The gap is wide enough warranting intense diplomacy. Fault lines are evident. Crude producers and consumers are divided, despite having made real progress on some important issues.
And the divide visibly is on familiar lines. As the energy ministers from 74 countries assembled in Rome for the International Energy Forum, the oil world was plagued with real, real issues. With oil prices in the vicinity of $120 mark, the meeting was taking place in extraordinary circumstances.
A closing statement after three days of deliberations said ministers had expressed concern over “the current level of oil prices”. The forum further noted that “oil prices should be at levels that are acceptable to producers and consumers to ensure global economic growth, particularly in developing countries.”
Saudi Petroleum Minister Ali Al-Naimi called for calm and not to panic and this cannot be more underlined in these turbulent times. “I have observed an unprecedented level of uncertainty, doubt and even fear in discussions about the future of energy and its impact on global economic prospects,” Al-Naimi told the delegates. But he went on to assure in emphatic terms, “the world is not running out of oil.” This message needs to be hammered well.
The root of the problem is “limited capacity along the entire supply chain .... And this is not an energy resource issue; it is primarily an investment issue,” he emphasized.
OPEC Secretary General Abdalla Salem El-Badri also spoke earnestly about the need for demand security in an “increasingly interdependent energy world.” The oil is there, he said, particularly in OPEC’s Member Countries, but “minimizing uncertainty” by ensuring “appropriate demand conditions” is necessary to alleviate the investment fears of operators, he emphasized before the ministers in Rome . “Just like anyone else, oil producers do not want to invest in capacity that will not be used.” “Without the confidence that additional demand for oil will emerge, and without the market signals that long-run prices are supportive, the incentive to invest can be affected,” he told the ministers.
Energy analysts, even if coming from the IEA, are now beginning to appreciate the producers’ concern, one can safely underline here. This is a variable that needed to be taken care of, most now agree.
While the issue of output was still open, consensus among the producing and consuming ministers about what price was too high also appeared dividing the delegates. Iraqi Oil Minister Hussain Al-Shahristani told reporters the (current) oil price was not as high as it seemed because it is measured in the US dollar, which has hit record lows against other currencies. “It’s not really so high that it’s beyond the capacity of most countries to cope with it,” he said.
Shokri Ghanem, head of Libya ‘s National Oil Corporation, stressed on the fact that expensive oil prices were necessary. “Prices will have to stay high in the long term to encourage exploration and production.”
On the other hand producers are dancing to a different tune altogether. Nobuo Tanaka, the executive director of the International Energy Agency (IEA), who was in Riyadh preceding the Rome ministerial, interestingly told reporters that he was met with silence from an audience that included members of the Organization of the Petroleum Exporting Countries, when he asked if they shared the IEA’s view that prices were too high. “When I spoke from the podium I asked the ministers, ‘Do you agree with me that current prices are too high’ - totally quiet. When I asked the question, are there any ministers who don’t agree - total silence.”
“I can’t say whether a clear consensus (on the issue of what price is high price) has built or not,” he himself appeared confused on the issue.
In the wake of the current situation, the issue of output kept creeping up at the Forum. Consumers have been pleading for more oil for some time now, although for the time being even the IEA is conceding additional output may not be really required. The United States, the world’s largest consumer has been at the forefront of the clamor for crude. US President George Bush has repeatedly urged the OPEC to open its taps. The US Acting Deputy Secretary of Energy Jeffrey Kupfer, representing the US at the Forum in the absence of Energy Secretary Sam Bodman, blamed fundamentals of supply and demand for the current scenario.
“Fundamentals are tight right now. Our message is take a look at fundamentals,” he said on the sidelines of the International Energy Forum in Rome.
British Prime Minister Gordon Brown last week said he wanted to see collective action to persuade the Organization of the Petroleum Exporting Countries (OPEC) to boost output and bring down prices. In the meantime, the OPEC has made clear, under current set of circumstances, there was no point and logic in reviewing the output. On the eve of the meeting, Saudi Arabia’s Al-Naimi reiterated that with the long-term oil forecast falling and alternative fuel supplies rising, it does not intend to push its output further up, beyond the already scheduled 12.5 million bpd targeted for 2009. “We are idling at around 9 million bpd and we will reach capacity of 12.5 million bpd by 2009,” the minister said in a press interview just before the Forum. “That is substantial spare capacity. As far as I know, all the latest projections, at least up to 2020, do not require anything higher than that.” Despite the IEA agreeing that the current output level is enough, the issue of output continues to divide the energy world.
Three days of talks drew broad agreement a weak dollar has pushed oil prices higher and that the cost of extracting more from the ground has soared. There was though consensus that weak dollar was adversely impacting the crude markets. With staple prices rising, biofuel was another hot topic at the Forum. There was also agreement among the members from both sides of the divide that commodities complex have driven up the cost of new exploration projects. “There’s definitely cost inflation,” even the IEA agreed.
And thus despite progress, the dialogue has a long way to go. As the declaration issued at the end of the meeting also said, there was real need for the producers and consumers to intensify talks to better address the common challenges of high oil prices, supply security, the environment and sustainable development of energy. Challenges are definitely enormous!