I P WE EK


shore areas of interest are the eastern Arctic,with resources of 58.2bn barrels of oil and 12.8tn cm of gas,and the Sakhalin area,with 14.4bn barrels of oil and 3.21tn cm of gas. Fedorov noted that Russia still uses


revenue-based taxes,which cause ‘some challenges’ in high-cost offshore devel- opments. However,he said he was pleased to report that Prime Minister Vladimir Putin has said the Russian gov- ernment will ‘create the most favourable tax regime for the Arctic Shelf’. Fedorov concluded his presentation by


saying Rosneft ‘has a unique record of international partnership’ in Sakhalin 1, 3,4 and 5,in alliancewith BP and in coop- eration with Sinopec,CNPC,ExxonMobil and Chevron,which will work to the ‘mutual benefit’ of all involved. Next to the podium was Ian Smale,


Group Head Strategy & Policy,BP, who started by observing that it is a time of ‘unprecedented change’ in the oil and gas industry. The increasing importance of partnerships offers considerable mutual advantage,he said,but for good and enduring relationships,these need to be based on alignment of interests, trust and mutual advantage. Developing this theme,Smale suggested that part- nership gives access to knowledge and capability,and allows the taking and sharing of risks. The landscape of the business is as


complex as ever,he said. Energy demand growth over the next 30 years is likely to be 40%,which means efficient energy use is a key priority. Alternative energies will see rapid growth from a small base, gas will grow rapidly,while oil use will grow rather more slowly and be largely confined to the transport sector. In terms of oil production capacity,50mn b/d of new capacity is needed by 2030 in order to replace depletion and meet demand growth,Smale said. Production from deepwater,and of heavy oils and bio- fuels,are all going to become more important sources of liquid fuels,he noted,although, within a few decades, ‘peak demand’ is a real possibility. According to Smale,the industry is


involved in more than just delivering supply; it is about delivering energy security while protecting the environ- ment. To achieve this there will be new partners,new collaborations, new ways of doing things and new solutions. Looking at the value chain,he noted


that there are a range of parties making different contributions. The oil industry, working with the car makers,is pro- ducing radical improvements in fuel efficiency and safety. Meanwhile, although working with governments and national oil companies (NOCs) goes back decades,there is now a renewed emphasis on cooperation to share risks


24


and rewards given that the international oil companies (IOCs) now account for only 14% of oil production and 10% of oil reserves. Despite this,the IOCs are three times their size in the 1970s. Smale then showed how BP is putting


this mutually beneficial cooperation into practice. In Iraq,BP (38%) is working with CNPC (37%) and the Southern Oil Company (SOC) to redevelop the Rumaila field. A combination of car- bonate reservoir experience and 10,000 people working in the field has boosted output by 10% in a year,he reported. In Azerbaijan,BP and partners have invested $3.65bn and built a 1,400-km pipeline to get the production to market. BPs latest collaboration is with Rosneft,for exploration and develop- ment of resources in the South Kara Sea. Smale’s conclusion was that partner-


ships and cooperation are now ‘essential’ for BP and for the industry. They can create value and be mutually beneficial,provided the objectives are clear and well aligned. David Peniket,President and Chief


Operating Officer,ICE Futures Europe, then spoke to the title ‘Rise in regulatory oversight of markets’. He started by noting that over recent years there has been a rise in the regulatory oversight of oil markets. There are currently three futures exchanges and five clearing houses operating,but 60% of revenues come from energy trading. He explained that a fully regulated market like ICE gives a clear and transparent view of trading activity. He then showed a graph of Brent futures prices on ICE,clearly showing the price run up from January 2007 to the peak in July 2008,and then the sharp price fall and subsequent recovery from the depths of the finan- cial crisis. He noted that oil markets have successfully traded through the crisis and have worked well but have not been unaffected. He showed slides illustrating different


reactions to the price volatility seen in oil markets. He noted that the intera- gency Task Force on Energy Markets had concluded that ‘… the increase in oil prices between January 2003 and June 2008 are largely due to fundamental supply and demand factors...’,also pointing out that speculative activity has not systematically driven oil prices. In contrast,in a letter to the Wall Street Journal,Former UK Prime Minister Gordon Brown and President Nicholas Sarkozy suggested that oil prices had been unacceptably volatile and were ‘... seemingly defying the accepted rules of economics...’. Their conclusion was that ‘government could not stand idle’ in the face of oil price volatility,Peniket explained. Peniket showed that,in fact, the mar-


Round-up


David Fyfe, Editor and Head, Oil Industry and Markets Division, IEA, took a number of questions after the morning session on day one of IPWeek 2011


kets are already transparent and regu- lated. Despite this,there are a range of reform proposals involving more central clearing,organised trading facilities and position limits to combat market manip- ulation. He thought some of these might combat market manipulation,but did not believe they would reduce sys- temic risk or disorderly markets. They could safeguard delivery. He pointed out that futures markets are already highly regulated with real-time supervision, post-trade surveillance and position management. Indeed,transparency is actually increasing,with more position management and position reporting. He concluded his presentation with an


illustration of how market regulation actually made things worse. In the late 1950s,volatility on the Chicago futures market was regarded as unacceptable by politicians,who effectively banned futures trading for 15 months. Not only did this fail to reduce price volatility but, once trading recommenced,futures prices were even more volatile than before the ban.


Panel sessions The afternoon sessions on day one of IP Week2011 were in the form of two panel sessions. In the first,entitled ‘What are the competitive advantages of IOCs in international ventures?’,the Chairman Andy Brogan,Global Oil & Gas Transaction Advisory Services Leader, Ernst & Young,started by making a pre- sentation in which he explained that for many years the leading industry players have focused on global market cov- erage,vertical integration,economies of scale and operational supply chain effi- ciency. This model is now changing and an alternative model is emerging,with focus on core markets,divestment of


PETROLEUMREVIEW APRIL 2011


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