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John Hall: The OPEC Seminar 2015 & The
167th. Meeting of the OPEC Conference
Vienna, Austria, 3rd to 5th. June, 2015

Xinhua/Qian Yi

The opening ceremony of the Organization of the Petroleum Exporting Countries
(OPEC) 's 6th International Seminar at Hofburg Place in Vienna, Austria. June 3, 2015

This was the OPEC week, starting with the two day Seminar on 3rd. June and culminating in the Conference on 5th. June.  There was much to be learnt across the three days and so in this report I have covered what I felt were the salient points overall.  I should mention that I am not representing investors but consumers and so my focus differs from that of many other attendees.

Bearing in mind what OPEC has at stake, in terms of lower oil prices, the mood throughout the Seminar was calm and relaxed. The proceedings were opened by Dr Mohammed Bin Saleh Al-Sada, Qatar's Minister of Energy who confirmed that the lower prices in recent months have led to a massive loss in revenue and created job losses across the industry, with investment and future production threatened.  

However, looking ahead, recovery is on the way and demand is picking up with the view that it will continue to do so in the second half of the year, towards the lead up to the next OPEC Meeting towards the end of the year.  He also asked for co-operation of all global partners in the market but he didn't say whether these would be producers and consumers or just producers alone.  He outlined the purpose of the Seminar and re-iterated that its objective was to create a dialogue between such players to further the interests of the industry and with that he introduced Abdallah El-Badri the long term OPEC Secretary General.

Mr. El-Badri took us through the key points of the OPEC World Oil Outlook, highlighting the fact that demand for energy will increase by 50% from 2015 until 2040 and that there will be enough resources to meet needs.  By 2030 the mix of Oil, Coal and Gas will give each around 25-27% market share so overall 75-80% will be made up by fossil fuels.  This may seem surprising to environmentalists but it's certainly in line with BP's prediction.  

The Oil demand will increase by 2030 by another 18mbpd to 111mpd and for this huge investment will be required and no doubt with current prices around the $65 mark today that will be a challenge for producers but, as he said, they cannot stand still.  Maria Van der Hoeven, Secretary General of the International Energy Agency reminded us that the energy mix should in future include renewables around the world and, in spite of the mix forecast for fossil fuels, renewables will be part of the mix although not as prevalent as some would like.

Rex Tillerson, CEO of Exxon Mobil, outlined the change in class structure around the world as many attain middle class status seeking a life style and assets that were not previously available to them or their families, leading to an increase in energy usage of around 35%.  This is below the OPEC figure of 50% but over such a time scale my guess is that there will be a convergence of the figures.  The Gas share will increase by 65% and overtake Coal to become the number 2 energy source.  

New technologies will play a big role to enhance exploration and extraction particularly in shale, deep water and rock environments, but, for this to happen there will need to be new policies to give support.  In the question time that followed, he made the point that they have to take the risk to reap the reward, whatever the price and that they couldn't run a business based on price expectation but had to run without knowing what the price would be, taking the long term view to deliver the energy whatever the cost.  This aligned well with Mr. El-Badri's point that we need to move and make progress irrespective of the oil price today.

Bob Dudley of BP likewise confirmed that their view was one of continuing increase in demand and the convergence of Oil, Coal and Gas towards an equal share of each.  I did ask him later how he felt about the Seminar and he said that for him it was good to meet the Ministers that they deal with individually, collectively, in the same place at the same time.  Going back to the opening comments about the global dialogue between players I felt that this was advantageous, certainly from an International Oil Company's view, to build up a dialogue with Ministers individually and also to experience how they interact collectively.

There was some dialogue over Carbon Pricing and although not universal agreement, the outcome seemed to be that whatever happened, it had to be applied globally.  I assumed they did not want to see different policies in different regions.  Furthermore, whatever was received by Governments, should be ploughed back in to the economies of those countries taking it.  The argument of course for a global Carbon Tax would be to stifle Coal's market share as Coal is twice as dirty as Gas and whatever tax hits Gas, it will be double for Coal.

The next session was chaired by Bijan Namdar Zangeneh, the Minister of Petroleum for Iran and he again said that there must be co-operation between OPEC and non-OPEC producers.  Unfortunately for OPEC, the reason why we have the current situation is because non-OPEC producers like the US and Russia and not interested!  He wants to see an “equitable” price but from previous OPEC Meetings the view was that the level should be over $100 and today that level is simply not supported in the market.  

Iran is looking for sanctions to be “lifted” so that it can increase output later in the year.  Yet when the Iraqi Minster joined in he seemed oblivious to the fact that his country was under serious threat from IS, whose forces are now posing a greater threat to Baghdad.  So on the one hand Iraq has ongoing plans to increase output while on the other it's difficult to know how much of that oil will still be under Federal Control by the end of the year. 

We had a very entertaining speech from the Venezuelan Minister, Asdrubal Chavez J, who may be a brother to the late President, Hugo Chavez.  He almost relived the revolution with the words “Simon Bolivar” and “Hugo Chavez” ringing out in his presentation and complaining of “Imperialist Intervention” regarding the reaction Conoco Phillips and Exxon Mobil to the terms over following nationalisation of the industry.  

Sadly for him, Venezuela has squandered much of its oil wealth carelessly and not invested in the infrastructure for the future.  It has terrific reserves but will any IOC want to go there to help it extract them while it needs an oil price closer $120 just to stand still.   I didn't feel that his speech gave him any credibility within and outside of OPEC.

India was invited and the Minister Dharmendra Pradhan gave another passionate speech to impress upon the audience the extent to which India, the fourth largest energy consumer in the world, will increase consumption in years to come while at the same time investing also in Renewables.  Growth from the Asia Pacific Region (APR) is leading the resurgence in energy demand and therefore he felt that they should qualify for a “special” deal from OPEC!  His problem is that India has little refining capacity and so needs crude at a cheap price.

Dr Aldo Flores-Quiroga, the Secretary General of the International Energy Forum (IEF) wants a clearer understanding between physical and financial and greater markets and greater scope for policy and regulation.  Much of the world is still locked in to the global recession of 2008 and analysing market volatility since then is seeking to understand where the trigger point is.  Over the period 60% has traded at around 5% and a further 15% at a tolerable level but beyond that he feels that there should be a policy response.  Traders he feels like a high variation range but what is the tolerable level?  

The IEF has its own data plus that from the IEA, OPEC and JODI and from this attempts to understand the market.  Data varies from different sources and he would like to see greater transparency overall but my guess is that there are too many players that would not like this!  Some years ago a senior delegate, who I saw again this week, said to me that they had difficult in understanding some of the “third party” figures quoted and then went on to say, likewise, to some of the figures quoted by fellow OPEC members!

Rafiq Latta asked the panel for a one word answer, which the Moderator re-inforced, as to what price each member felt was reasonable against the current benchmark figure of $65.  Silence!  But with a little coaxing they got going and the 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 & 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, reminding 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 and 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 stating 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 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, re-iterated the co-operation between China and Russia how they were having 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 and 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 & 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, 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 & 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.

The Secretary General of the Gas Exporting Countries' Forum (GECF) Dr, Seyed Mohammad Hossein Adeli, now has eighteen country members covering 67% of world proven reserves responsible for around 50% of traded gas.  It represents a gathering of the world's leading gas producers and was set up as international governmental organization with the objective to increase the level of coordination and strengthen the collaboration among Member countries and I wonder if we shall ever see an OPEC type cartel grow from this?  He confirmed that as global economic growth increases and demand for energy rises, the proportion for gas will be even greater.  Furthermore, this will need to take Climate Change legislation in to account if one accepts that gas is a relatively clean fuel for generation and compared to coal it certainly is and as with the NOCs earlier he too will favour a Carbon Tax which have twice the impact on Coal than Gas.

The financial view given by Dr Thomas Helbling of the IMF and Dr Paulo de Sa Practice of the World Bank looked at growth figures which Dr Helbling estimated at 4% overall by 2020 with the US achieving over 2%, Europe under 2% and Japan at 1% and these figures will be supported by lower oil prices.  However, Dr de Sa Practice discussed the consequence of lower oil prices and how new technologies will enable producers to cope and already we know that industry supply companies have been engaging in cost cutting and streamlining exercises.  The World Bank is currently advising consuming countries to plan for oil at $75 and producing countries to plan for $60.  Meanwhile, OPEC has lost or is losing the role as the market swing producer and this is now the place for the US.

I was able to ask the panel, if there was now a realisation that a price of $100 was no longer sustainable to consumers.  After a brief silence, Thomas Helbing of the IMF picked it up, probably embarrassed at the silence, after a brief pre-amble declared that “it wouldn't be helpful!”  

The 6th. OPEC International Seminar gave us a varied selection of speakers from different parts of the energy arena and from those that I was able to listen to the message was clear.  Lower oil prices will give support to those countries still struggling to get out of the global recession of 2008 and encourage them to invest in energy efficiency for the future.  Conversely, for producers there is the realisation that the higher prices that they have enjoyed in recent years have been detrimental to the global economy.  They will have to cut their costs, increase efficiency and make use of new technology to extract energy resources both conventional and non-conventional while acknowledging the impact of Climate Change and the subsequent legislation and taxation that will come with it.

Governments will need to agree on global Climate Change legislation and adjust and re-define policies to ensure that whatever is taken is fed back in to their respective energy infrastructures.  In so far as the price of oil is concerned, it would seem that the consensus view is that it will range between $60-80 between now and 2020. With this in mind we can now look to the OPEC Meeting that followed.  With the Seminar just behind us, the transition to the 167th Conference was seamless with many of the issues already covered.  The big issue for OPEC is still production levels and with the collective output over 30mbpd, each member is striving for a bigger share.

Iran is hoping to return fully to the market by the end of the year and in the short term will probably in the short only be able to increase by around 300,000 bpd.  Iraq and Libya would produce more if it wasn't for the ongoing conflicts in their respective countries and without a resolution in sight for either, it is unlikely that we can expect more from either.  

Nigeria usually talks about producing more but in recent years hasn't been able to and the concern that one may have about Nigeria is that demand for its product is falling and with refiners now geared up to working with the heavy grades, they have no reason to pay a premium for high quality grades such as that from Nigeria.  Nigeria is currently producing around 2mbpd with “aspirations” to double that by 2020, which is not likely to happen so it is one member of OPEC that will have to work hard to maintain its market share. Venezuela is a lost cause and one has to consider how the administration will cope with the lower oil price and loss of revenue.

I asked Mr Hose de Vasconcellos, the Angolan Oil Minister if he was still selling oil and he just laughed and indicated all was well.  At previous meetings he confirmed that he had lost much of his business with the US and was moving towards business in Asia – APR, which is where they all seem to be heading.

The usual market conjecture was played out beforehand and no one wants to miss a surprise from OPEC and judging by the dialogue over the last two days the level of optimism has seemed genuine and therefore everyone was confident that there would not be a significant change in policy and there was even a suggestion that OPEC might go even further and suggest an increase in output to accommodate, perhaps Iran, and any other member that was hoping to bring more to the market.  This would be part of the Saudi strategy to exert further pressure on the market and particularly the US shale producers and Russia.

Saudi is the true leader of OPEC and will always have the following of the Gulf States behind while others will, often, reluctantly have no alternative but to follow.  Saudi's role is well managed by the long term minister Ali Naimi.  The only concern now is that he will probably retire soon, aged around 80 and be replaced with someone younger with far less diplomatic and industry experience that Ali Naimi keen to prove himself and with that comes the risk that authority within OPEC may be curtailed or lost.  For now, that is a concern to put to one side.

The Meeting was opened by HE Mohammed bin Saleh Al-Sada, the Alternate President of the OPEC Conference.  He reminded us that at the time of the last meeting, the price of oil stood at $77 but soon fell to $45 in the New Year following OPEC's decision to leave output unchanged but since them we have seen some significant improvement.  OPEC does not believe that the 60% fall in price was attributable to fundamentals alone but supported by speculation and from my perspective, I should be surprised to hear that some producers were not a party to such speculation either!  With market knowledge in advance of any change in conditions, opportunities arise.  

The market is oversupplied and the US commercial crude stocks in April were reckoned to be 24% higher than they were a year ago while the fall in price has resulted in the postponed of some investment and a drop in the US rig count.  On the positive side, global growth is forecast to increase at 3.3% supported by the lower oil price and global demand for 2015 is forecast to rise by 1.2mbpd and increase on the 1mbd for 2014 but most of this will come from non-OECD countries.

The increase in oil supply from non-OPEC countries will be below 700,000bpd, only one third of the amount produced in 2014 and no doubt a direct result of the drop in rig count while lower growth is also forecast from North America and Canada.  So for OPEC this indicates a more balanced market in the second half of the year with demand for OPEC oil estimated at 30.30mbpd in q3 and 30.7mbpd in q4.  They seem happy with this, for now.

During the Open Session before the Conference began I was able to have a few words with two of the Iranian Delegates although not at the same time.  They are obviously expecting sanctions to be lifted but neither would even estimate when that would be.  However what I did learn was that Iran is currently exporting 1.1mbpd and within six to eight months of sanctions being lifted, the plan is to increase that figure by another 1.2mbpd bringing the total export figure to 2.3mbpd.  This is perhaps an ambitious target but one they are aiming for.

At the same time they are preparing to offer projects to external oil companies.  Meanwhile, in spite of some concern over Iraq's security, Iraq is reported as having produced well over 3mbpd in recent months.  So, again, the OPEC dilemma increases as individual member countries strive to maintain and increase their market share.  We have oil producers openly competing with each other and collectively competing with alternative energy sources, primarily shale.

The Press Conference opened earlier than expected with the news that OPEC will hold output at its current level and ask members to honour their quotas.  Furthermore, much of what has been said in recent days was repeated again in the statement.  I asked the question – “did OPEC now feel that a price close to $100 in the next four to five years would be too much to bear from consumers?”  OPEC will not discuss price but the point was made, very clearly, by both Mr. Al-Sada and Mr. El-Badri that long term investment would be needed to sustain supplies in to the future and although the figure was not quoted, as we are today, the market will determine price and also the level of investment but, back to the words of Rex Tillerson above, one cannot base investment on the price of today!

As an aside issue, the Conference was briefed by the Head of Delegation of Ecuador on the ongoing arbitration process brought against the Republic of Ecuador by Chevron Corporation and Texaco Petroleum Company. The Conference expressed its support to the Republic of Ecuador in the exercise of its sovereign rights over its natural resources, in accordance with international law, a right documented in the Algiers, Caracas and Riyadh Summit Declarations of OPEC Heads of State and Government. Furthermore, the Conference called for amicable negotiations and a good faith resolution for the dispute, within a framework of utmost respect for the sovereignty of the Republic of Ecuador, and without resorting to ex parte pre-judgement measures that would make impartial solutions more difficult.  I have put this paragraph in from the Press Release to illustrate the kind of issue that arises between oil companies and producer countries when circumstances change or one party wants to change the terms of the agreement.

We have moved a long from the $100+ era of last year to a price of around$ 45 at the beginning of the year back up to $65 and as I said earlier in this report, the most likely scenario today is that we shall see little change in oil prices over the next two to three years at least and probably longer.  The revival from the long term recession will continue and the future for shale looks good for those countries that are able to and want to pursue it.  OPEC will be meeting again on Friday, 4th. December and I shall follow the market in the meantime and report back after that meeting.  


John Hall is an independent energy market Analyst and at present, Chairman at Alfa Energy , he has been Chairman at EnergyQuote JHA, and Managing Director at John Hall Associates Limited. Alfa Energy now has 4 nominations - I&C Consultancy of the Year Award sponsored by npower (by Public Vote). Any comments or queries, please contact – John Hall,  +44 7785 274530. Petroleumworld does not necessarily share these views.

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