Rafiq Latta asked the panel for a one-word answer, which the moderator reinforced, as to what price each member felt was reasonable against the current benchmark figure of $65. Silence! However, with a little coaxing they got going and what we got out of them was broadly as follows:
- India – $65 +/- a few dollars
- Iraq – $75-80
- Venezuela – No comment!
- IEF – Suitable to both supplier and consumer!
- Energy Charter – $60-70
- Iran – No comment
So, on that basis, we are looking at $60-80, and to get any figure out of an OPEC event is something of an achievement! For the US and the shale producers, this also is the range that much of the shale market needs.
Jose Maria Botello de Vasconcelos, Minister for Angola, reminded us that we should know how much oil we are going to need over the next five, ten, and fifteen years and to plan for capacity expansion and investment. With this common theme throughout OPEC, he introduced Alexander V. Novak, the Russian Federation Minister.
Mr Novak was very sure of the market warning of the consequences of lower oil prices and stated that Russia was not just a producer and exporter of oil but also a significant producer of gas and coal. Russia will be maintaining its output of 10.5mbpd. It will be giving incentives to increase shale to offset a drop in output from the Western Siberian region.
Russia’s reserves are the cheapest in the world, and the industry has adapted to meet current market changes and is quite comfortable with costs at around $50pb. He did not refer to sanctions but emphasised the good working relationship with China across the long border between them on all energy sources.
Fu Chengyu, former Chairman of Sinopec, reiterated the cooperation between China and Russia and how they had to adjust to a growth rate reduced from double digits to 7% this year. Naturally, the drop in growth rate for China is having a global impact but, with the rest of the world striving for 1-2%, it would be unlikely that China could maintain higher levels when its markets have been curtailed.
When it comes down to contractual terms and conditions, Claudio Descalzi, CEO of Eni made the point that his company would look very carefully before committing, having suffered previously on changes on contracts with producers. This was another theme on the day, the risk that oil companies take when dealing with producers who do not share the common values.
John Watson, the Chairman and CEO of Chevron was certainly not in favour of a global carbon pricing putting him at loggerheads with several of his competitors who overall have accepted such a plan, stating that no one wants to pay more. Nevertheless, it is something that will have to happen, and the same rules should apply globally. He went on to say that countries such as Germany that have chosen to give up nuclear should think again if they are concerned about emissions. Germany may be concentrating on renewables but, at the same time, it is also burning large quantities of coal.
For OPEC and its ministers, it must have been painful to hear such a confident speech from Ryan Lance, Chairman and CEO of Conoco Phillips. He was adamant that shale development would survive at $60 equivalent and that he had no qualms about continuing in the market. Shale has enjoyed a real boom thanks to the output/pricing policies of OPEC in recent years, but now with lower prices, as all sectors will have to do, cost cutting will follow the market price down to make the sectors more efficient and viable than before.
