Doris LeBlond, OGJ Correspondent
Factors driving the unprecedented long period of high oil prices and their effects on oil supply, demand, and the oil company-oil service company relationship were dominant themes at the fifth international oil summit in Paris Apr. 29. The summit was organized by Institut Français du Pétrole (IFP), Paris-based oil and gas consultant SPTEC, and publisher-consultant Pétrostratégies.
Both economic and political explanations were offered to explain the consistently high oil prices: increasing demand growth from China and from the US, where a tight products market also is fueling price volatility and speculation; the higher call on Organization of Petroleum Exporting Countries because of "non-OPEC depletion rate increases," according to Repsol-YPF SA economist Pedro Antonio Merino Garcia; and finally, the geographical location of reserves which, in the long run could mean continuing high oil prices, both in nominal and real terms.
Political issues
One political view was expressed by Petrostrategies Director Pierre Terzian, who pointed to the tensions between the US and its major supplier, Saudi Arabia—which already has started diversifying its oil partnership base away from the US—and to the fact that "Washington's opinion no longer has much impact within OPEC" because of the Bush administration's "unreserved support" for Israel's Ariel Sharon.
OPEC Sec. Gen. Purnomo Yusgiantoro of Indonesia, whose address, in his absence, was delivered by Indonesian governor for OPEC Maizar Rahman, said that "the present high prices are not being caused by a shortage of crude." He added that OPEC has demonstrated "that it is possible to provide a high degree of stability in an inherently volatile environment." He explained OPEC's "preventive measures" in reducing production early last month by the need to avoid "excess supplies" that would drive prices down "well below fundamental levels, in just the same way that they are now above fundamental levels."
The limit of OPEC's $22-28/bbl oil price band, he said, has been "carefully calculated" to meet the contrasting needs of producers and consumers and would only be adjusted if "prices begin to settle outside this band."
OPEC's carefully measured handling of the market's spare oil capacity, however, shows the limits one should put to the improved, nonconfrontational relationship that it has been developing with the consumers' Paris-based watchdog, the International Energy Agency. Listing the oil outlook uncertainties and the negative effect of lasting high oil prices on world oil consumption and economic growth, IFP Executive Director Claude Mandil reminded summit attendees that a sufficient amount of spare oil capacity is needed to offset any supply disruptions and provide supply security as well as price stability at a reasonable price.
He said that OPEC's efforts to maintain the purchase power of its oil barrel and its world market share were being countered by high oil prices, for an IEA study had demonstrated that OPEC loses market share and revenues when prices go up. He also noted that Russia's revival as a producing country "could dampen the role of OPEC as a market regulator."
Consumer relations
The problem with producer-consumer relations, noted Geneva-based Nalcosa energy consultant Nordine Aït-Laoussine, "is that it is difficult to conceive of a possible compromise between 'market intervention' and 'market forces.'" Nonetheless, International Energy Forum Sec. Gen. Arne Walther insisted: "A global dialogue on energy is necessary because energy is a global issue." Indeed, both sides at the summit recognized the need to work towards stable prices in order to encourage the high investments that will be needed to bring—which everyone at the summit agreed will be plentiful over the next 30 years—to a strongly growing market long-term oil and gas supplies.
Noteworthy at this stage was Qatar's "special interest," in the words of its energy and industry minister Abdulla bin Hamad al-Attiyah, in the area of refined product demand, which he said would grow to 114 million b/d by 2030 and require an increase in global refining capacity to 121 million b/d. Qatar's contribution to meeting this challenge is through gas-to-liquids (GTL) technology, relying on the country's huge natural gas production and reserves to make current and future large projects economically profitable. The minister already is planning to increase the capacity of the Oryx GTL plant at Ras Laffan Industrial City in Qatar, to almost 100,000 b/d from 34,000 b/d (OGJ Online, Mar. 24, 2004) and expects Qatar's "production of petroleum products from GTL operations to increase towards a target of around 1 million b/d by the end of the next decade."
Contractor relations
A further side effect of high oil prices that emerged from the summit was that they appear to have singularly soured relations between the few remaining major oil companies and the shrinking high-performance engineering and construction (E&C) industry. Despite their record profits, complained Technip SA's Daniel Valot, oil companies are haggling for ever-lower costs incompatible with larger finding and development costs, higher steel prices, and the increased size and complexity of new projects, "which are growing faster than E&C companies.
"An unhappy and unhealthy situation for everybody," said Valot, adding: "Many oil service companies are incurring heavy losses on projects." His concerns were echoed by Lew Watts, Halliburton Energy Services Group senior vice-president of marketing and strategy, who used new technologies as an example. "The customer's single-minded march towards the lowest price drives our proprietary technologies to the status of cheap commodities," he complained. "Our relationships are becoming increasingly unsustainable, yet the world is crying out for lasting solutions," he said. "We need to work as a team if we hope to solve these problems."
Contrasting with these complaints, Schlumberger Ltd.'s Executive Vice-Pres. Chakib Sbiti put his view in a nutshell: "The name of the game is competitiveness."
It was up to Christophe de Margerie, Total SA's exploration and production president, to defend oil companies' need for both cost and value, reminding the summit "that the world is changing. We are not the final clients; the real client is the national oil company, the end user of all our businesses." He added a final shot: "Most of the small contractors have been dying. You are now competing among yourselves."
