TPT September 2008

Oil & Gas News

The Middle East is projected to play an increasingly important role in the world oil market

Mr Tillerson to share his views on an increasingly volatile – not to say erratic – global oil industry. Some excerpts (lightly edited): Q : Globally, the picture for oil supplies looks pretty bleak. Where are new supplies going to come from in the next five years? A : There is an access issue in the US and in many countries around the world. The problem with supply is one of accessing the resources in the ground so they can be explored and developed. That’s a political question. This is something where the United States has to look in the mirror first. Q : Aren’t we paying the price for more than a decade of underinvestment in new oil supplies when prices were low in the 1990’s? A : This is still an enormously risky business. We don’t advertise our $100 million dry holes. The costs of our failures are borne by our ability to be successful in other areas. In the 1990’s there was a big surplus. You could also say the industry paid a big price for having overinvested in the 1970’s and 1980’s. Q : You were an early critic of biofuels, and you once referred to ethanol as “moonshine”. What role do you see for alternative fuels, including ethanol? A : There is no question that we will develop a replacement fuel for conventional motor gasoline. But we will also develop other ways to use fossil fuels for transportation that are more efficient and more environmentally friendly. Q : Oil prices dropped by $16 in four days. Is the bubble bursting? A : It is difficult for me to explain or rationalize the high level of oil prices we’ve seen in the last four to six months. We’ve seen that kind of volatility in the upside. But it is too early to generalize without looking at the longer-term trends. Q : Many energy experts were caught flatfooted by the rapid rise in prices in recent years. How do you explain it? A : I was surprised by how rapidly the price ran and how high it ran. It clearly is a demand-driven price run-up that we’ve seen, especially in emerging economies because of price controls and subsidies. We are not seeing the normal market signals responding normally. That’s one of the causes behind the rapid run-up. Q : Where do you see your company in 20 years? Will oil and gas still be your dominant business? A : Yes. In 2030, oil and gas will represent 60 per cent of the world’s energy needs. My view is we are going to keep doing what we do now – finding, developing, and delivering oil and gas to the world. We will still be doing it in 20 years because people will still be needing it. Elsewhere in oil and gas . . . ■ The head of the Organization of the Petroleum Exporting Countries has warned that any military conflict involving Iran would bring about an “unlimited” increase in oil prices, as other OPEC members would be unable to make up the consequent shortfall in production. Iran, the second-largest producing

According to a new report from a prominent energy consulting firm, the Middle East is an emergent new export force. As reported by Marilyn Radler, senior editor-economics of Oil & Gas News , the July energy brief of FACTS Global Energy says that, in the Middle East, bumper oil revenues, strong domestic demand growth, an influx of foreign investment, and the launch of a Middle East sour crude futures contract have the oil market evolving rapidly. Ms Radler wrote, “The region plays a role as a major crude supplier with spare capacity and is exporting increasing volumes of oil products as its refining capacity grows. As a result, product-trade patterns in the Middle East will see significant changes, according to the report.” ( ‘Middle East Trade Transformation Underway,’ 15 July). Among the company’s findings: The Middle East is projected to add 3.45 million barrels per day (bpd) of crude oil production capacity from 2007 through 2012. With actual production expected to increase 2.8 million bpd over the period, FACTS estimates that spare production capacity in the Middle East will rise to 3.2 million bpd by 2012, up from 2.5 million bpd in 2007. Meanwhile, production of natural gas liquids (NGL) and condensates in the region will rise by about 2 million bpd in the same time frame. Demand for oil products in the Middle East will grow 7.5 per cent over the period 2006-2010, and 4.3 per cent per year over 2010- 2920. Some key trends driving petroleum-product demand in the region include growing petrochemical activity, strong transportation fuel demand, and rising fuel-oil consumption for power generation. Middle East oil demand is forecast to grow 2.9 million bpd over 2007-2015. Meanwhile, Middle East refining capacity is projected to grow by 3.3 million bpd in 2008-2015, with major projects taking place in Saudi Arabia, Iran, and Qatar. More than 70 per cent of these capacity additions will be export-oriented. In total, exports of petroleum products from the Middle East will increase to nearly 4.4 million bpd by 2015, up from 2.8 million bpd in 2007. Exxon Mobil chief ‘surprised by how rapidly and how high the price of oil ran’ A week in which Rex W Tillerson, the chief executive of Exxon Mobil Corp (Irving, Texas), sat for an interview with the New York Times was marked by two events. On July 17, shares of Exxon Mobil fell to a 52-week low of $79.85. And, on July 19, oil prices had their biggest-ever drop, falling by more than $16 a barrel over the previous four days. Still, oil remained at stratospheric levels, settling at $128.88 a barrel on Friday. The Times ’s Jad Mouawad asked

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S eptember 2008

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