Thanks to ESCP Europe's Research Centre for Energy Management's wide network in the academic and business communities, our views on energy news give you comprehensive insight into energy issues.
Please join us...
With oil prices alternating so frequently between bullish and bearish conditions, a global oil deficit could be making its way stealthily through the global oil market.
Last November, the International Energy Agency (IEA) warned that a shortage could set in as soon as 2020, as the investment shrinkage brought on by the 2014 oil price crash bears fruit. Prices, the IEA had said at the time, could jump significantly at the end of the decade. The IEA reiterated its concerns more recently in its World Energy Investment 2017 Report adding that the rate of new oil discoveries is at its lowest level in more than 70 years. Overall, global spending on oil and gas will rise by a moderate 3% this year, compared to the 44% between 2014 and 2016.
Since the discovery of oil in Saudi Arabia seventy nine years ago, the country has been synonymous with oil. But now the sands under which 16% of the global proven oil reserves lie are beginning to shift under the feet of its leaders.
Saudi Arabia whose beneficence, peace-making efforts, soft power and great oil wealth brought it to the forefront of influential countries in the world over a period of more than half a century, is now embroiled in a crescent of conflicts involving Iran, Iraq, Syria, Yemen and now Qatar not to mention its uneasy relations with the United States.
With oil prices ebbing and flowing against a background of OPEC and non-OPEC production cuts’ extension and US shale oil production inching up, nobody is paying enough attention to the fast-approaching oil supply gap.
Despite the recent dip in oil prices, industry experts are predicting a supply gap and rising oil prices by 2020. This is due in large part to an oil investment drought marked by almost three years of consecutive decline in oil prices, a statistic that has no precedent in the oil industry. This year a report by the International Energy Agency (IEA) projected that if oil investment remains stagnant over the next few years, by 2020 we will see a significant increase in the price of oil as global demand continues to climb.
In the run-up to 2014 sanctions, US oil giant ExxonMobil led by its then CEO Mr Rex Tillerson, and Russia’s oil giant Rosneft invested $3.2 billion in a project for drilling for oil in the Kara Sea in the Russian sector of the Arctic — a region that Rosneft estimated it could have more oil than the entire Gulf of Mexico. But the sanctions forced Exxon Mobil to halt drilling.
The US shale revolution and the rising shale oil production have had a seismic impact on the global oil market contributing in no small measure to the steep decline in crude oil prices since July 2014. Equally US liquefied natural gas (LNG) exports could have a similar impact on the global gas market possibly weakening further current low gas prices. The irony, however, is that without relatively higher gas prices, the potential and prospects of sizeable US LNG exports could be restricted.
In 2008 the United States overtook Russia to become the leading natural gas producer in the world. Just a few years ago the US was expected to be a major importer of natural gas. The shale revolution has virtually reversed that trend and enabled the US to start exporting LNG.
Despite very positive signs in the global oil market, oil prices have never managed to break through the $60/barrel barrier since the OPEC production cuts were implemented in January 2017. On the contrary, they have declined from $57/barrel two weeks ago to just over $50/barrel today.
On the face of it, this could be due to two factors: one is rising Shale oil production and the second is that the glut in the global oil market might have been bigger than what was previously estimated. But circumstantial evidence suggests there could be a third factor, namely concerted efforts by the International Energy Agency (IEA), BP through its annual Statistical Review of world energy, the US Energy Information Administration (EIA) and the Financial Times (FT) to prevent the oil price breaking through the $60/barrel barrier. The rationale is that a price under $60/barrel is good enough for US shale oil production to breakeven and not high enough to slow global economic growth. Let us analyse these three factors to find out where the truth lies.
Despite a 91% compliance by OPEC members with the production cuts implemented in January 2017 and the removal of more than 1 million barrels a day (mbd) from the global oil market, the oil price has seen a lot of volatility ranging between $53 and $57 a barrel.
And although US oil inventories have declined for the last five months consecutively according to the International Energy Agency (IEA), their levels are still close to record high. This could be due to two factors: one is rising Shale oil production and second, the glut in the global oil market might have been bigger than what was previously estimated.
Among notable promises made by US President-elect Donald Trump during his presidential elections were four particular ones that attracted the attention of the world because of their geopolitical implications and their impact on the price of oil. These were the dismantling of the nuclear deal with Iran, lifting the sanctions on Russia, enhancing US oil production and a strong dollar.
Whilst most declarations made by US presidential candidates during their election campaigning would be quickly forgotten once they are installed inside the White House, it might be wise to analyse these promises in case Mr Trump stuns the world by fulfilling some or all of them.
After years of confrontation Brussels decided to permit Gazprom to use almost 90% of the OPAL gas pipeline, located in Eastern Germany. Almost simultaneously there were information leaks about a deal between the two players on the competition case. Apparently, both sides found a way to settle the row in a satisfactory way.
For the first time in eight years, the Organization of Petroleum Exporting Countries (OPEC) has decided to cut crude oil production to bolster the oil price having suffered huge losses since the collapse of the oil price in July 2014.
The continued weakness of oil prices has inflicted a huge damage on the global economy, the economies of the oil-producing countries and global investments. There has been a loss of 0.75%-1.00% annually in global economic growth since 2014. Investment in upstream exploration from 2014 to 2020 is projected to be $1.8 trillion less than previously assumed, according to leading US consultants IHS. The Arab Gulf oil producers have lost an estimated $443 bn in oil revenues between July 2014 and December 2016. And the US shale oil industry took a major blow by losing some 1.5 million barrels a day (mbd) of oil production and also risking major defaults on the $200 billion in loans that have been extended to the domestic shale oil industry.
In spite of all the polls assuring of a clean win for Hillary Clinton, the latent anti-establishment revolt of the “America first” electorate has propelled a non-interventionist and, in this sense, a “nationalist” (as opposed to globalists) to the top job in the last world’s superpower. It is hard to dismiss outright the comment from non-mainstream but gaining momentum political groups that the result of the 2016 US elections is “a triumph of the people over a failed political establishment” and that America will never be the same again.
However, the last assumption could be effectively challenged. It is not over yet. There are deep divisions within the political class and corporate community with Wall Street bankers still clinging to their guns and the neocons in both parties ready to continue sacrificing the United States for the sake of a globalist vision.
Despite developments in renewable energy, it will take 50 years for electric cars to impact global oil demand in transport, according to Dr Mamdouh G Salameh, professor of energy economics at the ESCP Europe Business School.
In his recent paper, ‘Is oil supremacy on the wane?’ Dr Salameh says the enabling technologies of renewable energy are not developed enough to properly impact consumption levels of oil in the transport sector.
Predictions of a post-oil era are also unlikely as in 2015, renewable energy accounted for only 2.8% of the global primary energy consumption.
On June 10, 2014, the Islamic State of Iraq and al-Sham (ISIS) – surprised the world by advancing into several territories of central and northern Iraq. Most notably, ISIS has taken over Iraq’s second biggest city, Mosul. ISIS has also tried to gain control of the oil-rich area of Kirkuk (which is now under the control of Iraqi Kurdish forces). ISIS’ offensive has left Iraq in a dire situation, ridden by sectarian and ethnic conflict.
However, an overwhelmingly Iraqi force of 30,000 with a contribution from Iraqi Kurdish (Peshmerga) forces are now closing on Mosul with Western air support.
The incomprehensible relative political stability in Algeria is largely attributed to the psychological trauma suffered by the people during the so-called Black Decade, the civil war that raged between 1991 and 2002 with Islamist fundamentalists challenging the regime.
Today, the aging and basically unhealthy 79-year-old president Abdelaziz Bouteflika who heads the National Liberation Front (FLN) is offering a semblance of 'stability and continuity' (the ultimate and most appealing of the FLN slogans) and thus capitalizes on the rejection of violence by 40 million people of the weary nation.
The amazing age of oil
When Edwin Drake drilled one of the world’s first commercial oil wells in Titusville, Pennsylvania in 1859, he definitely could not have anticipated the tremendous impact his drilling would have on the global economy, civilization and warfare in the years that followed.
Who gets what?
Since then, oil has been the lifeblood of the industrial world’s progress and standard of living. Innumerable everyday products – from pharmaceuticals to computers- depend on oil and its refining into complex chemicals and plastics. Modern industrial farming, which feeds much of the world, would grind to a halt if it were deprived of diesel-powered tractors, oil-and gas-based fertilizers to grow and harvest crops and the fossil fuels to process, package and ship food worldwide to feed a world population that has skyrocketed from 1.5 billion at the start of the oil age to 7 billion now.
Recent intense bellicose rhetoric and sabre-rattling between India and Pakistan has raised the stakes in the completion of the much-heralded Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline project. An unnamed official of the Indian government dismissed suspicions that the US$9-billion project could be either postponed or shelved indefinitely due to flaring animosity.
The current round of open and covert hostilities was provoked by a terrorist attack on an army camp at Uri on September 18 and another one at 46 Rashtriya Rifles camp in Baramulla on October 2. The attack in Uri located in India-administered Kashmir was carried out by a radical grouping called Jaish-e-Mohammed (JeM) that is allegedly linked to Pakistani intelligence services and reportedly responsible for a similar attack on a military base in the town of Pathankot in the Indian state of Punjab in January this year.
The African continent is not considered to be the main source of oil for the global market. However, it is playing a more significant role as provider of the still principal energy resource. It sets the stage for accelerated development as well as for wars and political destabilization.
Africa is home to only 7.6% of the world oil resources and it accounts for 9.3% of the world oil production. From 2010 onward, one third of all new oil fields discoveries were made on this continent.
What are the most likely repercussions for South East Europe’s energy security after the somewhat ambiguous reconciliation between Ankara and Moscow has re-activated the Turkish Stream pipeline project? Will it challenge the EU energy directives? Will it drive another wedge into the alliance of nations loyal to the concept of an ‘energy union’ and undermine solidarity? Does it really matter or it is not worth consideration? Is it a challenge or an opportunity?
For the moment, the implementation of the project stepping into the shoes of the defunct South Stream is far from being ascertained. Yet, pre-emptive review is appropriate. Should the Black Sea offshore infrastructure materialize, even in its current scaled-down design, it might impact the breakdown of energy imports of the south East corner of Europe having negatively affected the prospects of Azeri pipeline gas deliveries as well as Qatari and US-shipped LNG.
Twenty seven months since Saudi Arabia launched its war of attrition against US shale oil production, it has still failed to break the back of US shale industry. This failure is starting to haunt Saudi Arabia.
By flooding the global oil market with oil, Saudi Arabia and its allies in the Gulf have certainly succeeded in killing a string of global offshore mega-projects. Investment in upstream exploration from 2014 to 2020 will be $1.8 trillion less than previously assumed, according to leading US consultants IHS. But this is a bitter victory at best.
The proof that Iran honours its commitment to create a favourable investment climate and lure back foreign capital lies in the signing of confidentiality agreements with brand named International Oil Companies (IOCs) that happened at the end of August.
The multinational assortment of energy majors included the leader in the current re-discovery of post-sanctions Iran, French giant Total, followed by Austria’s OMV, Germany’s Wintershall, Russia’s Lukoil and Zarubezhneft, and Indonesia’s Pertamina.