IEA chief urges government action on demand

Sept. 5, 2005
Oil market conditions demonstrate the need for governments to push energy conservation, says Claude Mandil, executive director of the International Energy Agency.

Oil market conditions demonstrate the need for governments to push energy conservation, says Claude Mandil, executive director of the International Energy Agency.

Noting that future oil production would come increasingly from Russia and the Middle East, Mandil told Oil & Gas Journal that the main problem is not the regions themselves but the shrinking number of suppliers overall.

That, he said, is “not good for supply security.”

Supply strains in the market now, he said, should alert governments to their roles in orienting consumer behavior toward energy efficiency.

“Governments should not try to protect consumers from market signals,” he said. “Prices will cease rising when energy-saving policies become ingrained in the different countries.”

Mandil pointed to the reaction of the French government, which has resisted pressure to reintroduce the floating motor fuels taxation system to bring down oil prices and is talking of imposing further speed controls on motorists to cut oil consumption. France has announced its intent to reach a 2%/year reduction in energy use by 2015.

On Aug. 26, French Prime Minister Dominique de Villepin assembled some 20 key energy experts, including Total Chairman and Chief Executive Thierry Desmarest; the delegate general of oil industry trade group Union Française des Industries Pétrolières (UFIP), Jean-Louis Schilansky; and the presidents of Electricité de France and Suez to discuss problems arising from soaring oil prices.

Refineries ‘saturated’

Besides setting up a “watchdog body” to keep an eye on the oil situation, Villepin advocated adoption of an energy strategy. A week previously he had called on “Total and all other oil companies, who are making substantial profits, to rapidly engage in the investment efforts the country needs,” pointing to “currently saturated refining capacities.”

Total told OGJ that it is investing 500 million euros in its Normandy refinery to add a 2.4 million tonne/year distillate hydrocracker and steam methane reformer. The units are due on stream in mid-2006. The group also has put on the market transportation fuels that “provide consumers with real-world solutions to environmental air quality and fuel efficiency,” including Excelliium fuels, biofuels, and LPG.

BP France indicated that it built in the 1970s the only hydrocracker in France on its Lavéra site on the French Riviera and is spending 150 million euros to upgrade it. The company also has put on the market its new Ultimate diesel oil and gasoline oil-saving motor fuels, which currently hold a 20% share of the market in France.

Esso’s contribution to France’s refining capability was the large 250 million euro PJ21 investment carried out at its Notre-Dame-de-Gravenchon site in 2003 and 2004, which marked “a first step towards deep conversion to increase middle distillate production,” a spokesman told OGJ.

According to UFIP, France’s oil industry is investing 600 million euros this year-as much as last year-in upgrading, motor fuels specifications, and the environment.

Such efforts to produce more middle distillates will ease the cost to France of importing them from Russia and help establish a better refining balance between gasoline overcapacities and middle distillate undercapacities.

For Mandil, the conversion effort also could have an effect on world oil prices as, he said, available crude is now heavy crude, and consumers need more light products. Product bottlenecks, he said, result from a worldwide deficiency of refinery conversion capacity.