Implications for the Oil and Gas Industries

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Walid Khadduri (Panel Moderator) Editor, Dar Al-Hayat

The purpose of this panel is to identify implications of the papers and discussions of the past two days on the oil and gas industry. We heard that oil is being produced by unstable countries that cannot assure security of supply for a strategic commodity, and that it causes environmental degradation. However, the public needs a more balanced picture when the question of future energy supplies is being discussed. The world oil industry is meeting a huge task today. It produces around 82 million barrels a day (mn b/d), with a large part of it serving the transportation sector. There are today more than 500mn vehicles on the road worldwide.

Replacing oil, or substituting other sources of energy in its place, will need more than what today's technologies can provide, and at much lower cost. Gas-to-Liquids (GTL), for example, is not forecast to grow more than 500,000 b/d by the end of decade. Moreover, demand for oil is not static. It is, in fact, rising by 1.5-2.0% annually. Global demand is forecast to reach 120mn b/d at the end of the next decade. In order to produce the 82mn b/d and to find new oil to substitute for what is being consumed and to meet future demand, the world oil industry invests around $100bn annually on exploration alone.

What is complicating the picture is the fact that prices today stand at around $60/B. Most producing countries are at capacity. Nonetheless, there are no shortages today. What worries the markets are future problems, particularly during the fourth quarter of this year when demand usually rises and the fear of industrial accidents, natural disasters or political upheavals that could shut some supplies. There were expectations in 2003 that Iraq and Russia would substitute for Saudi Arabia. The fact of the

E.J. Moniz (ed.), Climate Change and Energy Pathways for the Mediterranean, 207-223. © 2008 Springer.

matter is that average Iraqi production today is lower than what it was under the previous regime, and Russian production appears to have stabilized at around 9.4mn b/d. What is aggravating the situation is the fact that despite the doubling of prices from $30 to $60/B during the past 12 months, demand is rising and at historical rates.

There is also fear that global refineries, particularly in the US, may not have sufficient capacity to process the crude. There has not been a new grassroots refinery built in the US since the mid-seventies. The US refineries are now working at around 98% capacity. This makes them vulnerable to accidents and disruptions. To meet the expected high demand in 4Q05, OPEC has been supplying the market more than its needs in order to provide for storage so that this surplus crude can be used later this year.

What does this tell us? We all have responsibilities. We need to have a balanced debate. Fossil fuels are with us until we can substitute for these 82mn b/d. It is imperative that the world focuses more on climate change, cleaner energy and sustainable development. However, there should not be any illusions where we are heading in the foreseeable future. World population is rising, global standards of living are steadily moving higher, and people are not ready to give up the many small but significant things that make up their way of life.

What is necessary is to have a balanced debate and a more pragmatic agenda. On one hand, the dialogue that should take place is one that draws out the problems at hand and those forthcoming while at the same time acknowledging the challenges ahead in moving away from fossil fuels and the costs to be incurred by the producers. On the other hand, all the plans and research reports about the alternatives should indicate more clearly how much volume they can actually contribute to the energy basket, at what price and in accordance with a more detailed time agenda.

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