2nd August 2016
Tony Hayward is currently the chairman of Glencore, one of the world’s largest mining and commodity trading companies. Previously, he was CEO of BP from 2007 until 2010, during which time he had to deal with the Deepwater Horizon Oil Spill. He has also served on the board of Tata Steel Europe, and today is CEO of oil company Genel Energy.
Q: What is your general outlook for commodities, in particular oil? Do you think that coal’s future is not properly appreciated in the UK?
A: At the moment, we have more supply than demand for oil, which is why prices are where they are. It will probably take another 18 months for the market to balance. It will balance because demand continues to rise, and it will rise by roughly one and a half million barrels per day this year, and so people have stopped investing in new supply. There is a lag between when you put capital in and when the oil comes out, so people stopped investing a couple of years ago. It will probably take through to the second half of next year before the market rebalances, and then it’s likely that prices might rise quite strongly, because there is no new supply, but continuing rising demand. So it’s quite likely that we will see another relatively strong oil price rise, then investment will come back, and then the market will balance itself out. That is the nature of the beast, I’m afraid.
I think in other commodities, it’s a similar story. I think you have to look at each commodity slightly differently in terms of where we are in the cycle of oversupply versus undying demand. I think in coal, clearly this country has taken a decision to eliminate coal from energy sources, driven by its desire to shift its energy mix away from fossil fuels. It is entirely reasonable for a wealthy country to do this, because coal is one of the lowest cost forms of energy, provided it is executed properly. It’s not going to happen in the same way in Southeast Asia in particular, where the challenge is still to provide energy to billions of people in order to lift them out of poverty, and the cheapest way for governments to do that is through coal fired power, because it is the lowest cost energy by a very long way. This is by a factor of three versus gas, and a factor of about ten versus nuclear. You need one of these as a baseload: you can’t industrialise an economy using wind and solar alone. That may change in the future, but it’s the reality of the technology we have available to us today. So in Southeast Asia, it’s quite likely that the demand for coal will continue to rise, and the big challenge there is to ensure that it’s burnt in the most efficient power stations, to reduce the level of emissions as much as possible. This could be done to a far greater extent than it is being done today. There is not enough latest technology being deployed in coal-fired power stations in Southeast Asia today, because people aren’t incentivised to do it, because there’s no price on carbon. This means that there’s no incentive for many current governments to build the right things.
Q: Do you think that other renewables fuel sources are viable, and what do you think the UK’s green energy policy should be?
A: They are certainly viable, and of course, today, they make up a very small proportion of the overall energy mix, less than 5%. In some areas, solar and wind are genuinely competitive with fossil fuels. But even on a stand-alone basis, commercially stacked against one another, in the desert of Southern California, solar is competitive with grid, and in Wind Alley off the back of the Rocky Mountains through Wyoming, wind is very competitive. That will continue. The cost of solar will continue to fall, driven by manufacturing and the advance of technology, so it’s going to become more and more competitive.
I think the next step in all of this is to get to distributed power, with the associated storage capacity. I think that the big game changer over the next ten years won’t be the advances of wind and solar themselves, but the advances that battery technology for overnight storage can make, and the ability to deploy that in a dispersed manner, so you no longer need a massive grid which is all connected, and you don’t have to balance everything. The challenge, at the moment, is obviously that it’s all centralised, and there’s no storage when the winds stops and the sun stops shining. There are great challenges in the grid infrastructure, so for me, the next step is all about battery technology, not for transportation, but for storage of energy generated by renewables locally. You can imagine a world in 20 years’ time where everyone has a small battery pack at the back of their house, where the power is generated from solar during the day and stored for overnight use.
I think in terms of the UK’s energy policy, the dilemma is that we haven’t had a coherent policy for some time. We’re seeing it as we speak: the debate about what role nuclear should play, and whether Hinkley Point is a good or a bad deal. I think that Hinkley Point is clearly a very bad deal for consumers. Whether that can be re-engineered, who knows? There is a sensible way for the UK to proceed, which is to use gas as its baseload. We have a lot of gas infrastructure here: we have multiple pipelines, we have multiple import terminals, so you can create a diversified source of supply for the gas. You can then integrate it with the renewable portfolio, which we have done an okay job at developing, but I don’t believe that offshore wind is the sensible thing to pursue at the scale at which we’ve pursued it. It is very expensive, but we are where we are. I would say that the thing that’s missing in the UK’s energy policy today is the recognition that gas is a very important part of the next 20 years. We need to ensure that we have the right gas infrastructure and gas storage in place, so we can balance gas supply.
Q: How big a problem do you think the British steel industry faces from cheap Chinese steel? Do you think that the Tata Steel business in the UK will soon be sold?
A: I think that there are three issues with UK steel manufacturing. The first one, and by far the biggest, is that it’s not integrated upstream, so it doesn’t have access to its own source of iron ore supply. The second one is that the plants are generally old, and haven’t been significantly invested into in the recent past. If you compare the plants in Port Talbot with those in Holland, both of which are within Tata Steel Europe, the ones in Holland are much newer, much more efficient, and even though they aren’t integrated, they are still able to produce much lower cost steel then Port Talbot. And then the third issue with UK steel making is the price of energy, because energy in the UK is two or three times more expensive than in mainland Europe. I think with all of those things, it’s frankly very unlikely that steel has the long-term future in this country.
Tata have tried very hard to make it work, because they paid a lot of money for this business, and they are pretty commercially astute and pretty efficient at running a steel business. They have a great steel business in India, and they just haven’t been able to find a way of making steel manufacturing in the UK work, really for the three reasons that I’ve talked about. I think that they’ll be able sell off bits of the business, but I doubt that they’ll be able to sell off the big furnaces in Port Talbot. I don’t think fundamental steel making will continue, although they’ll be able to sell off the finishing mills, the rolling mills, those sorts of things, where people can take raw steel and create a finished product. I think it’s very unlikely that they’ll be successful in finding a buyer, unless there’s a very significant support mechanism for the big steel owners. Fundamentally, it’s very difficult to make it work economically.
Q: Do you think that the Deepwater settlement with the US was fair, or do you think that you were unfairly victimised?
A: I think it’s almost impossible to ascribe what fair is. In this circumstance, it’s clearly one of the biggest settlements that’s ever been reached, but look at some of the settlements that the big banks have made, and it’s not out of line with them. I think it is a reflection of doing business in America. I think it’s not a case of whether it’s fair or not, it’s a case of it is what it is. You have to live with it and deal with it.
Q: What books would you recommend to someone my age?
A: I would recommend two books: Emotional Intelligence: Why it Can Matter More Than IQ by Daniel Goleman, and The Long Walk to Freedom by Nelson Mandela.
Q: What life lessons have you learnt over the course of your distinguished career?
A: I think that the biggest thing is the ability to meet success and failure in the same way. I’m a great fan of Rudyard Kipling’s famous poem If. It basically says that if you can meet success and failure, and treat those two imposters as the same, then you will do a good job. For me, that’s really what life is all about. Most people throughout their lives enjoy moments of success and moments of failure, and imagining that one of them is going to continue or the other is not isn’t the right way to think about the world. You’ve got to think that sometimes it’s great, sometimes it’s not so great, and in the end, it all sorts itself out. So I think treating those two imposters equally, as Kipling said, is a good way to proceed through life’s journey.
Q: What do you learn in your teenage years which you think has influenced your success?
A: Like many people of my generation, I came from a large family: there were seven children. My parents were pretty poor, I grew up in a council estate on the edge of Slough, and I went to the local grammar school. My desire to succeed and do better in life is very much something that came to me in my teenage years, and it’s extremely important to me. So, one of my passions today is social mobility: how do you find ways of providing opportunities for people who aren’t so fortunate to make a different life, a different future? This is one of the most important things that I think we can all do. It’s a really important part of creating a good society.
Q: Is there anything that you wish you had done which you didn’t do when you were my age?
A: It’s such a different world now. I probably hadn’t been on a plane when I was your age. There’s nothing I could really say which is relevant. The world is so different in term of its connectivity, your ability to touch all of it, your ability to see all of it, to partake in all of it.
Q: Who is the most interesting person you’ve met and why?
A: I’ve been very fortunate to meet lots of people. Probably the most interesting person I’ve ever met is Nelson Mandela, simply because of his humility. He was just an extraordinarily humble person who engaged brilliantly with anyone. I’ve met all sorts of world leaders, and they’re all quite interesting in one shape or form, but he’s probably the most interesting and most inspiring.