21 WPC Moscow: Who is here & said what so far

The Oilholic finds himself in Moscow for the 21st World Petroleum Congress, following on from the last one in Doha three years ago. However, what's different here is that while the Congress is a global event – often dubbed the Olympics of the oil & gas business – the 2014 host government Russia is involved in a face-off with the West over Ukraine.

There were whispers on Sunday that some governments and corporates alike would boycott the Congress. However, based on evidence here on the ground over the first day and half, the gossip seems to be unfounded.

At the mammoth Crocus Expo Centre, mingling with some 5,000 delegates are IOC and NOC bosses of every colour, stripe or nationality. Government representatives from around the world seem to be in solid attendance too. For instance, India's new Petroleum and Natural Gas Minister Dharmendra Pradhan seems to be a popular man with delegates doubtless wishing to gain insights into Prime Minister Narendra Modi's energy policy.

On the other hand, the US government has sent no high level representative and while the Canadians are here, the all important oil producing province of Alberta has decided, as one source says "not to participate." That aside, doing a like-for-like comparison with Doha, this blogger sees no reduced levels of participation.

Those who are here saw ExxonMobil chief executive Rex Tillerson, attending (and addressing) his fourth WPC. Tillerson called for a push on unconventional including Arctic drilling accompanied by "wise environmental stewardship."

"We must recognise the global need for energy is projected to grow, and grow significantly," he added. Close on Tillerson's heels, OPEC Secretary General Abdalla Salem El-Badri told the Congress: "In a global energy future, and with connected markets, no one party can act alone. We need shared solutions for market stability."

Acknowledging his hosts, El-Badri added that there were healthy partnerships between Russian oil companies and OPEC member NOCs choosing to flag-up the global footprint of Lukoil as an example."Russia a key partner in the global energy supply equation as the world's second-largest oil exporter," El-Badri said further.

This morning, BP's boss Bob Dudley said the US shale bonanza had to be taken into context before jumping to global conclusions.

"Not all shale is good from a commercial standpoint," he said sharing the stage with Daniel Yergin (Pulitzer Prize winning author and IHS Vice chairman) and Jose Alcides Santoro Martins (Director of energy & gas and board member of Petrobras).

Dudley also said oil & gas sector project investment these days was driven by much better capital discipline. The industry had learnt and there was ever greater ROCE (return on capital employed) scrutiny.

Earlier, Dudley's PR boys managed a bit of a coup by timing the release of the company's latest Statistical Review of World Energy, one of the industry's most recognised annual research reports, on the first day of the Congress. BP's 63rd annual statistical trend update since 1952 noted that last year China, USA and Russia were the three largest consumers of oil and gas.

US and China collectively accounted for 70% of global crude oil demand. More generally, non-OECD demand for 2013 came in below average, while OECD demand, propped up by the US was above average, according to BP Chief Economist Christof Ruhl, soon to be Abu Dhabi Investment Authority's inaugural global head of research.

Tight oil plays edged US production up by over 1 million barrels per day (bpd) to 10 million bpd; the country's highest production rate since 1996. Ruhl opined that this was largely behind relatively stable global oil prices as North American output matched each supply disruption in the Middle East and North Africa virtually "barrel for barrel."

Finally, general analyst consensus here about Iraq is that the trouble itself is not as worrying as the speed with which it has unfolded, raising serious questions about the territorial integrity of the country. Additionally, there could be some long term implications for the oil price.

Alex Griffiths, head of natural resources and commodities at Fitch Ratings, acknowledges that the seizure of Mosul and attacks on Tikrit by ISIS are not an immediate threat to Iraq's oil production, or the ratings of Western investment-grade oil companies.

The areas under attack are not in Iraq's key oil-producing regions in the south or the additional fields in the northeast as discussed earlier on this blog.

"However, if conflict spreads and the market begins to doubt whether Iraq can increase its output in line with forecasts there could be a sharp rise in world oil prices because Iraqi oil production expansion is a major contributor to the long-term growth in global oil output," Griffiths added. That's all from Moscow for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2014. Photo 1: Logo of the 21st World Petroleum Congress, Moscow, Russia. Photo 2: (Left to Right) Jose Alcides Santoro Martins (Petrobras), Daniel Yergin (IHS) and Bob Dudley (BP) © Gaurav Sharma, June 2014.

Oilholic’s photo clicks @ the 21st WPC host city

The Oilholic is by no means a photojournalist, but akin to the last congress in Doha, there is no harm in pretending to be one armed with a fully automatic Olympus FE-4020 digital camera here in Moscow!

The 21st World Petroleum Congress also marked this blogger's return to Russia and its wonderful capital city after a gap of 10 years.

The massive Crocus Expo International Center (above left) happens to be the Russian venue for the Congress from June 15 to June 19, with events also held at the Kremlin. Hope you enjoy the virtual views of the venue as well as Moscow, as the Oilholic is enjoying them here on the ground. (click on images to enlarge)

Crowds at 21WPC exhibition floor

Oil giants out in force at 21WPC exhibition

Shell's FLNG Model

Luxury cars right at home in Crocus Expo Center

Repsol Honda on display at 21WPC Exhibition floor   

The Virtual Racing Car experience thanks to ExxonMobil

Author Daniel Yergin (left) & BP Boss Bob Dudley

Highlighting Sakhalin region's potential

Gazprom's mammoth stand at 21WPC

Russian Hammer & Sickle at a Moscow Metro Station

Grand interior of a Moscow Metro Station

Rush hour at motorway off the Red Square

Saint Basil's Cathedral, Moscow

© Gaurav Sharma 2014. Photos from the 21st World Petroleum Congress, Moscow, Russia © Gaurav Sharma, June 2014.

Iraqi situation likely to unleash crude bull runs

Just as the OPEC conference dispersed here in Vienna, the speed with which the situation in Iraq has deteriorated has taken the market by surprise. Can't even blame Friday the 13th; the deterioration started a few days before.

There was not an Iraqi official commentator in sight when the trickle of news turned into a flood announcing the rapid advance of Sunni militants (or the Islamic State in Iraq and the Levant, an al-Qaeda breakaway) across vast swathes of the country to within touching distance of Baghdad.

The market is keeping reasonably calm for now. However, both Brent spot and futures prices did spike above US$113 per barrel at one point or another over the last 72 hours. We're already at the highest levels this far into 2014. The Oilholic has always been critical when paper traders jump to attach instant risk premium to the crude price at the slightest ripple say in Nigeria or Libya. However, this alas is something else and it matters.

For starters, Iraqi production was on a slow and painful recovery run. The trickle of inward investment had started and Kurdish controlled areas weren’t the only ones seeing a revival. This is now under threat. Secondly, a visibly deteriorating situation could draw Iran into the tussle and there are some signs of it already. Thirdly, it has emboldened Kurdish security forces to take over Kirkuk, with unhidden glee. This could dent ethnic calm there in that part of the country.

Fourthly, Iraq despite its troubles remains a key member of OPEC. Finally, if you look at a map of Iraqi oilfields, the areas now held by the insurgents would trouble most geopolitical commentators as they cover quite a few hydrocarbon prospection zones. Add it all together and what's happening in Iraq, should it continue to deteriorate, has the potential of adding at least $10 per barrel to the current price levels, and that’s just a conservative estimate.

If Iraq gets ripped apart along ethnic lines, all projections would be right out of the window and you can near double that premium to $20 and an unpredictable bull run. That tensions were high was public knowledge, that Baghdad would lose its grip in such a dramatic fashion should spook most. There is one but vexing question on a quite a few analysts’ minds – is this the end of unified Iraq? The Oilholic fears that it might well be. 

Away from this depressing saga, a couple of notes from ratings agencies to flag up. Moody's says the outlook for global independent E&P sector remains positive. It expects growth to continue over the coming 12-18 months, with no "obvious catalyst" for a slowdown.

Analyst Stuart Miller reckons unless the price of crude drops below $80 per barrel, investment is unlikely to fall materially for oil and liquids-oriented companies such as Marathon Oil, Whiting Petroleum and Kodiak Oil & Gas.

"The positive outlook reflects our view that industry EBITDA will grow in the mid- to high-single digits year over the next one to two years. Stable oil and natural gas prices will enable E&P companies to continue to invest with confidence, driving production and cash flow higher," Miller added.

However, a lack of gathering, processing and transportation infrastructure will continue to plague the industry, though to a lesser extent than in the past couple of years. The completion of infrastructure improvements will unshackle production growth rates for companies such as Continental Resources and Oasis Petroleum in the Bakken Shale, and Range Resources and Antero Resources in the Marcellus Shale, according to Moody's.

Meanwhile, Fitch Ratings said fracking could help the European Union cut its reliance on Russian Gas. Germany's reported plan to lift a ban on fracking highlights one of several ways that European countries could reduce their reliance on Russian gas, it says.

Out of the major European oil and gas companies, Fitch reckons Total could have a head start over rivals if European shale gas production ramps up, because of the experience it has gained from investment in UK shale.

The group became the first Western oil major to invest in UK shale after agreeing to take a 40% stake in two licenses earlier this year. Total would also be well positioned if France followed Germany and decided to ease restrictions on shale gas production, as its home market is thought to have some of the largest shale gas reserves in Europe.

Jeffrey Woodruff, senior director at Fitch Ratings, said, “If European countries want to cut reliance on Russian gas, other potential routes include greater use of LNG. BG will be one of the first European companies to export LNG from the US, due to its participation in three of the six projects that have been approved by the US Department of Energy to export LNG.”

All of this is well and good, but as the Oilholic noted in a Forbes post earlier this month, Europeans need to be both patient and pragmatic. The US shale bonanza took 30 years to materialise meaningfully, Europe's is likely to take longer. Speaking of shale, here is one's take on why US shale would not hurt OPEC all that much, as legislative impediments prevent the US from exporting crude oil and by default do not give it the feel of a global bonanza. That's all from Vienna folks. Next stop Moscow, for the 21st World Petroleum Congress. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2014. Photo: Exploration site in Kurdistan © Genel Energy

There's something about Mr El-Badri

The predictable materialised yet again as OPEC held its quota at 30 million barrels per day following the conclusion of its 165th meeting of ministers. To be honest that's not what the Oilholic hit town for; quota situation was a done deal in most eyes!

In fact this blogger was wondering if we'll have some movement on the appointment of a new secretary general. Arriving in the Austrian capital last night, one heard whispers that Nigeria's petroleum minister Diezani Kogbeni Alison-Madueke was lobbying really hard for the post. Politics and merits aside, such an appointment – should it have happened – would have seen a welcome female Secretary General at the 12 member oil exporters' club.

As such, it turned out to be hot air, at least for this meeting. Instead, the 74 year-old Libyan industry veteran and current Secretary General Abdalla Salem El-Badri saw his term extended yet again. The latest extension takes him through to June 30, 2015 having been first elevated to the post on January 1, 2007. That's coming up to some record for holding the post.

In fact, by this blogger's calculation, the latest extension makes him the longest serving OPEC Secretary General of all time. The reason for the appointment extension is the same as it was at the last meeting, and the one before and so it goes. There is simply no compromise candidate that the two major camps, led by the Saudis and the Iranians can agree on. She might be lobbying hard for the post, but Alison-Madueke's quip to a newswire journalist about the Secretary General being "appointed by consensus" rings true.

And when there is no consensus, you ring for Mr El-Badri. That's what OPEC has done time and again for this powerful post of late. In more, ways than one, El-Badri is a real trooper and the ultimate compromise candidate. He exudes confidence, has a sense of humour, can tackle or swat down often awkward questions hurled at him by scribes, makes the best of an often bad situation and gets along with most.

The Oilholic remembers from his last outing to OPEC HQ when El-Badri was given an ironic round of applause by journalists to bid him farewell, full well in the knowledge that yet again OPEC had failed to name a successor. However, he maintained his sense of humour and went through the entire press conference without as much as a twitch.

Perhaps in appointing him back in 2007, OPEC raised the bar very high. Prior to his arrival at OPEC, the University of Florida educated El-Badri served as Libya's minister for oil and electricity. This was followed by several ministerial stints including one as deputy prime minister from 2002 to 2004.

After assuming the Secretary General's position, El-Badri handled some real challenges and a term that began with oil price first spiking above US$140 per barrel and then dipping below $40, followed by the worst financial crisis in modern history. That the current Secretary General has acquitted himself with distinction is beyond doubt, but time has come for him to move on.

In its repeated failure to name a successor, OPEC isn't doing itself any good. Meanwhile, the decision to reappoint El-Badri was unanimous. To give the last word to the man himself: "My reappointment as OPEC Secretary General was down to the wisdom of ministers and I have no further comment to make."

And there you have it. That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2014. Photo: OPEC Secretary General Abdalla Salem El-Badri © Gaurav Sharma, June 2014.

The morning so far at Helferstorferstrasse 17

The scribes, the analysts, the bloggers and the camera crews are all bundled into the media briefing room as the 12 OPEC ministers begin their closed door proceedings for the 165th meeting of the OPEC conference. While an announcement on where the quota will be left at is expected at 14:00 CET, here’s what we know so far. Beginning with (who else) Saudi Oil Minister Ali-Al Naimi, the kingmaker opined this morning that the global oil market was ‘balanced’ at a media scrum.

 

Given all the years the Oilholic has been here, including a previous direct natter with the minister himself, that’s a clear indication that the quota will be staying at 30 million barrels per day (bpd). Elsewhere, those in the wider analysts’ community would perhaps like to know that Libya's man at the table is Omar Ali El-Shakmak, according to a last minute communiqué.

 

Finally, it is manifestly obvious here at Helferstorferstrasse 17 that Nigeria’s petroleum minister Diezani Kogbeni Alison-Madueke is trying to muscle in to the Secretary General’s chair long occupied by Libya’s Abdalla Salem El-Badri, as the organisation has failed to agree on a compromise candidate to succeed him so far.

However, Alison-Madueke has strongly denied lobbying for the position. "The Secretary General is appointed by consensus, not lobbying," she said ticking off a few forceful questioners from newswires.

As for the office stuff, El-Shakmak, who is also officiating as president of the present meeting, acknowledged the deceleration seen this year in the emerging and developing economies who are fast becoming the organisation’s biggest clients.

"India has continued to recover from last year's slowdown, but Russia, China and Brazil have experienced slower output for a variety of reasons. World oil demand is expected to grow by 1.1 million bpd to average 91.2 million bpd in 2014. The bulk of this growth is expected to come from non-OECD countries."

Non-OPEC oil supply is also anticipated to rise this year by 1.4 million bpd to reach 55.58 million bpd. "This growth will mainly come from North America and Brazil, while Norway, the UK and Mexico are expected to decline," El-Shakmak explained.

More importantly, the OPEC Reference Basket has remained fairly stable over the last two years or so, with annual averages ranging between roughly US$105 and $110 per barrel.

"In the past half-year, the Basket has averaged above $104 per barrel from January to May. This is a level that is acceptable to both producers and consumers," he concluded. Indeed sir. That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2014. Photo: Media briefing room at the 165th OPEC meeting of ministers © Gaurav Sharma, June 2014.