IPWeek retrospective I P W EEK
Round-up
Petroleum Review rounds up some of the highlights during the IP Week 2011 conference programme.
J
ames Smith FEI,President of the Energy Institute (EI) and Chairman of Shell UK,welcomed delegates to the
first day of IPWeek2011 onMonday 21 February. After noting the good atten- dance he thanked the sponsor,Ernst & Young,for its support. He went on to say that the EI has,so far, had a ‘good recession’ and that it has been meeting its financial targets. Notable achieve- ments included the increased emphasis on training courses and the opening of new EI branches in Kuala Lumpur and Dubai. He concluded by noting the sheer magnitude of the investment requirements needed to keep the world supplied with energy and chal- lenged the audience as to whether they would be daunted or invigorated by the challenge. He then introduced the first speaker,David Fyfe from the International Energy Agency (IEA),to speak to the first day’s theme of ‘A changing industry – partnerships, investments and risk’. David Fyfe,Editor and Head,Oil
Industry and Markets Division,IEA,pre- sented to the title ‘Short and medium term oil markets – 2008 all over again?’ He started by stating that the IEA’s Monthly Oil Report had been a key sup- plier of information on oil markets since 1983 and that over the last five years the annual Medium Term Oil Market Report had filled the gap between the monthly review and the World Energy Outlook publication. He noted that the key development of the last year had been an unexpected strength of demand,which now means
that prices are breaking out on the upside after a year of remarkable sta- bility in the $65/b to $85/b range. Driving prices are the ongoing insta- bility and political upheavals in the MENA (Middle East and North Africa) region. As the MENA region accounts for 60%of global oil reserves and 45% of global gas reserves,a price reaction is to be expected,he said, while pointing out that there are 1.56bn barrels of public stocks held around the world which could be used to offset any supply shortfalls. Fyfe went on to show that recent
price rises have been underpinned by the fundamentals as demand exceeded supply by 1.1mn b/d in 2H2010,leading to an average stock draw of 0.5mn b/d last year. Stock overhang relative to five-year averages are now confined to North America,he reported. According to Fyfe,the strength of the
oil demand rebound in 2010 took everyone by surprise,with strong eco- nomic growth producing oil demand growth of 2.8mn b/d. As a result,the 2010 oil demand increment was only slightly lower than in 2004 and compa- rable to that in the 1970s. The key drivers were gasoil/diesel demand that accounted for 40% of the growth,and power generation demand in Asia, driven by both hot (air conditioning) and cold weather demand. For 2011,the IEA anticipates that
global economic growth will slow from 4.8% to 4.3%; in consequence,oil demand growth will slow to 1.5mn b/d from2010’s heady 2.8mn b/d. The OECD
The panel sessions on day one of IP Week 2011 were a lively affair – (left to right) James Smith FEI, President of the Energy Institute (EI) and Chairman of Shell; Dr John Mumford OBE FEI, Managing Director, Reputation Risk Consultants; Martin Ball MEI, EI Process Safety Survey/Bossiney; Chris McHugh, Managing Director, Global Head, Energy Solutions Group, HSBC and Peter Roberts, Partner, Ashurst LLP
area is expected to return to structural decline,with non-OECD demand growing and Chinese demand pivotal. Fyfe’s view is that we are not likely to see another 2008 in 2011 because demand is likely to slow to 1.5mn b/d and could be met by non-OPEC and NGLs growth,OPEC spare capacity is the highest since 2002,refining capacity is ample,OECD inventory cover is also ample and there are signs that OPEC is already expanding its production. Fyfe then turned to the medium term outlook to 2015. Noting the multiple influences that determine oil prices,he stated that rising incomes remain the key driver of demand. He then showed that Asian and non-OECD transport will have a key role to play,while fuel subsidies are likely to continue sustaining demand even in the face of high oil prices. He then showed the availability of a
range of potential liquid fuel sources is very large,but their costs relative to conventional crude are much higher. He also noted that the impact of the Macondo blowout will be rather slower development of deepwater resources, particularly in the US,and that supply growth post-2010 will remain con- strained,with the bulk of increment in liquids supply coming as NGLs and unconventionals such as the tar sands. Fyfe concluded by stating that there
are huge forecast uncertainties for Eurozone and Chinese demand,fuel subsidies,supply risks,and boom and bust refining. He also noted that supply growth will struggle to exceed 1mn b/d a year going forwards.
A new dawn The next speaker was Pavel Fedorov, First Vice President,Rosneft,who spoke to the title ‘Russian offshore industry – A new dawn’. He started by explaining that Russian offshore oil production is currently small,at 290,000 b/d,but the potential is very large. Current Russian estimates are that offshore resources are 680bn boe,made up of 145bn bar- rels of oil and 535bn boe of gas. He then gave a breakdown of the poten- tial by region,showing that the largest resources are in the Kara,Barents and East Siberian Seas,and going on to explain that there are few ‘game changers’ in Western Siberia onshore, which is why Rosneft is looking to off- shore development. The company’s first priorities are the southern seas (Black and Caspian),where Rosneft already has licensed blocks. Resources in this region are put at 20.5bn barrels of oil and 50bn cm of gas. The other priority area is the Kara Sea,where Rosneft will be working with BP and where the resource is estimated at 61.6bn barrels of oil and 14.6tn cm of gas. Other off-
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