Oil & Money 2017: Energy market developments and the emergence of disruptive transport technologies

Crystol Energy attended the 38th annual Oil & Money Conference which took place on 17-19 October in London. Co-hosted by The New York Times and Energy Intelligence, the event stimulated debate on the key issues facing the global petroleum sector.

Among the topics discussed were: the outlook for oil prices, the challenge of profitable upstream development, the impacts of geopolitical uncertainties in the Middle East and elsewhere, the rebound in the U.S. shale, and the disruptive capacity of new transport technologies. In addition, the discussion also focused around recent developments to the global gas industry, changes in international LNG markets, uncertainty over gas demand growth, new business models for gas producers and the changing profile of gas and LNG buyers.

Here are some key highlights and statements from the event:

  • Regulations and policies continue to favour one fuel over another but without correctly weighing cost and benefits.
  • Natural gas should be the destination – not transition – fuel for a sustainable low-carbon global economy.

Natural gas should be the destination – not transition – fuel for a sustainable low-carbon global economy

  • Robert Franklin from ExxonMobil argued: “If I am bullish about natural gas in India and China, then I am bullish about natural gas”, adding that Asia Pacific is the largest growth area for natural gas.
  • The advantages of using natural gas include: it is abundant, cleaner than other fossil fuels, and competitive. It is also highly reliable, in contrast to nuclear retirement and the renewable energy intermittency
  • Natural gas is being challenged by the price competition “it has been quite successful over the last decades particularly against oil but now it faces difficulty against coal. Another challenge it faces is demand – utilities are the largest buyers of gas and many of these buyers of LNG are facing deregulation in their domestic market… Even at a high growth scenario, there are enough LNG projects out there to satisfy continued demand” (David Kirsch, Energy Intelligence).
  • “Low LNG cost producer will always find a buyer in the market” (Mark Gyetvay, NOVATEK).
  • According to Eni, with a spot LNG price of $9 per million Btu in Asia, it is hard to see an over supply. Future supplies should not only be competitive but also flexible.
  • “The oil and gas industry is too optimistic about the future of natural gas. Gas is still a fuel and still emits CO2 and if we want to be on the 2-degree trajectory, gas is too dirty” (Philippe Roos, Energy Intelligence).
  • From the Iranian Deputy Minister, HE Dr Zamaninia: “At least 10 oil and gas contracts to be signed before the end of the Iranian Year (March 2018)… Iran needs to be in international gas markets given the country’s gas reserves – the largest in the world… Iranian waste of energy is ‘humongous’. The government’s priority is to reduce intensity by a minimum 3% in the next 3 to 4 years”.
Iran

Iranian Deputy Minister, HE Dr Zamaninia: “Iranian waste of energy is ‘humongous’. The government’s priority is to reduce intensity by a minimum 3% in the next 3 to 4 years”

  • OPEC’s Secretary General, HE Mohammad Sanusi Barkindo stated that “Global oil demand shows no sign of peaking in the foreseeable future; it is expected to pass 100 million barrel per day (Mb/d) mark for the first time in 2020…Oil to continue to dominate the world’s primary energy mix at least until 2040”.
  • In a sharp contrast, according to McKinsey, deceleration of energy demand has been structural. Oil demand is expected to peak before 2040, adding that demand growth forecasts are usually overly optimistic.
  • Christof Rühl, Head of Global Research at ADIA, argued that the two key factors for oil price forecasts are global inventories (not just OECD’s) and expectations. Stronger oil demand is driven by economic growth. However, there are two related uncertainties: the exit from quantitative easing and China’s growth. Mr Rühl added that IOCs capital diet not as bad as OPEC portrays. The main issue is that oil discoveries are at a 16-year low (as per Platts Oil).
Christof Ruhl (1)

Christof Rühl (second from left) argued that the two key factors for oil price forecasts are global inventories and expectations

  • Sonatrach CEO, Abdelmoumen Ould Kaddour discussed how Algeria is renewing a drive to develop its huge shale gas reserves by revisiting its fiscal reforms.
  • Sadad Al Husseini, formerly on the board of Saudi Aramco, stated that “We have seen a more optimistic outlook with demand increasing by 2 Mb/d in the first half of 2017, compared to less than 1 Mb/d last year, and following a reduction in available capacity from both OPEC and non-OPEC. We might see a surge in supply in 2018, which might add the risk of unbalancing the markets again… The challenge of Electric Vehicles (EVs) to the oil industry has been overstated as EVs do not work in all environments and face technical limitations. There will be strong demand for transportation fuels well into the 2040 cycle”.
  • ADNOC’s Chief Economist, Kamel Ben Naceur argued that “There are supply security concerns as resources of raw materials used to power EVs, such as lithium and cobalt, are concentrated in few countries”.
  • Statoil’s Chief Economist, Eirik Wærness added that “Let’s hope China doesn’t electrify its car fleet today. Most of their electricity is generated from coal”.

Eirik Wærness (first from right): “Let’s hope China doesn’t electrify its car fleet today. Most of their electricity is generated from coal”

  • According to Bob Dudley, CEO of BP: “Renewables only account for 3% of energy use. The world will need fossil fuels for 2/3rd of energy over the next two decades”.