Sound energy development is the key to global economic sustainability.
That message emerged loud and clear in speeches and panel discussions at the 18th World Energy Congress held in Buenos Aires Oct. 21-25.
The theme of the congress was "Energy Markets: The Challenges of the New Millennium." That theme played out as a consensus that the sustainability of the world's economies and people-especially those in the de- veloping world-hinges on the energy industry being able to secure conventional energy supplies to the world at a reasonable cost.
Dovetailing with that message was a key subtheme focusing on how social responsibility programs are playing an increasingly important role in energy industry operations (OGJ, Oct. 29, 2001, p. 36).
Other key presentations focused on industry's support for economic globalization, the ongoing dispute over oil prices between exporting and consuming nations, the emerging global gas trade, and the outlook for investment in Latin America.
The conference, which drew over 5,000 delegates, was marked by ex- tremely heavy security measures in the wake of recent terrorist attacks on the US.
Fitting the theme of the globalization of energy and its impacts on developing nations, an official of the Philippines energy sector was named the new chairman of the Word Energy Council, the multinational, multi-energy organization that hosts the triennial congress. Taking over WEC reins is Antonio del Rosario, who is the first WEC chairman to hail from a developing nation. He is president and CEO of Trans-Asia Oil & Energy Development Corp., Trans-Asia Power Generation, and Asia Coal Corp., all based in the Philippines. Del Rosario previously held posts with Philippine National Oil Co. and the Philippines Ministry of Energy.
Globalization and energy
The energy business has been thrust into the forefront of the debate over globalization, the nonexecutive chairman of BP PLC told WEC delegates.
Peter Sutherland not only stressed the energy industry's critical role in the spread of world trade and economic growth but also charged his listeners with recognizing that the energy industry has a moral imperative to further such trade objectives.
He made the comments in the WEC opening keynote address via video conference from the UK.
Sutherland also emphasized the continuing importance of the role of oil and gas in meeting the growing energy demands of the world in the decades to come. He linked the continuing dominant role of hydrocarbon use to the global efforts toward bolstering the economies of developing nations and bettering the lives of the world's impoverished peoples.
"An economic outlook that was already uncertain before [the terrorist attacks of] Sept. 11 has become even more so since then," Sutherland said.
The former BP chief noted that concerns over the state of the global economy have rendered any decisions to emanate from the November round of World Trade Organization talks in Doha, Qatar, "more important than ever."
"It has never been more important," Sutherland said, to create a "single, indivisible economy," regardless of the opposition to the WTO round and globalization efforts.
"The energy business has been thrust into the forefront of the debate over globalization," Sutherland noted, explaining that energy use remains inextricably tied to improving levels of gross domestic product among the developing nations of the world.
Oil, gas demand growth
In order to meet the energy needs of the estimated 6-7 billion global population expected by 2010, oil demand will have to rise to 90 million b/d from the current level of 77 million b/d, and natural gas demand will have to rise to 280 bcfd from 220 bcfd today.
By 2010, oil and gas will hold a two-thirds market share of global energy demand, and that share will in- crease, Sutherland asserted: "To be in denial of this fact is a major mistake."
Natural gas demand growth will account for the lion's share of that incremental market share growth, he noted, adding that the fuel now ac- counts for 40% of BP's current production, up from 15% only a decade ago.
At the same time, while conservation and renewable fuels development efforts continue to make inroads, they will fall short of the mark in meeting global energy demand needs, Sutherland said.
Even while BP has invested more than $200 million in photovoltaics to carve out a niche in the growing solar energy sector, "ellipsethe time frame for renewables to develop a significant share of the world's energy supplies is probably 30-40 years."
He also noted that, for every 1% improvement in energy efficiency, the corresponding reduction in total energy use growth vs. business-as-usual growth is a difference of only 4%.
"[The world] has 40 years of oil reserves life and 60 years of gas; the challenge is to use it wisely."
Industry's role
In considering the role of the energy industry in mitigating the environmental effects of energy development and use, Sutherland claimed that multinational companies "are exactly the means by which best practices in energy development can spread."
Even in the short term, the use of clean fuels can make a difference, he said, noting that BP has reduced its emissions of gases linked to purported climate change by 10% during 1990-2000.
Sutherland also cited the "extraordinary developments" in technology in supporting the search for new hydrocarbon reserves, estimating that the cost of finding oil and gas has plunged to less than $4/boe from $6-8/boe during the 1980s.
Globalization importance
Sutherland took issue with assertions by opponents of globalization that in- creasing energy use necessarily damages the environment, instead insisting that overall environmental degradation can be lessened by the economic uplift that comes with expanded energy consumption.
Sutherland blasted the antiglobalization movement itself as a principal threat to efforts to improve the welfare of populations in developing countries, rather than accepting the movement's central thesis that the spread of global trade worsens their plight.
"This is a damaging concept, be- cause the reverse is true," he said. "It is unrealistic and unfair and morally wrong to suggest that [by curbing growth in energy use], developed countries should pull up the rope ladder behind them so that developing countries cannot share in economic growth," he said.
"The system of multilateral trade needs to be defended more strongly than ever," Sutherland said, refuting claims that globalization "has failed to live up to its promises."
"That's not true at allellipsethere have been demonstrable benefits [from globalization]," Sutherland said, citing evidence that the poorest one fifth of the world's nations have benefited the most from increases in global trade.
"Those who have not benefited from [globalization] have avoided it or even put up barriers to protect local industries," he added.
Noting that the proportion of the world's people living in "absolute poverty"-living on less than $1/day-totals 1.5 billion, Sutherland said, "This is not being caused by the opening of trade, but by its denial."
Moral imperative
Sutherland continued to hammer home the notion that the energy industry has a moral obligation to assist in efforts to further the expansion of trade and business opportunities.
Noting the growing "demonization" of the energy industry, he observed that "energy businesses are being drawn into an increasingly controversial role" in the globalization debate.
"The energy business must stand up for itself," Sutherland charged, taking issue with the antiglobalist stance that underlies what he calls "the precautionary principle" on sustainable development-which he likens to "Ban first, think later."
"This approach slams the brakes on economic development," he said.
Economic growth depends more than ever on the global spread of technology, Sutherland said, claiming that technological progress accounts for one half to two thirds of the growth in economic benefits around the world.
"It isn't the easiest of times to try to marry growth in trade and technology," Sutherland said, but he charged the energy industry with standing "at the front lines of advocating the spread of technology and trade," even as anti- globalist protestors continue to "demonize" the energy business.
"Whatever benefits globalization brings can and should be defended," he concluded, charging the energy industry with taking up the struggle to de- fend the spread of trade and technology and the growth in energy use: "There is more than just business interests at stake."
Cutting oil taxes vs. prices
A cut in petroleum taxes is a better short-term cure for the looming global recession than a cut in crude oil prices, the president of the Organization of Petroleum Exporting Countries told WEC delegates in a panel on price volatility Oct. 23.
Chakib Khelil, also Algeria's Minister of Energy and Mines, made the claim in a question-and-answer session following presentations at a WEC panel on oil and gas price volatility.
Panelists acknowledged an outlook for even greater oil price volatility in the wake of geopolitical and economic uncertainties following the Sept. 11 terrorist attacks on the US and subsequent US-led military campaign against terrorism.
Other panelists dealt with the outlook for natural gas price volatility, particularly the role of LNG trade growth in that outlook.
OPEC, price volatility
In response to questions concerning OPEC's support of an oil price band target and its influence on recessionary trends, Khelil mounted a vigorous defense of OPEC's strategy in part by attacking high petroleum taxes in the consuming countries, particularly those in Europe.
Noting that petroleum product taxes can be as high as 80% in the consuming countries, Khelil estimated that the consuming nations capture as much as $1 trillion in annual revenues from petroleum taxes compared with the $250 billion/year OPEC nations earn from crude oil sales.
"Simply instituting a 10% decrease in petroleum taxes could bring $100 billion into the pockets of consumers," he said. "This would immediately help to boost economic growth."
Khelil claimed that the fiscal and monetary policies of nations are what really determine the level of economic growth, not the level of oil prices.
He insisted that OPEC is in favor of oil price stability and that a target price of $25/bbl-roughly the median point in the group's official price band target of $22-28/bbl-is acceptable to both producers and consumers.
Such a price level is going to help all nations-not just OPEC-develop new sources of oil production and to help spur the development of renewable sources of energy for the future, Khelil said, adding, "And that sort of competition is good-it is something the world needs, and we [in OPEC] support that."
Noting that the tradition of regulating oil prices was in place long before OPEC was created, Khelil observed that the price increases instituted during the 1970s actually had a positive impact by increasing global energy efficiency by 50%.
The OPEC chairman bristled at the notion that the group's defense of a targeted price band was somehow inappropriate in light of the worsening world economy: "If [support of a] price band is not acceptable when oil prices went down, why was it then acceptable when oil prices were $35/bbl?"
Considering the likelihood that a global recession would be short-lived, Khelil cited OPEC estimates that world growth in energy demand would soon rebound to the levels of 3-4%/year.
"Who then is going to take charge of the cost of maintaining spare [oil production] capacity?" Khelil asked, in reference to some OPEC nations' costly practice of maintaining a level of spare production capacity as a cushion against oil supply disruptions and the resulting oil price shocks.
Consuming nations' stance
The consuming nations' propensity for taxing petroleum consumption at high rates actually serves to moderate oil price volatility, International Energy Agency Executive Director Robert Priddle said, in following up on Khelil's remarks.
While noting that the tax components of petroleum product pricing vary widely among the consuming nations, Priddle said, "High taxes actually diminish the effects of price volatility to the consumerellipseIn 2000, the tax component share of the final price of oil to consumers actually fell."
Priddle said he could understand the "resentment" by oil exporting nations over high tax levels, because they represent "a transfer of wealth within a country vs. a transfer of wealth between countries."
Noting that the long-term implications of the Sept. 11 terrorist attacks on the US are still unsure, the top energy official of the Philippines-a nation heavily dependent on oil imports-said that his government views the US-led military campaign against Afghan- istan and Osama bin Laden's global network as a 1-2 year conflict, with ominous overtones for the global economy.
"This will put OPEC in a serious bind between balancing price stability and the prospect of 2 years of economic slowdown," Philippines Energy Sec. Vincent S. Perez said.
Gas outlook
The impending surge in growth in global LNG trade will benefit from and ultimately help to moderate gas price volatility in the future, according to Carlos Kempff Bruno, Bolivia's minister of economic development.
New gas exporter Bolivia is focusing now on the prospects for Bolivian LNG exports to the US and Mexico, in addition to its current pipeline gas exports to Brazil.
Repsol-YPF SA, BG Group PLC, and BP PLC this year launched a study of exporting gas from Bolivia's Margarita field via a two-train LNG plant built on Chile's coast to a regasification plant proposed for Baja California (OGJ, July 16, 2001, Newsletter, p. 8).
Kempff Bruno projected that LNG world trade will grow largely in re- sponse to gas prices projected to average $3.50-4.50/Mcf for the next 15 years.
While noting that LNG markets currently are strongly influenced by crude oil and oil product prices, Kempff Bruno said the burgeoning LNG trade will create a firm foundation for a global spot gas market.
"As the use and trade of natural gas continues to grow, there is a challenge to develop appropriate price mechanisms to help facilitate the international trade of LNG," he said.
Latin American prospects
Latin America will continue to be one of the world's most promising areas for oil and gas investment in the coming decades, heads of three of the region's biggest players told WEC delegates Oct. 23.
Delivering such bullish forecasts in a panel before an overflow evening crowd were Petroleo Brasileiro SA Pres. and CEO Henri Phillippe Reichstul, Repsol-YPF SA Chairman and CEO Alfonso Cortina, and TotalFinaElf SA Chairman and CEO Thierry Desmarest. The three companies are among the biggest investors and arguably the dominant foreign players (when including Petrobras's international arm Braspetro SA) in the key oil and gas producing and consuming countries of Latin America.
As evidence of the region's attractiveness for energy investment, Reichstul pointed to the fact that South America is hosting the two biggest global energy congresses in the current 12-month span: the WEC and the World Petroleum Congress (slated for September 2002 in Rio de Janeiro).
Petrobras view
Serving as panel chair, Reichstul outlined a number of macroeconomic and other factors for Latin America's current attractiveness for oil and gas investment.
Among those factors, Reichstul cited:
- Latin America's economic growth rate, which exceeds the world average.
- The continuing trend of restructuring that is under way in nearly all of the region's energy sectors.
- A relatively low per capita energy consumption level.
- Growing environmental concerns that are propelling a search for cleaner energy sources.
This last factor also lies behind the tide of energy integration sweeping the region, especially the Southern Cone countries of South America.
"Natural gas is the primary driver in this process of energy integration," Reichstul said, in noting that energy integration in the region is well under way. He also said that, in terms of energy integration in Latin America, it is critical-especially for Brazil-to follow the example of Canada by ensuring that energy integration incorporates an electric power grid dependent on natural gas-fired power generation as well on hydropower.
For Latin America's energy investment potential to be fulfilled, Reichstul said, the region's nations must pursue these key initiatives:
- Efforts to ensure a stable economy.
- Continuing improvements in the region's regulatory framework.
- Harmonized tax policies.
- Preservation of relativity in energy pricing to ensure cross-border trade in energy.
- Compatible specifications among the various countries for energy products and services.
- Transparent rules for wholesale energy markets under a framework of free-market rules.
- Creation of an energy futures market.
Repsol-YPF
Cortina pointed to the burgeoning energy consumption of Latin America as the main reason Repsol-YPF is the biggest investor in Latin America's oil and gas sector, with a capital outlay in the region in the past 5 years pegged at more than $22 billion.
With economic growth in the region projected in the near term at more than 3%/year, Cortina said he expects energy demand to continue to show strong growth rates as well. He estimated that growth in annual per capita energy use in Latin America during 1990-2000 was three times the average world rate.
Much of the energy development in Latin America also is contributing to energy security in the Western Hemisphere, Cortina said, citing production of 520 million tonnes of oil in 2000, of which 40% was exported to the US.
The Repsol-YPF chief also noted the booming trade in regional gas trade, with more than 6 billion cu m (bcm) of gas traded last year in South America alone, mainly via eight pipelines that have a combined capacity of 20 bcm/ year. He projected gas demand in Brazil alone would peak at 40 bcm/year in the coming decades. Cortina also noted the new interest shown by Mexico in establishing a string of LNG regasification plants, which augurs well for growth in LNG trade from Trinidad and Tobago, Bolivia, and Venezuela.
Desmarest
Desmarest also cited strong economic growth in the region as a key driver in TotalFinaElf's strategy to focus on Latin American oil and gas investment. He pegged that growth at 3.5-4.0%/ year to 2010, "even if several countries of the region are currently facing difficult economic conditions."
The TotalFinaElf chief said that oil demand growth in the region would lag economic growth only slightly, averaging 3-3.5%/year in the coming decade. But growth in demand for natural gas in the region would outpace that of any other major energy source at 5.0-5.5%/year, "driven by the rapid development of gas-fired power plants."
Accordingly, the oil and gas shares of the region's primary energy mix are expected to rise to 61% and 26% by 2010, respectively, from 58% and 22% today, he said.
Another reason, and "probably the most dominant parameter" for Latin America's strong attractiveness for petroleum investment is its "very large but also very diversified energy resources," Desmarest said.
While Latin America's proved oil reserves are second in the world behind the Middle East at 120 billion bbl, its total is triple that of North America and six times that of Europe, he noted, adding, "ellipsethe ultimate recovery of Orinoco extra-heavy oil could radically improve this picture." TotalFinaElf operates one of the four major integrated heavy oil projects in the Orinoco oil belt.
Desmarest estimated Latin America's natural gas reserves at a relatively smaller 8.2 trillion cu m, contending, however, "There is no doubt that intensive gas-oriented exploration will lead to large-scale revisions in the reserves of the [region]."
He also pointed to the region's growing role on the international scene, citing its net exports of crude oil and petroleum products currently exceeding 3 million b/d: "This position should be maintained and even improved, thanks to the development of offshore production and extra-heavy oil projects."
These latter two areas, together with LNG, hold the greatest current interest as targets of TotalFinaElf capital investment, according to Desmarest.
Deepwater potential is especially strong in Latin America, he noted, with the Atlantic Basin currently holding almost 80% of the world's deep offshore discovered reserves, and more than a fourth of that total concentrated off Brazil.
"We expect the deep offshore to take a growing share in the conventional oil production of the region, possibly 20%-even more-in the long term," he said.
Desmarest also cited the projected investments of more than $12 billion combined in the four Orinoco integrated heavy oil projects, with the last of these projects slated to start up by yearend. Their combined primary production-prior to upgrading-is projected to plateau at 600,000 b/d; this volume could build, with further investment, to as much as 2.4 million b/d by 2020, he said.
The volume of natural gas produced and transported in Latin America in 2000 totaled 132 bcm in 2000, Desmarest said, adding that his company projects that this volume will build to 220-230 bcm by 2010.
He predicted that LNG trade that totaled 3 million tonnes in 2000 will reach 17-23 million tonnes by 2010, posting an average growth rate of 6-7%/year.
Most of those volumes are expected to be exported from new LNG plants in Peru and Bolivia to the US and Mexico and from Venezuela and Trinidad and Tobago to the US, Mexico, and Western Europe.
Peter Sutherland
The energy industry stands at the front lines of advocating the spread of technology and trade, even as antiglobalist protestors continue to demonize the business. Whatever benefits globalization brings can and should be defended-there is more than just business interests at stake.
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