Friday, April 06, 2007

Notes from the Oil Summit

Yesterday (5 April 2007) I attended at the 8th International Oil Summit, held in Paris.

Most of the talks were on International Oil Corporations (IOCs) and National Oil Corporations (NOCs) cooperation. In this post I would like to give the main points of some (to me) interesting speeches.

Let me start with Mr. Jeroen van der Veer, CEO of Royal Dutch Shell:

1. The choices of energy mix in any country are heavily decided by governments. Any fuel can have maximum two of the three Cs (Clean, Cheap, Convenient). Clean refers to environmental aspect; cheap means low cost not only for producer but also for consumer; convenient depends on the country’s endowments (for China coal is convenient).

2. Costs are increasing and investments (nowadays GTL and tar sands) require huge financial and human capital. Think of the projects that are planned to come online in the next 5-6 years. There are plenty of areas where IOCs and NOCs can cooperate.

3. Governments can make the frameworks international in nature. i.e. set the standards for example for deducing GHG such as what the European Union does.

Mr. Christophe de Margerie, CEO of TOTAL:

This is the second time I listened to him. I like the guy. He is straightforward, provocative, avoids blah blah, and jumps right to the point. I will tell the best part of his speech last.

1. Our job is to find energy to satisfy demand in a sustainable manner. Reducing this job to NOCs and IOCs is not enough. We should consider all stakeholders including governments and society. The role of governments is more important than IOCs and NOCs.

2. We can not concentrate on one fuel as fuel of choice. Nuclear energy should also be included in discussions.

3. Cheap means trying to keep the pressures as much as possible under control
Costs are increasing tremendously. Dalia field (in Angola) now cost $4.6 billion. It will produce only 240 kbd. Girassol field (800 meters under water) costs $3 billion will produce 250 kbd.

4. NOCs don’t invest enough.

5. Two important challenges to meet future demand: opening new acreages amd exploring new avenues (such as extra heavy oil); introducing alternative solutions and renewable energies.

6. We should talk about beyond ALL petroleum, not only beyond petroleum.

7. Not training but education should be the focus.

8. Environment is priority. First concern is reducing gas flaring, doing more research to develop new solutions for CO2 capture and storage. Total is experimenting geological storage. BUT the problem is the cost.

9. Oil prices are pushed by costs. If we introduce the CO2 into our price structure you could not imagine the oil price. The price of oil would increase minimum 50%.

10. More money doesn’t bring more oil. Look at the cancelled GTL projects (I am not sure whether he really said that or this was my thought I noted by mistake).

11. AND. Don’t take 100 Mbd oil production forecasts for 2020 as granted. Because to achieve that level we have to add 5 Mbd every coming year (4 Mbd to replace depletion and 1 Mbd is real addition to capacity). BUT We will never achieve a production capacity of 100 Mbd for conventional oil. WOW! Who says that? CEO of TOTAL! (During the round up session of the summit, the moderator said that what Mr. Margerie said should be taken with a grain of salt. But then someone from IFP (French Petroleum Institute) said that both IFP and TOTAL foresee a peak around 2015-2020! WOW again. Not because of TOTAL but because of IFP. I know President of IFP (Olivier Appert) from my IEA days. He was NOT a peak oil person. He always claimed No Peak before 2030.

Mr. Mohammed Hamel (Head of Energy Studies Department, OPEC) told the usual OPEC stuff. I noted just one line: CO2 capture and storage is a win-win technology.

My old friend, former colleague and compatriot Fatih Birol (Head of Economic Analysis Division, IEA) said that there are 3 key uncertainties in oil business and outlooks:

1. Pace and nature of Chinese economic growth: To him the difference of impact between 7% per year GDP growth and 9% on Chinese oil demand (and hence world oil demand) is tremendous. He unfortunately ignored all other important emerging countries, such as India.

2. Data on oil field decline rates in existing fields. He said that global average depletion rate is 8%. Fatih and I never agree on any subject related to oil, especially the Peaking one. Anyway, Mr. Yves-Louis Darricarrere (President of E&P, TOTAL) pronounced in his presentation a global depletion rate of 5%.

3. Evolution of price elasticities: According to him recent high oil prices did not affect demand because in OECD people are now richer and share of oil in their expenditures is very small. Oil has no readily available alternative. In developing countries consumption increases because oil product prices are subsidized (pronounced subsidies of $100 billion). Someone should tell him why he is not right.

H.E. Mohamed bin Dha’en Al Hamli, OPEC President and Energy Minister, UAE: Producing countries are reluctant to invest billions of dollars to create a capacity which could become/remain idle if security of demand is not there. He strongly encourages and supports carbon capture and storage. Himmm

H.E. Abdullah Bin Hamad Al-Attiyah, Deputy Premier and Minister of Energy and Industry, Qatar: The world economy is adjusting itself to new oil price level.

Mr. Claude Mandil, Executive Director, IEA: emphasized stability against volatility (with that he meant more stability less volatility). Geopolitical and meteorological uncertainties affect prices. Market should have enough flexibility to cope with uncertainties (by more stocks and higher spare capacity). Uncertainty in OECD countries is low. It is not new that they want to reduce fossil fuel use etc. Greater uncertainty is the growth rate in major consumer countries. Since investments are not made sufficient enough we are in danger to meet demand even in alternative case scenario of the IEA. So, typical known IEA views…

Minister of Energy of Qatar made a nice joke (I don’t believe that it was a joke): “Mandil says that invest in more capacity to produce more oil, he is very generous on our reserves!”

Mr. Nader Sultan, former CEO of Kuwait Petroleum Corporation: The best speaker of the Summit together with Mr. de Margerie of TOTAL: He raised in fact more questions than answers;

1. While huge burden is put on NOCs to grow production, investments on what price expectations are not discussed properly.

2. Creation of jobs is important for NOCs. NOCs can buy IOCs but cannot replace maturity in technology and experience.

3. Have the IOCs become too large? When an IOC comes to cooperate with NOC he comes as IOC or as a state (their size most of the times is even larger than the GDP of the country they go).

4. Why do you want to be the camel? Isn’t it better to ride it? What type of partnership is the right one?

5. There is more and more NOC-NOC cooperation. (probably he mentioned Chinese and Indian NOCs bidding together in Africa and S. America, as well as the others)

There were a few other presentations and a discussion panel but there was nothing interesting (at least to me) to note.

General conclusions worth to note:

1. IOCs are not needed for conventional and easy oil. They are more welcome in complex, high cost, high tech projects.

2. OPEC members will invest $120 billion in oil industry between now and 2010.

3. NOCs are concerned with security of demand and IOCs on security of supply.

4. IEA is only certain about the need of investment, but uncertain all other issues.

5. Price volatility is a problem for all.

6. More IOC and NOC cooperation is neede but one size does not fit all. Most suitable partner should be selected.


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