Chopsticks levity in the middle of oil observations

At a recent conference in Dubai, the theme was the relationship among international oil companies, national oil companies and governments, about job creation, the severe shortage of skilled manpower to meet a growing and more diverse energy industry and investment constraints in the Middle East, where the state-owned oil and gas monopolies own the resources but where the laws and regulations governing foreign investment vary from country to country.

Serious stuff except for one brief moment where the delegates and the speaker from Ghana burst into laughter. She had been discussing the role of small and medium businesses and how they can be tailored to meet the needs of the energy industry and of foreign operators. But a gentleman from the audience suggested  that perhaps when the Chinese companies won contracts, they could leave their cooks behind and teach locals to cook Chinese meals for their staff.

But joking apart, there were some key themes that delegates took away from CWC’s two-day NOCs and Governments summit in Dubai. Here are excerpts from some of the keynote speakers at the event, both inside the conference room and on the sidelines.

–A senior Gulf source, who did not wish to be identified, said Saudi Arabia and others in OPEC want to see lower oil prices. Most members in OPEC, including Saudi Arabia, believe that the ideal price for oil is around $100/barrel and would like to see current oil prices fall further given a weak global economy, the senior Gulf official said.

 ”We think the oil market is balanced. There is no shortage,” the source said. ”The expectation is that for the next few months and next year even, there is more non-OPEC oil coming.”   At the same time, demand is expected to weaken given the current state of the global economy, he added.   “We believe that the price is high and not supported by fundamentals…we would like to see the price going down and Saudi Arabia is working to bring it down,” the senior Gulf source said.  “Oil at $100 seems the ideal price for the majority in OPEC,” he said. ”"The majority of OPEC countries prefer $100/barrel, including Saudi Arabia.” 

–Total’s president in the UAE, Jean-Luc Guiziou, said the French major sees a potential supply shortfall by the end of the decade, with geopolitics raising doubts about the supply side while a weaker global economy was creating uncertainty on the demand side. Still, Total sees a potential supply gap of 40 million b/d by 2020.

 The world faces a potential supply challenge for both oil and gas in the coming two decades and will need to put an additional 40 million b/d of new oil on markets by 2020, Guiziou said. He told the conference that while a relatively stable oil price environment was good for investors, sustained “firm oil prices” had pushed markets into backwardation and, combined with a weaker euro, had led to the highest ever gasoline price in countries like France while placing an economic burden on other countries in Europe, already suffering from debt issues.   “This situation creates tensions in countries like Europe, where the economies are struggling,” Guiziou said.   “Currently, the cost of energy is becoming a burden on the economic development of the countries of the region,” he said. 

At the same time, markets faced conflicting issues of rising supply from some areas but geopolitical tensions on the other, which he said was causing uncertainty and affecting the price structure.  “On the one hand, we have good news on the supply side. We seeing the booming development of oil and gas in North America and good news of discoveries in frontier exploration provinces,” Guiziou said, referring to areas such as East Africa and offshore Brazil. ”At the same time, we see geopolitical issues and events which keep a constant threat on the ability of our industry to supply the markets in a smooth way,” Guiziou said, adding that this was evident in the backwardation that has been a feature of the oil market for some time.  

“Total’s view is that of a world which will remain facing undersupply challenges in the mid- and long-terms,” Guiziou said. ”Despite the good news on the supply side, we need to remember that we have as an industry to put on the market by 2020 about 40 milion b/d of new oil which is a huge number and obviously those 40 million b/d will replace oil from mature fields. It’s within a short time frame so a lot of challenges will be faced by our industry.”

He said that the same applied to the gas market.  “We see before the end of the decade a shortage of supply on the European and Asian markets,” he said.  This will require the industry to proceed with “very intensive capital allocations and expenses to develop new facilities and put that new oil and gas on the market,” which Quiziou said was a joint responsibility of both the international oil companies and the state-owned resource holders.

–A Saudi-Kuwait dispute is holding up a gas project,  the chairman of the Kuwait Gulf Oil Company Hisham al-Rifaai, told reporters.

Joint development by Kuwait and Saudi Arabia of their side of the offshore Dorra gas field could be delayed by a year due to a dispute between the two Arab neighbors on where the gas should land, Rifaai said. ”We have an issue about where the gas should be delivered,” Hisham al-Rifaai told reporters on the sidelines.  “Saudi Arabia requests that all the gas be delivered to Al-Khafji and split there,” he said, referring to a port on the border between the kingdom and Kuwait. “But we have invested millions [of dollars] in front-end engineering and design on the basis of offshore splitting of the gas.” 

“This happened recently,” he added, saying he found the Saudi request for a change of project design puzzling.

If the disagreement is settled amicably and soon, there may be no development delay. If not, then the start of phased gas production from Dorra, designed to deliver an initial 300,000 Mcf/d of natural gas to each state, could be delayed to 2015 from 2014, Rifaai said.

Current plans call for the Arab partners ultimately to produce 600,000 Mcf/d of gas from Dorra, which lies in disputed waters off the Persian Gulf, with Iran also laying claim to part of the field it calls Arash.

–Finally, some good news. A deal between the federal Iraqi government and the Kurdistan Regional Government is likely to bear dividends for at least one operator in northern Iraq,  UAE-based Crescent Petroleum, by making it more likely that a long delayed federal hydrocarbon law will be approved.

 

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