States - it has already been stated by - especially by the deputy secretary, Brouillette, that the United States now is producing the order of 11 ½ million barrels a day, and this raises the discussions about energy independence. I have to say - despite what my good friend Dan Brouillette said - that there is a bit of an illusion here in terms of energy independence, and that even includes a possibility in the next decade of having net zero imports to the United States of oil and oil products because the reality is we will remain very tightly coupled to the global market. And we will be as exposed as anyone, frankly, to things like price volatility and those impacts. So energy security in the oil arena is going to remain a very, very big concern of the United States as we remain engaged in the global - in the global markets.

Now, of course, natural gas is also in that energy security discussion in ways that it was not a couple of - a couple of decades ago. Gas, with its lower carbon footprint, its very flexible uses across the economy, is a very - of course, a very attractive fuel. And then the events in 2014 involving Russia and Ukraine were in some sense the change element in terms of how energy security for natural gas was being - was being viewed.

And that led in 2014 to the G-7 and the EU coming together in response to the Ukrainian events to issue - to think through and issue a new set of energy security principles to guide policy, to guide - to guide action. Let me just say that a first important point of that set of new principles was something that again was alluded to already this morning, namely that energy security is not an individual country's field of play; it is a collective responsibility because the insecurity of allies and friends in the energy arena affects - certainly I'll speak for the United States - affects our foreign policy in very, very strong ways. So once again this issue of international engagement is absolutely critical for us all to work together in terms of energy security.

Now, on the principles themselves, they of course emphasize the traditional issues of diversification of suppliers and routes of delivery, et cetera; emphasize the importance of developing market structures as an element of security. But what I want to emphasize is I think that that statement, while not surprising, was a very clear statement that in addition the efforts to go towards low-carbon technology - thought up, of course, mainly in terms of addressing global warming and the impacts of climate change - were actually central to an energy security construct as well, because obviously renewable fuels - to a large extent nuclear not quite in the same sense, et cetera - are also elements of security, and frankly may be more relevant towards concepts like energy independence than are some of the issues around oil and gas.

Now, with that - so that is the statement that, again, not surprising, but there is a very, very clear intersection of how we talk about and what we do about energy security and global warming and climate change. Indeed, the targets that have been set for climate change, for global warming, we know is in the order of, say, a 50 percent reduction in emissions globally by mid-century, and in the industrialized world more like 80 percent if, in fact, we are to accomplish the goal of remaining below two degrees centigrade warming, for example. Now, this is - (laughs) - everyone here knows to achieve those goals is a massive transformation of the energy system. I certainly believe there is no question that the low-carbon trend will be critical, will be a defining element of the energy system over the next decades. We'll still see how fast, how far, but the commitments, I think, are clear.

And I would just make two observations. One is if we are collectively to achieve anything like these kinds of goals, the incumbent energy companies must be part of the solution. This will not happen only with what I would call disrupters because the incumbents, of course, have control of, own, et cetera, the key infrastructures, have the ability to make these transformations as they inform their business models going forward to meet the challenges of this carbon transformation.

And, in fact, I would note that in the United States, obviously, the president in 2017 announced the intent to withdraw from the Paris Agreement. And the reality is within days many, including energy companies, made it clear that they intended to stay the course towards this low-carbon future. So I think - I think - I think industry has also stated that what they want is not disruptive policies, but rather stable policies, rules of the road which can allow business-model evolution towards this new world.

I would add to it, as well, that I think we have not paid enough attention to the fate of communities in our various countries. Because without addressing the needs of communities who are exposed to the energy transformation, we will - we have tremendous headwinds in trying to implement the kinds of policies and technologies that will lead to a different outcome. In the United States that's evident in the need to address communities' dependence upon coal. In France we have just seen the - or continue to see, perhaps - the 'gilets jaunes.' In Africa we have tremendous energy poverty that we have to address, even in the midst of major and evolving energy resources. So I think that we have to not only think about this energy transformation, but think about the progressive policies that allow all of our communities to move forward and, in fact, provide the ability for policy evolution in a - in a more rapid way.

Now, that takes us to technology. And I have to say, being here in Abu Dhabi, I can't resist putting my MIT hat back on and talking about the old collaboration with Dr. Sultan and Masdar. In fact, my last visit here was in May of 2017 to address the graduating class of Masdar, which was the - following a decadelong collaboration focusing on technology and young people, which Sultan also emphasized.

But in talking about technology briefly, I'd like to really focus on sectoral issues. I mean, I will just say that of course demand-side issues - energy efficiency, et cetera - are clearly essential in our - in our path forward. I'll also say that the - in the energy industry, in the energy business, I think we heard what, again, was said this morning in terms of digital technologies and big data and their importance, and that's certainly something I endorse. But I have to say I think we are still slow on the uptake and are barely scratching the surface. And what we term platform technologies - that is, not energy technology specifically, but big-data technologies and AI, 3D printing, and all of those technologies that are racing ahead - we need to get on top of in terms of being able to help our supply chains and our - and our energy businesses moving forward.

But in turning to sectors, let me first make a - just a few comments on electricity. Electricity decarbonization is certainly essential and in many ways the lead horse in addressing the low-carbon transition. In fact, it's been progress in lowering the carbon intensity of electricity that is largely responsible for much of the progress that we have seen in various countries, including our own in the United States. Now, in low - the low-carbon options are also pretty clear for electricity: renewables, nuclear - and by the way, nuclear I don't dismiss fusion as well as fission in that equation - and carbon capture and sequestration.

Now, on nuclear let me say, again, the Emirates are a regional leader, as we all know, in nuclear. But everywhere, frankly, certainly including in the United States, cost and schedule challenges are just endemic as the generation three and generation three-plus reactors are built. I personally think that a transformation in the nuclear business will or will not come with the success of small modular reactors. So I think this is a critical focus. I think that the reasons are twofold. One is that small modular reactors will allow a new financial engineering approach to these projects, number one. And number two, most critically, will allow for all of the quality control possibilities that a manufacturing environment will permit as opposed to on-site construction, which I can tell you firsthand in the United States right now is causing, again, tremendous cost overruns, like a factor of two, which really question the viability of further construction of large nuclear plants. So I think that in about a decade we should know the cost - the cost engineering schedule performance of these reactors. And this could be a major gamechanger, I think, for nuclear and its contribution to low-carbon electricity supply.

Now, there is a challenge here. And this is in a segue to renewables. In the United States, again, we see it very, very clearly, and that is now the emergence of, essentially, zero marginal cost technologies, like and solar for example. The entire regulatory structure in the United States for competitive markets is founded on the principle of marginal cost dispatch. It wasn't designed for a system where one has zero marginal cost technologies, which are, in turn, subsidized in their capital costs. So I think we are also going to see, need to see a revolution in the policy and regulatory structures to accommodate these different forms of low - of low-carbon technologies.

Which takes us to solar in particular I'll focus on in these - in these few minutes. As you all know, the costs of solar have continue to plummet. We are now talking about $1 per watt for utility solar installations, a rather incredible continuing drop over the last - the last few years. But there are challenges. And we all know the challenges of intermittency, which, of course, leads to storage and natural gas as complements to solar, but we don't often enough talk about the daily production curve of solar. As we all know, there is something called night, for example. And we also don't talk enough about the fact that solar has considerably more output in the summer than in the winter, which raises the issue of seasonal variation and the requirements of seasonal storage.

I believe that the only way in the end to manage this in a world of very, very large solar and wind penetration will be fuels. There must be fuels in the system in order to manage these inherent characteristics of these - of these intermittent and seasonal varying technologies. So storage will have to address minutes, hours, days, weeks, months, all of these scales. And I think that we have been a little bit myopic in thinking that batteries, for example, are the solution for all of those timescales. Batteries are more and more critical, clearly, costs are dropping, but in the end, I do not believe it's practical for that to be a solution for the longer storage timescales, including seasonal. So once again, we're talking about a fuel. For example - and this is not unique - but one example would be producing hydrogen, for example, when one has so-called excess renewable electricity.

Now, in saying hydrogen, what I really want to emphasize is that's only one possible pathway. But I really want to talk about the other sectors. So as I've said, electricity is what we focus on a lot and it's a lot of the early gains in terms of lower carbon along with energy efficiency. But what about transportation, industry, buildings, agriculture? The reality is electricity is a minority of the emissions we are addressing. I'll just take California as an example. Transportation, as is the case in many other places, is the largest-single-emitting sector. We just saw the results from the Rhodium Group about the United States having a very substantial carbon emissions increase last year. What was the lead industry - up 7.4, I think it was - no, 5.7 percent industry increase in emissions. This is the story. If you want to address carbon, you've got to go where the carbon is. And transportation and industry are very much more difficult sectors to address than electricity. We need to have more focus in these areas.

Now, clearly, in transportation, light-duty vehicles are amenable certainly to battery solutions, fuel cell - fuel cell solutions and the like. But that is not a way of addressing the entire sector, heavy-duty vehicles, aircraft, et cetera. I believe we are going to have to keep looking as well for low-carbon liquid fuels, ideally those compatible with current infrastructures, if we are moving forward. So these are tremendously important technology directions to be pursued. Natural gas could have a role, LNG in certain heavy-duty vehicle situations, but that also will not be a universal solution.

As we look at the - at these alternatives, we also have to remember infrastructure. We already have three enormously developed infrastructures: oil, gas, electricity. Will we be able to adapt the oil infrastructure to new fuels? Will we be able to sustain a natural gas infrastructure that will be needed at a minimum as a major contributor to a several-decade transition to very low carbon? Will we be able to expand electricity infrastructure in order for it to play a much larger role throughout the energy economy? Will we need a new massive hydrogen infrastructure? Will we need a new massive CO2 infrastructure? These are open questions. But once again, if the incumbents who understand how to manage oil-scale infrastructures are not part of the solution, it's hard to see how one - how one - how one gets there.

In industry, there are things like the need for high-quality heat and the like. And we could see several pathways: efficiency, reuse, remanufacturing, recycle, some electrification, biomass feedstocks, carbon capture, utilization and sequestration. What I really want to finish on in technology is really emphasizing that we need, in my view, a lot more attention on carbon capture, utilization and sequestration. Of course, success there will be a gamechanger for fossil fuels almost by definition.

So let me talk about hydrogen. Now, hydrogen and electricity could be - again, this is not a prediction - could be one way of handling economywide energy service requirements. Today, steam methane reforming is, of course, the principal pathway. And I'm going to use a strange unit, 6 gigajoules, roughly speaking the energy of a barrel of oil, because that's a nice benchmark to compare. So with SMR, we're talking just over $40 per 6 gigajoules of hydrogen. With electrolysis, which is the favorite carbon-free electricity, splitting water to make hydrogen, today, those costs are approximately $250 for the same unit. Dramatically more expensive. We have to think about this going forward.

In fact, today, if we were to do steam methane reforming with carbon capture and sequestration, we'd be talking 75 (dollars) to $80 per 6 gigajoules, still much less expensive than electrolysis today. Now, we can drive costs down, of course. But I want to argue that for this one example, once again, natural gas may be a very, very important part not only of a transition but of a(n) acidotic situation where we are relying on hydrogen as a major part of greening the economy. But nothing comes cheap. So even in this, let's say, natural gas plus CCS approach, now comes the issue is the issue of will the public accept sequestration of that much carbon dioxide.

To give you a scale, one coal plant - coal power plant - produces megatons of CO2 per year. If you put that underground for 50 years from that one plant to use - again, I'm using units familiar in the oil business - we are talking about billions of barrels of carbon dioxide in geological sequestration. So it gives you an idea. We have - we have cost barriers, we have public acceptance barriers, and we really need to come together in terms of plotting out the options for a low-carbon future.

Indeed, another area where I think we are way under investing is the coal area of carbon direct removal, which can be from concentrated sources, dilutes sources - the air, the oceans. We are not spending enough in terms of developing the options for large-scale utilization of CO2. We have not answered the questions about long-term geological storage or long-term biological sequestration. There's a tremendous palette here of options. The future of how the energy industry evolves and the role of the incumbent companies is going to be dependent in the longer term mid-century on answering these questions.

So, finally, my message pretty clearly, I hope, is - and we've heard it already this morning - innovation in technology, in policy, and in business models is absolutely critical and we need a large dose of humility in thinking about the pathways to low carbon after five or 10 years because there are so many factors, political as well as technological, that our focus should be flexibility and optionality for all of us to meet a low-carbon goal in the best way that we can. That's a hell of a lot better than predictions that are completely worthless for several decades down the road.

Thank you very much. (Applause.)

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