Oil and natural gas exploration and development and its relationship to the environment was a predominant theme at the 9th Annual International Oil Summit Apr. 10 in Paris. Organized by Institut Francais du Petrole (IFP) and consultant and publisher Petrostrategies, the summit presented varied subjects, most of which contained an environmental dimension.
In a keynote speech, Saudi Arabia Minister of Petroleum and Mineral Resources Ali I. Al-Naimi said a major challenge for the oil and gas industry is to “reduce emissions from fossil fuels while managing the cost of such reductions and their possible negative impact on economic growth and human prosperity.”
Al-Naimi said protecting the environment and promoting human prosperity “go hand in hand.” He insisted that “those of us in the energy sector, and particularly the petroleum industry, have a particularly important role to play in addressing these challenges.” It was also, he said, “a task not only for the fossil fuels industry but also for national governments, universities, research institutions, and cross-border organizations.”
Al-Naimi dismissed the role of biofuels as a solution to solving the emissions problem, blaming them for being unfriendly to both the economy and the environment. Instead he advocated renewables, especially solar energy which Saudi Arabia intends to develop.
But what he favored most was development of carbon capture and storage as “a promising method for reducing emissions from fossil fuels in which he included “conventional oil, natural gas, coal, tar sands, and oil shale among others.”
He said this is the way fossil fuels “can be and should be made environmentally friendly sources of energy, particularly as they will continue to meet the lion’s share of energy needs for the foreseeable future.”
IOCs, NOCs
In their addresses, both Malcolm Brinded, executive director of exploration and production for Royal Dutch Shell PLC, and Christophe de Margerie, Total SA’s chief executive officer—the only international oil majors present—shared this view but also had much to say about relations between international and national oil companies, promoted to a fully fledged theme at this conference.
Brinded’s “Blueprint for a shared future” calls for energy industries to respond to three “interrelated” challenges: meeting expanding energy needs, getting more from increasingly difficult resources, and cutting carbon emissions. He advocated “lobbying for a global carbon market that will enable carbon emissions—particularly from coal—to be mitigated more efficiently, and allow carbon space for the oil the world uses so effectively in transportation.”
The key to achieving this, Brinded said, was “partnership between national and international oil companies.”
De Margerie insisted that, because of the trend in current oil prices, “it is high time to stop opposing energy and climate change.” His clear message was: “It is time to move” towards “a new model” to cope with rising oil and gas demand “because of the risk of supply and demand crossing sooner than expected” if OPEC fails to see the need for more oil; to improve dialogue and cooperation with host countries; and deal with technical and financial challenges but also to work to help oil-producing countries reduce their carbon footprint from oil production.
For De Margerie “dialogue and cooperation with host countries is more than ever necessary, but the message has only been partially received.” There are still 45% proved oil reserves in “closed” countries, he noted. Meeting people’s expectations in those countries through jobs, training, community development, and better governance is not enough.
“We must go further and open a debate, which has to be political, talk about real matters. We have heard for years that the market will balance supply and demand. Now we need to be all together to produce more spare capacity,” De Margerie urged.
However, even though Sonatrach Pres. and Chief Executive Mohammed Meziane, speaking on behalf of Algeria’s energy minister and current OPEC Pres. Chakib Khelil, agreed with Al-Naimi that NOCs and IOCs should “join their efforts along the value chain for closer cooperation.” Yves-Louis Darricarrere, Total’s exploration and production president, admitted that there are “different countries, different NOCs, and different expectations.”
And “NOCs today are knowledgeable, capable, and confident. They don’t depend on IOCs,” Brinded pointed out.
For IFP Pres. Olivier Appert, “the scene is changing, and the way to cooperate depends on the many different local conditions for NOCs. The way to cooperation has not yet been found. We shall have to wait for our next Oil Summit to see how things have evolved,” he said.
Oil prices
What has changed since 2002, rightly pointed out Nader Sultan, former KPC chief executive, are the high oil prices. And looking further ahead, he wondered whether it might not be possible now for an NOC to buy Unocal Corp. “It makes sense now, he said, for NOCs and IOCs to have joint ownership: one day NOCs will be able to buy IOCs.
Broaching the highly topical matter of high oil prices, Fatih Birol, the International Energy Agency’s chief economist, saw them opening up “a new world order” as he put the crucial question: “What role for prices?” IEA, he said, is working on a study it will release in November linking thoughts on the oil price to oil and gas supply in the years to come.
The point of departure, he said, is the declining price elasticity of supply and demand—bad news for everyone, he added. In fact, the price effect on demand is diminishing because in China, India, and oil-producing countries, oil subsidies are as high as $50/bbl/year.
Economic growth is soaring in all three areas and coming mainly from the transport sector where there is little scope for change in the short and medium term. This is why the price effect is diminishing.
As for the Organization for Economic Cooperation and Development area, it is getting richer, and the share of money going into energy has been halved over the last 20 years. High taxes also cushion high oil prices.
Declining demand elasticity is matched by declining supply price elasticity as costs increase and lower the propensity to invest among major resource holders. “Price may increasingly play a ‘clearing’ role indirectly through its impact on the pace of economic growth,” he concluded.
For the present, said IEA Executive Director Nobuo Tanaka, there is no single explanation for higher oil prices, which he persisted in seeing as “too high.” Are they due to the large increase in money flows, higher costs of materials, the short-term influence of a weak dollar (even though oil prices are high in all currencies, he pointed out), or lack of data on stocks, which aggravate volatility?
“At the IEA, he elaborated, we do believe that the many explanations stem from the coming together of different factors, including the low level of spare oil capacity and the continuing mismatch of refining capacity.”
The final oil summit session featured service companies, whose challenges were a fitting cap for the whole oil industry’s growing problems.
One problem they did not have, however, was a scarcity of projects. Technip’s president Thierry Pilenko mentioned having to cope with 170 “megaprojects” of increasing complexity and size during 2007-10. These billion-dollar projects, he specified, required specific skills and new frontier technologies.
As Schlumberger’s EAF Pres. Satish Pai summed up: access to reserves-resources required experienced people and innovative technology, while decline and reservoir complexity is driving technology development.
All to be achieved with rising costs and—a key challenge for the industry—lack of skilled “human capital,” especially in the area of strong project management capabilities, said Technip’s Pilenko, while Saipem’s Pres. Pietro-Franco Tali explained that these challenges must be overcome through “a global approach.”
For instance, Schlumberger has recruited over 6,000 engineers from 200 universities in 80 countries, and training them will form a “major part of the 400,000 training days targeted in 2008.”
Saipem for its part is adding 1,000 people in Malaysia and adding another 1,000 in India, where another Saipem is being replicated for added value, acting on the assumption that “companies should invest in central hubs where you put experienced people.” Also crucial is large investment in “the right type of assets” for the future.
And central to all these policies lies the commitment to “sustainable growth” and dealing with environmental problems right from the early project design stage and beyond.