Leading industry executives including BP CEO Bob Dudley cautioned against “over-reacting” to current low oil prices at global industry forum.
"While there has been some speculation that the high cost of unconventional oil production might set a new equilibrium for Brent prices in the $80 to $90 range, supply/demand balances suggest that the price rout has yet to run its course," the IEA said.
Oil prices have been falling since September to around $80 a barrel. Last week, the International Energy agency cautioned that prices could fall further in 2015, due to lowering Chinese economic growth and booming US shale oil output.
Image: BP CEO Bob Dudley. Staff Photo.
OPEC (Organization of the Oil Exporting Countries), which could cut production to reduce supply on the market, has so far been unwilling to act, with Saudi Arabia stating that the supply and demand should be allowed to take its course.
Costs have already been high on the industry’s agenda, forcing many companies to reassess project economics.
But, executives speaking at the Abu Dhabi International Petroleum Exhibition & Conference (ADIPEC) last week cautioned against over reacting to the low prices and even suggested a lower price climate could help the industry to address cost pressures which have been escalating since around 2005.
BP CEO Bob Dudley told an ADIPEC plenary session: “I'm optimistic as where we are as an industry. In 2008/9 oil went from $147 to $36 in 2009. In 2010 it was $100. It is hard to say where the price of oil and gas will be. The lesson is not to overreact.
“As an industry we are one of the least popular with investors. We've had a decade of spending and we are behind schedule. The drop in the oil price will provide some discipline that is needed. We face competition for investment from telecommunications, pharmaceuticals. We have to demonstrate capital discipline. Excellence in project execution and operational efficiency, all while safety remains top priority.”
Andy Brown, upstream international director, Shell (pictured left), told delegates: “Before the oil price came down, we all had a strong focus on cost, because costs had been going up. The low oil price will hopefully help us address some of the cost challenges we have got. I do think some input costs will come down as companies like us will have to focus on cost reduction.”
Arnaud Breuillac, president, exploration and production, Total, said: “We should not be taking decisions on the short term price. But if it stays long term, it will of course challenge future projects.”
Rainer Seele, chairman of the board of executive directors at Wintershall, warned that the “relatively low oil price” should not be allowed to impact the development and application of new technologies. “We need to ensure investment in research and development isn’t reduced. This effort will be worthwhile.”
He highlighted the importance of technology to the industry by citing the fact that some of the sanctions against Russia, over its involvement in the Ukraine crisis, were oil and gas industry technology specific.
“Technology is a means to future production. We won’t see a problem in the short term. Medium-term Russia may struggle.”
Amin Nasser, senior Vice President upstream, Saudi Aramco, said: “The current market volatility is not new. It stems from the weak global economy and robustness of industry in adding new resources, despite the challenges. Fluctuating oil prices do not overshadow Saudi Aramco's wanting to be the pre-eminent supplier.” Nasser also warned that, historically, industry has not invested across the cycles, “creating the great crew change gap we have now.” “More than half of the work force is due to retire before the decade is out,” he said, warning about a repetition of the issue.
Choong Heum Park, President and CEO of Samsung Engineering, said: “In 2004, oil was $20 a barrel. Now it has been $100. This has been driven by increasing consumption in China. So many others are now starting to consume oil too. We think the [higher] price of oil is here to stay and investment will continue.”
Nawaf S. Al-Sabah, CEO of KUFPEC, added: “This new price environment will not stop us doing anything we have said we are going to do.”