Once every two years, OPEC holds its international seminar right before a summer meeting of oil ministers – a shindig where bigwigs from member nations, world politicians, great and good of Big Oil, economists and analysts hobnob to discuss the state of affairs with a media circus in close attendance.
Having listened to two days of deliberations at the event’s latest round, two very different keynote comments stood out for me – that of Indian Petroleum Minister Dharmendra Pradhan and
ConocoPhillips
CEO Ryan Lance. Both were equally forthright, but carried very different, borderline blunt messages for OPEC.
With OPEC members involved in an increasing war of attrition to protect their (just over) 30% global oil market share, much of it reliant on emerging markets – the right honourable Pradhan decided it was time to make a strong pitch for a revision of terms on which his country imports the organization members’ oil and gas.
Proceedings at the 6th OPEC International Seminar, Hofburg Palace, Vienna, Austria held 3-4 June,… [+]
In a no holds barred speech, the Indian minister noted: “There is a strong feeling that Asian countries like India should receive ‘Asian dividend’ rather than paying ‘Asian premium’ while making bulk purchase of crude. I will not hesitate to say that Asian premium was historically never justified and more so not justifiable in the changed market scenario where Asian countries are the major buyers.”
Pradhan has a point; India imports 85% of its crude oil from OPEC exporters. To add to that, around 94% of its natural gas requirements are sourced from exporters’ collective too. According to the International Energy Agency’s World Energy Outlook 2014, India’s oil demand growth between 2013 and 2040 would be the highest in the world—with a compounded annual growth rate of 3.5%.
Furthermore, the timing of Pradhan’s pitch could not have been more perfect even if for the sake of argument market logic was the only prevailing reason.
Of the big five oil and gas importers – China, US, Japan, India and South Korea – only Indian imports have consistently improved since last May and are something to write home about for OPEC on a percentage weighting basis.
With US and Chinese oil import volumes, not quite what they used to be, for very different reasons and the global oil price lurking in the $50-75 bracket that few expect it to escape anytime soon – India feels the time is right to negotiate a better deal.
As Iranian, Iraqi and Venezuelan bigwigs sharing the stage with Pradhan looked glum faced, the minister continued chiding.
“Any measure that erodes the advantage of geography for Asian countries and promotes a policy of subsidizing oil traffic to distant destinations is not, and cannot be, in the interests of sustainable development. This calls for urgent rectification. I will urge OPEC members to understand this genuine concern.
“There is also a need to re-visit policies related to demand of the letter of credit from regular and bulk buyers and the need to consider extending credit time for crude import,” he added.
The delight of senior Indian officials, civil servants, academics and analysts in the audience was palpable. One official admitted that the Indian government “fully intends” to take advantage of subdued oil prices to get concessions for long-term supply contracts with “OPEC exporters and beyond.”
If the Indian message wasn’t quite enough for OPEC, enter Ryan Lance, CEO of ConocoPhillips. Quite a few Big Oil bosses had spoken before him at the event, but not many, in fact any, had been quite as candid.
Unconventional oil and gas exploration, cue US shale, is here to stay, Lance said.
“Unconventional production has staying power because we’ve come to a stage where reservoir engineering, drilling and exploration continue to advance.
“Shale plays – where gas followed by oil exploration meaningfully took off in 2005 and 2011 respectively – have seen a 30% reduction in operating costs, keeping them going at lower oil prices,” he added.
With industry forecasts of 40 billion to 190 billion barrels of technically recoverable oil in the US Permian, Eagle Ford and Bakken basins, Lance re-emphasised that shale exploration will continue to play its part in the oil markets.
In fact, the ConocoPhillips CEO also predicted that operating cost for tight oil plays was likely to go down even further. Commenting on the direction of the oil price, Lance said it would be hard to envision the oil price “going back down to the $40s.”
“We do see demand rising slightly so it does provide some support for prices,” he concluded.
So there you have it. A major oil importing client saying OPEC ought to come down from its pedestal and start talking concessions, alongside an oil company’s boss paying tribute to the ingenuity of American shale which has well and truly roughed up the works for the cartel. Expect to hear more of this over the coming 12 months.
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