Notes from Davos: World Energy Outlook

Includes: BP, DOW, OIH, OIL, RDS.A, TOT, USO
by: Eamon Keane

On Thursday the Davos World Energy Outlook Panel took place. It's well worth a look, you can find the video or podcast here. The participants were:

Chair: Daniel Yergin - Cambridge Energy Research Associates


Thierry Desmarest - Chairman Total (NYSE:TOT)
Khalid Al-Falih - CEO Saudi Aramco
Tony Hayward - CEO BP Group (NYSE:BP)
Peter Voser - CEO Royal Dutch Shell (NYSE:RDS.A)
Andrew Liveris - CEO Dow Chemical (NYSE:DOW)
Ilham Aliyev - President Azerbaijan

I'll summarise the key points.

Energy demand still up 40% by 2030, 100% by 2050. Investment has continued as if recession did not happen. Renewables not going to be significant contribution to energy mix. Unconventional natural gas will be huge.

Thierry Desmarest: Peak oil has not gone away, pushed back a bit. Not for lack of reserves, but difficult to access, and we are seeing postponements in e.g. Athabasca oil sands. Getting above 95mb/d will be very hard and he forsees difficulties in the coming years. IOCs not getting a look in by the NOCs. Total is going to focus on the very challenging projects which it specialises in.

Khalid Al-Falih: The nonsense of peak oil is now hopefully behind us. Sees no difficulty in getting above 100mb/d. Saudi Arabia has 1/3 of its capacity (4mb/d) idled at the moment. Will attempt to continue its role as price stabiliser (although idling capacity is v. expensive). Brought 2mb/d capacity onstream last year.

Incremental barrels of onshore Saudi oil capacity now cost 6-7 times what they used to in 2000. Projects take 7-10 years to come on stream. Will make investment to maintain capacity, scoffs at IEA former predictions of 25mb/d Saudi oil, but will stay at about its current level. Has long list of projects to offset its decline in current fields.

Very confident that technological improvements will facilitate increased production.

Very pissed off at rhetoric about 'moving away from oil' or misleading notions of 'energy independence'. Energy security should be addressed through the framework of energy interdependence. Fossil fuels predominant for decades to come. Focus on efficiency, renewable deployment will be very slow.

Tony Hayward: Cautiously optimistic that Iraq oil production will increase to 10mb/d by 2020 (though not sooner because of execution challenges). Easy oil resource is there if political climate cooperates. If you assume world requires 100mb/d in 2030, then with 4-5% decline rate in existing fields, we need to find 50mb/d (4 Saudi Arabias). Resources there but need investment.

Shale gas is a 'complete game changer', dramatically altering the US energy outlook for perhaps 100 years.

Peter Voser: Highest investment ever in 2009 by Shell of $32bn, same for 2010. If investment does not keep up, supply demand imbalance will occur. $27trn investment needed in oil by 2030, orders of magnitude above current level.

Incremental supply of 1% extra world energy takes 25-30 years to fully develop.

Loads of clean natural gas, near term solution for next 10-20 years.

Andrew Liveris: Energy independence is a myth. Dow energy budget from 2002-2008 quadrupled from $8bn to $32bn. 2009 an aberration, energy demand will increase as before. Very difficult to plan long term with the volatility in energy prices, because investment horizons and paybacks are 20-30 years.

Sees innovation in wind and solar as contributing to the energy mix and as physical hedges against oil and gas.

Average US home has 2.5 miles of cracks in it which is a national tragedy. Focus on efficiency.

Wants to see cap and trade to incentivise efficiency.

Ilham Aliyev: Azerbaijan has lots of gas, will look to export to Europe but needs reliable customers to make the big investments. Oil price is in a sweet spot for everyone right now. 2009 investment of $10bn. In last 6 years Azerbaijan GDP up 300%.

So who do you agree with?

Disclosure: No Positions