With the 11th International Energy Forum set to get underway in Rome on Sunday, these are indeed very interesting as well as hectic times at the International Energy Forum Secretariat in Riyadh.
With crude prices hovering around $115 a barrel and virtually every one underlining the need and importance of dialogue between energy producers and consumers, the 11th International Energy Forum, bringing together energy ministers from close to 70 countries, is thus set to take place in extremely exceptional circumstances. Such exceptional are the market dynamics today that very few could have foreseen and forecast it, when the global energy ministers met last in Doha, some two years back.
A lot of over and behind the scene activity seems preceding the formal opening of the Forum in Rome. The Paris based International Energy Agency (IEA) often termed as the energy watchdog of the OECD is definitely concerned at the turn of events. The IEA is one of the major stake-holders in the energy world today and its voice is taken seriously and given due weight all around.
And thus when a large IEA delegation, headed by none other than its Executive Director Nobuo Tanaka reached Riyadh , just days before the Forum, it was bound to generate waves and so it did. And the IEA delegation to Riyadh included heavy weights — its Chief Economist Fatih Birol, a very well established and well respected name in the energy fraternity and Director Oil Market Didier Houssin.
And thus when the IEFS in Riyadh announced hosting the IEA delegation for a talk, it was worth going over to. The diplomatic community of Riyadh was also very well represented to hear what the IEA has to say.
The IEA delegation reached the Secretariat almost half an hour later than schedule. Apparently their meeting with the Oil Minister Ali Al-Naimi got longer. Indeed one could not argue that the meeting with the world’s largest producer was more important for the IEA team than talking to ambassadors, media and other guest at the IEFS.
Tanaka had important observations to make. Since he took over the IEA last year, crude market prices have gone up by more than 40 dollars a barrel. And as he said when people ask him what he was doing to tame the spiraling markets, it becomes difficult for him to answer and he had a point. Explaining the reasons behind the galloping oil prices, Tanaka conceded no one factor could be held responsible for the current woes of the crude markets, and despite the fact that some may not agree to the hypothesis, yet he went on to underline it was the fundamentals — demand & supply — that ultimately control — and the energy markets are not different in this respect, citing lack of enough spare capacity as one major cause. Tanaka though agreed that weak dollar and speculation have also contributed to the firming up of the market, yet he made it clear that prices have shot up in virtually all the currencies, and not just in dollars.
An interesting comment from the IEA executive director was that though oil consumption in major industrial oil consuming countries is virtually stagnant, it seems to have gone up in countries where the oil is subsidized. Explaining the relationship, the IEA chief economist underlined that in principle when market prices go up, demand goes down. That was the case during the earlier two ‘oil shocks,’ in 1973 and 1979. But this time round, despite the prices going up and up, the total global demand has not gone down — apparently owing to the subsidies being provided currently in parts of the world — he attempted establishing.
This was an interesting observation and he went on emphasizing that oil consumption was growing rapidly in China , the Middle East and India where oil prices are heavily subsidized to the tune of $50 billion — delineating a direct relationship between increasing crude consumption in these areas and oil subsidies.
Tanaka termed climate change and energy issues as two sides of the same coin. The IEA appeared also strongly contributing to the age-old theory that fossil fuel will continue to meet the bulk of global energy needs for a number of more decades and the Middle East would remain a significant energy supplier to the world significantly into the future too. This conclusion concurs with the observations of the OPEC too in this respect.
The World Energy Outlook that the IEA brings out each year is a deeply awaited document. However, it seems the WEO — 2008 would be awaited even more deeply — for one solid reason. Tanaka in his presentation revealed that Fatih Birol and his team within the IEA was working to add a review of 400 major oil wells of the world in its next World Energy Outlook — to be published in November this year.
In an era where the world is beset with claims and counter claims about the production capacity of some of the super giant wells, and where reliability of reserve data is always under cloud, the attempt by the IEA to decipher the life cycles of the producing wells is a gigantic task in itself. And Fatih and his team know it very well and therefore, despite probing, preferred to remain tight-lipped about their finding as yet. They definitely do not want to make their lives still more difficult while the exercise is on.
Tanaka underlined the need of an energy revolution as imminent. No one can argue that. Huge investments are required in all the sectors of energy chain. Controlling the climatic changes is a major challenge with tremendous cost ramifications. Carbon Capture & Storage facilities need huge investments. The IEA has already submitted 16 new recommendations to the OECD, so as to ensure continuity and stability of this energy propelled civilization of ours.
It seems despite progress and some convergence, the producers and consumers are still poles apart on some key issues and it is here that role of IEFS needs to be strengthened further.
The upcoming 11th ministerial at Rome would thus be looked at closely. IEFS Secretary General Noe van Hulst and his team have an ominous task in hand.