The IEA and OPEC, with conflicting mandates, don’t converge on too many issues and rightly so! However, both seem to agree on one point — despite some weakening of the oil markets, the future could still be bumpy.
This was evident when the OPEC decided last week to roll over its current output for some more time, even while it lowered the demand forecast from previous levels and with the second quarter approaching — in which traditionally the consumption goes down. And the decision was taken despite pressures from hawks within the OPEC to cut output so as to strengthen the markets. Crude futures in New York lost an average of $3.61 per barrel last month only, averaging $61.93 per barrel.
Similarly the IEA, taking into consideration the market developments, lowered the demand forecast from the previously forecasted 1.78 million bpd to 1.49 million bpd. However, at the same time the IEA warned that threats to oil supplies (virtually every where), and rising demand could still combine to sustain high oil prices over the next few months. The road ahead is definitely bumpy.
And thus when Ambassador Arne Walther takes up the issue of “Horizons of Dialogue between Energy Producers and Consumers,” at a time when bomb shells are all around, he speaks with a passion — pleading zealously the case of still more, open and frank interaction between the two poles of the energy world.
Energy security today is a major agenda on the global political radar screen. This security, now every one concedes, could not be assured without “demand security”. Ambassador Walther, who now heads the Riyadh-based International Energy Forum, which he proudly describes as the only international body located in this part of the world, while speaking before a select gathering at the King Faisal Center for Research and Islamic Studies, last week just before the OPEC ministerial meeting, emphasized that this security could only be ensured through interaction and still more interaction. Confrontation provides no solution to this global issue, he vehemently argued.
The lecture was delivered while the energy fraternity was faced with another major crisis. The issue of credible oil data has been a cause of constant concern to some of the analysts. Many like Mat Simmons have been arguing for some time now that the data put forward by the state oil companies are fudged and could not be trusted and relied upon. However, related to the auditing of data is the issue of sovereign control on these precious assets of the producing countries, making the subject still more complex - with political overtones.
A recent story in the reputable Petroleum Intelligence Weekly (PIW) stated, on the basis of internal Kuwaiti government records that the newsletter claims to have seen, that the officially stated reserves of Kuwait are grossly over inflated. This is a real bomb shell and would generate all sorts of questions, for every one, all around. Questions about the sustainability of oil era would start creeping up, once again.
According to the PIW, Kuwait’s oil reserves are far below the officially stated quantity of 99 billion barrels. The report claimed that Kuwait’s remaining proven and non-proven oil reserves total only about 48 billion barrels. The report went on to claim that the fully proven Kuwaiti reserves amount to just 24.2 billion barrels. No official Kuwaiti comment was yet available on the PIW story.
This new development gives a new twist to the ongoing saga of global energy security. Could it mean more confrontation? The history of the energy world has traditionally been of conflict between the producers and consumers. However, as the ambassador argues, the formation of the IEF “is an achievement of fifteen years of political level dialogue” between the two groups — a “concrete manifestation of international cooperative commitment to energy dialogue at political level.” This interdependent world, despite being unipolar in real sense, needs to stand up to the energy security challenge in order to face the situation.
Emphasizing that a win-win situation has to evolve, to the satisfaction of both the parties, Ambassador Walther, the former Norwegian diplomat emphasized, “sharply fluctuating oil prices were detrimental to both producers and consumers and that there could be no long term winners in troubled energy markets.”
The results of this dialogue are evident in a number of ways, “in statement of policy intent that in times of geopolitical and other uncertainty have sent calming signals to nervous energy markets” and then when at the previous IEF ministerial round in the Netherlands, the host country, Norway and even Iran, generally regarded as a hawk within the OPEC, “shared the perspectives and concerns about the market” and vowed to work for it.
