Upbeat oil and gas sector


Courtesy of Courtesy of Energy Institute (EI)

Managing risk and maximising opportunities were the central theme at this year’s IP Week, held in London last month. Over 2,000 delegates had the opportunity to hear of the challenges facing the oil and gas industry as it seeks to invest in new territories and new technologies in the drive to respond to demand growth, while considering health, safety, environmental and geopolitical constraints and the need to find new talent.

It appears the international oil and gas industry ‘has its mojo back’ if the presentations on the first day of this year’s International Petroleum(IP)Week, the Energy Institute’s (EI) flagship thought-leadership forum for the sector, were anything to go by. In the opening conference, sponsored by Ernst & Young (EY), speakers focused on the global energy outlook and future growth scenarios. They pointed to more confidence in the sector, with demand reviving and supply adequate. Ongoing problems in the Middle East were keeping prices firm, but the general consensus was that there were no obvious threats to upset the balance in the immediate future.

The first session featured presentations from Kenneth Cohen, Vice President of Public and Government Affairs, ExxonMobil, (see Petroleum Review, January 2014) and Jim Skea FEI, Professor of Sustainable Energy, Imperial College, who provided a global overview of supply and demand to 2040. Skea built on Cohen’s summary highlighting the findings of ExxonMobil’s annual energy outlook, to take a wider comparison of energy forecasts from ExxonMobil, BP, Shell, the International Energy Agency (IEA) and the US Energy Information Administration (EIA). He noted a number of ‘areas of agreement’, including the belief that energy demand will continue to rise; electricity will take an increasing proportion of demand; energy demand has saturated in developed countries; energy demand could start to saturate in some emerging economies (eg China) by the late 2020s, while other economies will ‘emerge’ to take their place; fossil fuels will continue to dominate the world energy system and there is no physical constraint in their supply; the use of natural gas will expand; and renewable energy output (wind, solar) will expand, but will not dominate the energy system. However, the various forecasts also showed some ‘areas of uncertainty’, including the level of coal use, which could be down rather than increasing; the impact of energy efficiency on demand; peaking (or plateauing?) of oil; the role (if any) for biofuels, which has a declining role in successive outlook exercises; the role of natural gas in transport and whether electric/hydrogen-fuel cell vehicles will take any significant market share.

Moving to the specifics of trading, Ian Taylor, President and CEO of Vitol Group (see Petroleum Review, January 2014) suggested that the Dated Brent crude oil benchmark needed fundamental reform in light of dwindling North Sea production. The benchmark is currently calculated using four North Sea crude grades (Brent, Forties, Oseberg and Ekofisk). Taylor called for this to be broadened to include grades from West Africa, Kazakhstan and Algeria, and perhaps even Russia and the US in the longer term. However, when this issue was raised in The Centenary Interview with Dr Tony Hayward HonFEI, Executive Director and CEO, Genel Energy, at the close of the day, Hayward said he felt the industry was ‘quite a long way’ from being able to achieve this due to ‘the freight differences, because of the quality differences’. Instead, he saw ‘the emergence of some more global benchmarks’ going forwards.

This issue was also picked up by Didier Casimiro, Vice President, Rosneft, in the early afternoon, who noted that while the Asia-Pacific is the largest and fastest growing crude consuming region in the world, it lacks a local crude benchmark. He said massive investments in the Asian energy sector will require a region-specific crude marker to support hedging, project financing and growing trade and stated that ESPO is the only ample crude originating and selling in the Asia-Pacific region. He said that Russia was expected to have captured some 11% of total oil supplies to the Asia-Pacific region by 2030 and that Rosneft, which controls over 60% of ESPO volumes, was ‘leading the effort’ among suppliers to establish ESPO as the de facto Light Sweet Asian marker crude.

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