RIYADH, Saudi Arabia (ResourceInvestor.com) -- Oil price stabilization and fundamental supply-demand conditions, both in the short- and longer terms, were a secondary theme that ran through the first day of panel discussions from the Ministerial Symposium at the third OPEC Summit in Riyadh, Saudi Arabia. The rising prominence of greenhouse gas emissions and climate change was on the forefront, and reflected in the Summit slogan, “Providing Petroleum, Promoting Prosperity, Protecting the Planet.”
Presentations were given to OPEC member nation energy ministers and discussed by panels of oil and gas industry participants that included current national energy ministers, former OPEC chairmen and invited energy industry experts that included Cambridge Energy Associates’ Daniel Yergin, John Vernon Mitchell, acting head and associate fellow at the Chatham House Energy, Environment and Development Program and Oxford Institute of Energy Studies’ Robert Emile Mabro.
Oil, Climate Change & CCS
UNFCCC executive chairman Yvo de Boer, who is leading preparations for the key UNFCC meeting in Bali this December, welcomed OPEC’s invitation to take part in the Summit and praised the organization’s participation past and present in U.N. and international dialogues and programs to reduce greenhouse gas emissions and mitigate climate change.
Carbon capture and sequestration (CCS) appears to be a focal point of OPEC’s plans in this regard. Reference during one panel discussion by former OPEC chairman Dr. Adnan Shihab-Eldin to the possibility that OPEC might initiate efforts to establish an international, multi-billion dollar CCS research and development program that would bring producers, consumers, developed and developing countries together led to speculation that a more formal and specific announcement may be forthcoming before the Summit ends on Sunday.
OPEC secretary general Abdullah bin Salem Al-Badri yesterday evening stated that the organization was prepared to help member nations reduce carbon dioxide emissions and mitigate climate change by providing access to technology. Saudi Arabia’s Prince Abdulaziz bin Salman bin Abdulaziz later told the press that there would be “a few surprises” disclosed during the conference in this regard. He said that the Kingdom had taken steps to acquire CCS technology and added that a clean energy research institute would be established at the King Abdullah University for Science & Technology.
Oil Supply & Demand, Globalization & Financial Markets
A consensus emerged among energy ministers and experts that there has been a growing disconnection between fundamental supply-demand conditions and recent, short-term oil price rises and volatility that is being driven by the confluence of a variety of factors that are largely out of OPEC’s control.
The emergence of oil as an asset class attractive to institutional investors and fund managers due its lack of correlation with equities and bonds, along with the integration of oil into the global financial markets that has accompanied ongoing globalization of trade and industry has likewise contributed to the oil price rise and increasing volatility, Cambridge Energy Associates’ Daniel Yergin noted.
Several panel members noted that the present period of oil price rises is being fundamentally driven by rising energy demand in contrast to the previous supply-driven oil price shock of the late ‘70s and early ‘80s. The previous three to four years of economic prosperity worldwide has included rapid industrialization and the improvement of living standards for large developing nations, such as China, India and Russia in particular.
Oil supply disruptions - or the threat of them - due to geopolitical tensions and conflict, as well as weather disruptions are two of the main culprit’s that have fuelled recent oil price rises in recent years, according to OPEC Summit panel members. The lack of refining capacity, particularly in the U.S., is the one fundamental factor that has led to supply constrictions, the running down of stockpiles and higher prices while the ongoing depreciation of the U.S. dollar is another contributor.
The validity of the ‘peak oil’ thesis was discounted and given short shrift by panelists. A base case OPEC research reference scenario sees oil supply growing along with demand until the market reaches a plateau between 2030 and 2040 and declines thereafter through the remainder of the 21st century.
The Ministerial Symposium concludes Friday and will be followed by a two-day meeting of OPEC heads of state and the anticipated issuance of a historic “Declaration of Principles.” Stay tuned.
