Energy is an extremely high stake game - no one argues it now. And the stakes are so big in this high profile game that the outcome ultimately determines the course of history. Michael Collon very rightly says: ‘If you want to rule the world, you need to control Oil, All the Oil, Anywhere.’
And hence as soon as I got down from the rostrum after making a presentation on ‘Energy Security and its Geo-political Implications,’ at the recently concluded 4th Pakistan Oil & Gas Conference at Karachi in Pakistan, session chair Dr. Ramzi Salman commented, ‘my young friend was taking a shot at the big brother,’ and then in a lighter vein added, ‘we can only pray that he doesn’t end up at Guantanamo after this.’
And this was enough to chill any spine. Yet the subject is so intriguing and indeed fascinating that one cannot miss out ruffling the wrong feathers. And to be honest, that keeps adrenaline flowing into the veins too.
Dr. Salman is an established figure in the small global energy fraternity. He has been deeply involved with the sector for more than half a century now. Currently he is the advisor to Qatar’s Deputy Prime Minister and Minister of Energy and Industry. Before taking his current post in Qatar, he served six years as deputy secretary general for OPEC from 1991 to 1997.
However, Dr. Salman is a teacher, a professor in heart. He began his professional life teaching at Baghdad University and later became the head of petroleum engineering of the Iraq National Oil Company. With the nationalization of the Iraq Petroleum Company in 1972, he was assigned establishing the State Oil Marketing Organization (SOMO). He remained its president and CEO until 1991, when he left Iraq to take his post with OPEC. He came to Doha in March 1997.
Ambassador Arne Walther, the former secretary general of the Riyadh-based International Energy Forum Secretariat, had mentioned his name a few times to me, especially since until recently Dr. Salman was the chairman of the executive board of the International Energy Forum Secretariat too. And that is how I had known him.
With his professorial background and his deep association with the industry, when Dr. Ramzi Salman says something, it carries weight. That Thursday morning too, while in Karachi, he had some interesting comments to make.
He was of the firm opinion that the issue with the oil markets today is not that it is too high priced now, the issue remains that this precious, finite commodity has been priced too low in the past.
‘This is the crux of the problem. People are simply not accustomed to it. Had oil been more expensive, true to its market potential, even earlier, people would not have been complaining today,’ Dr Ramzi underlined adding this would also have promoted efficient use of energy and even taking care of the wastage of energy that we see today. The current market prices are very much in tune with the correct value of oil, he maintained. Crude markets have been moving with the gold market movements. ‘Gold and oil are going up and up together. This is a natural phenomenon in order to maintain the purchasing power of the oil producers.’ After all, there has to be a reference point. And Dr. Salman had a point!
And then the professor in Dr. Salman emphatically added, in real terms, oil prices today are not higher than in 1981 as in the meantime, real prices have not gone up.
And one realizes these sentiments may not go very well in major global capitals that have their own views, on the subject, much different from the above. However, the fact remains the remarks indicated the current mode of thinking in the major oil capitals.
And Dr. Salman went on to emphasize that the increasing output would not be of real help to the markets. While talking to press on the sidelines of the conference, at the Marriott in Karachi last week, Dr. Salman reiterated; “Increased oil production by Saudi Arabia (or any one else) will make no difference,” he said referring to 300,000 barrels per day extra supply, announced by Saudi Arabia. “There is no demand for heavy crude currently on the table.” Denying that oil producers are making huge profits on back of bullish markets, Dr. Salman underlined “geo-politics, tension, processing costs and government taxes are behind the rising gasoline prices in many countries.” Blaming lack of refining capacity too for the current higher oil prices, Dr. Ramzi said, “If six refineries started production now, oil prices will go down to $50 per barrel.”
“Speculative trading in oil futures has also contributed significantly to the increase in the prices,” he added.
He also made it clear: OPEC would not increase production until it is ensured it would be compensated for the idle capacity. The issue of demand security is indeed of great importance and significance in the decision-making process of the oil producers, one cannot help but underline here.
In view of the growing gap between the demand and supply of energy for medium income, emerging, energy deficient economies like Pakistan, the issue of energy security, defined as energy availability at all time, for all needs, at affordable prices remained the theme of the conference. Emphasis seemed to be moving toward managing wasteful consumption especially in space heating, water heating and household use of electricity. Alternative energy modes too went up for discussion with emphasis on exploiting the geo-thermal energy resources and enhancing regional cooperation so as to meet the needs of energy deficient countries in the region, regarded as the fastest growing region in the world, with its energy needs rising by the day.
Raghuveer Y. Sharma, the Lead Financial Specialist at World Bank, hence seemed to be pushing the case of energy deficient Pakistan cooperating with Afghanistan and its two hydro-rich Central Asian states, Tajikistan and the Krygyz Republic for the development of a Central Asia South Asia Regional Electricity Market (CASAREM). The World Bank appeared pushing the development of physical infrastructure and the concomitant institutional, financial risk mitigation and legal framework that could make this regional electricity grid possible.
To my and in fact every one’s surprise though, during the entire presentation by the World Bank Lead Financial Specialist there was no mention of the Iran-Pakistan-India gas pipeline, apparent more for geo-political considerations than basic economics. After all, in the current circumstances, for the World Bank to move against the wishes of our friends in Washington is simply impossible, one had to understand and concede. Indeed energy and politics go hand in hand, one has to keep underlining, and this is extracting a heavy price too.
