It has been an exciting week, with a galaxy of business leaders assembling in Riyadh for the high profile Riyadh Global Competitiveness Forum. And while business leaders from virtually all the sectors of industry were there to attend and make their views heard, presence of energy gurus was inevitable. After all we live in a crude driven civilization and any change in the very crucial global energy balance impacts virtually all the sectors of the industry and in fact our lives.
And it was thus a treat to hear some of these energy leaders and their views on the evolving situation at the International Energy Forum Secretariat (IEFS) in Riyadh last Sunday, immediately after the opening session of the Forum.
We live in a fiercely interdependent world and cannot live in isolation. Compromise remains to be the order of the day. And interestingly while talking to Gertjan Lankhorst, the CEO of the Dutch firm GasTerra, the belief that energy and politics are almost inseparable gets further firmed up. Gertjan heads the firm that supplies Dutch gas to most parts of Europe. And when seen in the backdrop of the recent tussle between Russia and Ukraine, and its implication on gas supplies to Europe, it was definitely interesting to hear the first hand analysis from a real gas man. Lankhorst definitely had a special insight into this very crucial and politically sensitive issue.
Talking to Lankhorst on the sidelines of his presentation was refreshing and reassuring too in more than one ways. His mathematics was straightforward — Europe needs Russian gas for survival. As simple as that! No ifs and buts. With European gas demand growing, Lankhorst had literally no qualms in conceding it. Lankhorst further went on to point out that the foremost casualty of the recent Russia-Ukraine tiff has been trust. This deficit has definitely grown and things could now move in the following direction, he asserts.
There would be growing emphasis on developing alternative routes, he feels. And indeed this could be achieved only at a cost, to the end user in the ultimate analysis, one could definitely deduce. Further, there would be more emphasis on coal fire power and nuclear energy to meet the growing needs of the population in Europe. Again, this has a flip side too, one can’t help underlining. Eyebrows are definite to be raised on environmental and safety issues, but again Lankhorst hinted European governments could be obliged to go this way.
And there would also be emphasis on strategic storage capacities, no one can indeed deny. But in his ultimate analysis he was absolutely clear, despite alternatives and alternative pipelines, Russian gas would still be needed in Europe.
And then while talking on the common perception of Russia flexing its energy muscles for furthering its geo-political ambitions, of reinventing its USSR glory days; he definitely was looking at things from a different angle. Lankhorst who otherwise must have been dealing with Russian energy bureaucracy extensively, philosophically mentions that at the business level, European companies never have had any problems in dealing with Russia. Business relations with them have always been cordial. It is the governments who had problems with Moscow. Governments definitely look at Moscow from a different prism, he concedes and agrees that it is politics that keeps disturbing the equilibrium.
Conceding that Moscow may be using its energy resources for flexing muscles, he asks — almost in a philosophical tone: Who doesn’t? Some three decades back, he said, one Dutch senior bureaucrat was sent to various Dutch gas importing countries with a clear-cut mission of enhancing the selling price of their gas. And apparently, the official may have even twisted arms of some of the clients to further his objectives. “If there are imbalances in prices, those need to be rectified,” Lankhorst maintained implying Russia had a point in asking for higher prices.
And though the CEO of ENI Paolo Scaroni could not make it to the IEFS that beautiful Sunday afternoon, yet he was gracious enough to send the presentation that he was to make at the IEFS, for the benefit of the awaiting audience.
And he clearly emits a warning message. The wild (oil) price swings witnessed over last six months is unprecedented, terming it as ‘oil turbulence’ and that it could have impact on future flow of crude. “The turbulence we are currently experiencing — with oil doubling in the nine months to July 2008 and then losing two-thirds of its value in the following six months — is unprecedented.”
And Scaroni thus emphasizes on the fact that the time is ripe for the oil industry to look for ways to ensure more stability. “Our sector is no stranger to cycles,” Scaroni accepts but also asserts the current turbulence is catastrophic and needed to be taken care of.
And the CEO of this important European company, with an established network in Europe, was emphatically positive over the future outlook for this industry — crude is there for at least 135 years. And behind this conviction was simple mathematics. Although Middle East currently boasts of almost 65 percent of the global proven oil reserves and is still regarded as little explored, yet its share in the 150,000 wildcats drilled in the world over almost last 26 years remains just one percent. There is definitely much more to look for in the region, one is hence bound to sense and smell.
The IEF Secretary General Noe Van Hulst, in his presentation, also underlined the same theme. While welcoming the diplomats and the energy fraternity at the Secretariat, he also asserted availability is no problem. This is not the real issue, most agreed even at the last IEF Ministerial, he reminded. It is the deliverability of this oil and its affordability that is the real issue today and the world needs to closely look at those and find answers. That is the challenge the energy fraternity is faced with today. Oil is there beneath the surface; scratching it properly remains the issue, industry veterans now seemed to agree.