REPORT
By Övünç Kutlu
US: IHS CERAWeek 2017 energy conference letter

IHS CERAWeek 2017, one of the biggest and most prestigious energy conferences in the world, took place between March 6 and 11 in Houston, Texas this year.

Heads of states, energy ministers, top executives from international energy companies, and Turkish Energy and Natural Resources Minister Berat Albayrak attended this year’s conference.

While last year’s conference was gloomy; this year, ministers, executives and investors were more optimistic with rising oil prices.

OPEC and non-OPEC countries decision to lower their oil production levels have slowly led to the rebalancing of supply and demand, and price stabilization in the market, the attendants said.

However, the lack of investments in major oil projects is still troubling. Due to low oil prices for over two years, huge amounts of investment has been halted from the global oil industry, and this could lead to supply shortages and crude prices spiking in the next five years.

 

- Lack of investments

The International Energy Agency (IEA) Executive Director Fatih Birol said Monday that the IEA foresees crude oil prices rising sharply by 2020 due to falling investment in new oil projects.

"We see significant risk of prices rising sharply starting from 2020, unless a significant number of projects are sanctioned soon. In 2016, there was $450 billion investment in oil investment. This is 25 percent below the previous year. Investment must increase at least 20 percent every year to compensate for demand growth. We need investments in oil-producing countries if we don't want to see tightening," Birol said, and added, "World crude stocks are in decline. With OPEC’s plan, stocks will continue to withdraw," Birol said, a Turkish economist and energy expert who has headed the IEA since 2015.

He also noted that the IEA expects a “second-wave of U.S. shale oil production” in which the U.S.’ oil output will increase in the next years as American oil producers adapt to lower prices. They have already begun increasing their output under the current prices at around $50-$55 per barrel.

Based on the IEA's projection on a $58 per barrel Brent price, Birol said they see oil production in the U.S increasing by 1.6 million barrels per day (mbpd) by 2022.

"If Brent hits $80 a barrel, this expansion will reach 3 mbpd by 2022," Birol said. 

 

- OPEC and Russia lowering output levels

Russian Energy Minister Alexander Novak said Monday that despite OPEC and non-OPEC countries lowering their individual oil production levels to push crude prices higher, challenges still remain in the global oil market.

"Through the cooperation with OPEC and this joint action, the ultimate goal was balancing the market. There is a need with different countries cooperating with each other because the market is so globalized. Current prices of $50-$60 a barrel reduced volatility, and helped investment return to the industry and provided stability for the market. But, there are still so many challenges. We are monitoring the current environment," the minister said.

He noted that investments worth more than $500 billion were lost after prices dropped from $115 a barrel in mid-2014 to below $30 a barrel at the beginning of 2016.

Saudi Minister of Energy, Industry, and Mineral Resources Khalid Al-Falih said in his speech Tuesday that the Kingdom refuses to bear the entire burden of the global oil market at their expense on behalf of other oil producing countries.

"Saudi Arabia led by example by lowering its production below 10 mbpd, from our maximum capacity of 12.5 mbpd. We will not bear the burden for free riders this time. Saudi Arabia will not allow itself to be used by others. This [deal] is for the benefit of all," he said, reminding that non-OPEC producers "reaped the benefits" of OPEC producers in the past. 

He noted that the agreement between OPEC and non-OPEC countries encourages some decline in crude oil inventories around the world, but added, "We need to bring inventories lower. Uncertainty continues until the market becomes comfortable to absorb marginal oil supplies from major non-OPEC productions, like the U.S., Brazil and Canada.

"We are working with non-OPEC for a framework for the future ... We will decide with our partners on what to do in the second half of the year," he said.

 

- OPEC begins dialogue with US shale oil

OPEC and the American shale oil industry are seen as being in direct competition with each other since prices began plummeting in mid-2014. Supply from the U.S. to an already over-saturated oil market has often been blamed for the historical decline in crude prices.

Secretary General Mohammad Sanusi Barkindo said Tuesday that OPEC has begun a dialogue with American oil prices, and stressed, “We, in OPEC, never had a war with the U.S. shale.

"We did meet with shale oil producers in the U.S., who shared with us their experiences, their managerial ingenuity of how to lower their costs and increase efficiency. They did a great job," Barkindo said.

He added that OPEC has a lot to learn from U.S. shale oil companies, although communication between the two players was seen unconventional in the past.

"It was almost a taboo for OPEC to meet with other market actors before. But times have changed, the market has changed ... We all belong in the same boat. This downturn affected all the industry," he said.

 

- Turkey to explore oil and gas in the Mediterranean, Black Sea

Turkish Energy and Natural Resources Minister Berat Albayrak told Anadolu Agency that Turkey would begin seismic exploration of oil and natural gas resources in the Mediterranean and the Black Sea this year.

"We will take steps this year towards exploring and drilling in the Black Sea and the Mediterranean Sea. After our first seismic exploration vessel Barbaros Hayrettin Pasa, our second vessel will actively conduct 2-D and 3-D seismic exploration in both of our seas," he said.

The minister noted he held fruitful talks during the CERAWeek conference with various parties, and added that investors have much interest in Turkey.

"I have seen that foreign investors have a lot of desire for Turkey. In our meetings, we had much dialogue with foreign and local actors [in energy], and assessed critical topics about energy policies in our region. We exchanged important opinions about Turkey's position in the region, and held various talks about materializing different investments in Turkey's energy sector,” the minister said.

Albayrak also said in his speech on Tuesday that Turkey's priority in energy is to diversify sources in natural gas, electricity generation, nuclear and renewables.

"We are working towards bringing gas via pipeline from the eastern Mediterranean to Turkey's internal market, and then to European markets. We are highly dedicated to investing in energy infrastructure. Nuclear should be at least 10 percent of the total electricity generation capacity. In mid-summer, we are going to launch a solar and wind tender, with an additional 1,000 megawatts each. For the next 10 years, we are aiming for at least 10,000 megawatts each of solar and wind from private business initiatives," he explained

 

- Concerns about Trump’s border tax

Participants at the conference widely criticized President Donald Trump’s proposal to introduce a border tax on imports from Canada and Mexico,

Canadian Prime Minister Justin Trudeau made a speech on Thursday night, and said, “Anything that creates impediments on the border -- tariffs, new taxes -- is something that we are concerned with. You're going to be hurting not just the Canadian economy but the American economy as well."

Trudeau said the flow of goods back and forth across the two countries' border is worth around $2.5 billion daily.

"Last year alone, Texas trade with Canada was worth $35.1 billion. Texas exports to Canada were worth nearly $20 billion. Imports from Canada were $15 billion. Canada buys more from the U.S. than any other country does. We are the number one customer of two thirds of U.S. states -- and in the top three for 48 states," he noted.

Trudeau explained that apart from the strong economic ties between Canada and the U.S., the two countries also share common energy strategies. 

"Nothing is more essential to the U.S. economy than access to a secure, reliable source of energy. Canada is that source. We have the third largest oil reserves in the world, and provide more than 40 percent of America’s imported crude. And this extends beyond oil. We supply you with more electricity and uranium than any other country. No country would find 173 billion barrels of oil and just leave it in the ground," he said.

Chevron's CEO John Watson also said that the border adjustment tax plan would make American businesses less competitive.

"I want to see the U.S. competitive, not burdening imports," he said, adding that a border tax would increase prices of imported goods and hurt American consumers. The principle is to make American businesses more competitive ... It's not good to shut down foreign goods. We have the globally integrated supply chains. I have been a free market advocate for a long while, and I want the U.S. to be more competitive," he stressed.

Two top U.S. senators also voiced concerns Friday over the proposal, saying it would hurt American consumers. 

The more I look at it, the more I worry the assumptions it is based on," Republican Senator from Texas and Senate Majority Whip Jon Cornyn said.

"I worry about the politics of it. You look at cutting corporate taxes, but also raising taxes on consumers through higher price of gasoline coming from refineries, consumer goods, automobiles," he added. 

Republican Senator from Alaska Lisa Murkowski noted “I am not really interested in anything that increases the price of gasoline for people in Alaska," and emphasized “We need to look at it very critically and understand.”

13 Mar,2017

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