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Oil scene: Uncertainty haunts the energy world
Monitoring Report
UNCERTAINTY has taken over the energy world. And it is detrimental
to every one, be it consumer or producer. The consequences could be
horrific. A number of factors are in play. The volatility of oil
market pricing is a major issue. After all most producers have a
single product economy. With extreme swings in play, they are almost
in dark while projecting their long-term incomes and expenses. OPEC
(Organization of the Petroleum Exporting Countries) oil producers
could lose $4 trillion in revenue between now and 2030, if a UN
conference in Copenhagen next month strikes a deal on global warming
curbs, the International Energy Agency projected earlier.
“With current policies in place, OPEC revenue will be about $28
trillion (18.7 trillion euros) between 2008 and 2030 if there is no
climate change deal,” IEA Chief Economist Fatih Birol said. “If
there is a deal, OPEC revenues will be only 24 trillion dollars.”
The IEA scenario is based on an assumption that the concentration of
greenhouse gases in the atmosphere would be limited to 450 parts per
million, which scientists say would in turn limit a global
temperature rise to 2.0 degrees. With limitations envisaged by the
agency, demand would come to only 89 million barrels a day by 2030.
However, with no change, worldwide demand for oil would come to
105.2 million barrels a day between now and 2030. The danger from
carbon emissions has sparked a worldwide search for renewable
sources of energy, such as wind power, nuclear energy and solar
energy. China, the United States, Spain and Germany have all
launched ambitious projects to harness solar energy. The idea is
also catching on elsewhere. Other developments are causing
additional uncertainty. Despite talks of peak oil, an over-supply
scenario could also emerge. Iraq has recently signed a number of
agreements with international companies, which, according to Iraqi
Oil Minister Hussein Shahristani, could boost Iraq’s production from
less than 2 million bpd today to nearly 10 million bpd within a
decade. In the coming years, OPEC will have to accommodate this
soaring output from Iraq in its calculations too.
At the same time, more intensive oil exploration deep beneath the
seabed, together with new technologies for enhanced oil recovery (EOR),
are also expected to give considerable boost to the world’s
recoverable oil reserves.
In the immediate run too, uncertainties continue plaguing the global
energy balance. The OPEC November Monthly Oil Report (MOR), while
pointing to the scenario, says: “Although most of the signs are
pointing toward higher oil demand, a potentially weak economic
recovery along with higher oil prices are the two main factors that
may dampen world oil demand in the coming year. Should prices
increase and be sustained above the current level, oil demand growth
will be pushed down by more than 1 percent in the (OECD) countries.”
The cautiously optimistic projection of rebounding demand
underscores the uncertainty lingering in the world energy market.
And then the report added: “Even if the expected economic recovery
materializes, it remains to be seen whether demand would be able to
return to pre-crisis levels. Energy policies and behavioral changes
are bound to have some impact on consumption and this will gradually
feed into overall demand patterns, especially in key sectors such as
transportation.”
In the meantime, geo-politics too continue to haunt the energy
markets. Even now, one cannot write off the possibility of a strike
by Israel on Iran could result in the choking of the Straits of
Hormuz, shooting the price overnight to the stratosphere. And then
there is also a growing skepticism of the data being put forward by
none else than the IEA. The daily Guardian carried a report earlier
the month quoting anonymous senior figures within the IEA accusing
the agency of fudging the data at the behest of the Americans,
academics in Uppsala University in Sweden also added their voice to
the chorus, publishing a scathing assessment of the World Energy
Outlook presented by the IEA. Producers indeed have their concerns
on the emerging scenario. Hasan Qabazard, the director of the
Research Division at the OPEC Secretariat, was in Riyadh earlier
this month and on a beautiful Sunday morning he made an enlightening
presentation at the International Energy Forum Secretariat in
Riyadh.
For the first since the 80s, oil demand has in fact gone down by 1.4
million bpd on an annual basis. Similarly, the current global
inventory levels were also worrisome — close to the 1998 levels —
when oil markets collapsed, remarked the OPEC research director.
Floating storage and the increasing volumes in strategic petroleum
reserves of various countries including China were also contributing
to the uncertainty in the markets. |
