Mowat:In the end, countries will sell oil to whoever wants to buy it. However, there is domestic political pressure in the US to reduce dependence on the Middle East in general and Saudi Arabia in particular. That could translate into an attempt to increase supply from other places. For example, Russia is now building a year-round port at Murmansk to supply the US.
MEED: What role will Caspian oil play in this process?
It won't be as important as the Middle East, but it is still important. The three regions that will become bigger suppliers over the next 20 years are the Middle East, the Caspian and West Africa, probably in that order. If the US doesn't want to rely on the Middle East, it will build up the Caspian more quickly and strongly than it might otherwise, and it seems logical that will happen. Oil production in the US is not growing and there isn't on the horizon any apparent technological switch to reduce global dependence on oil significantly.
How will the rising dominance of Russia and the Middle East in production interlink with demand growth?
The demand will be driven by South East Asia, and India and China. So in macro terms, two things will occur. One is that there has to be a bigger transportation industry - such as we've seen with the east-west pipeline. Also, a logical play would be a tie-up with the upstream strength of the Middle East and the downstream penetration that some companies have - in China for example.
How far could US efforts to diversify its oil supply be realised by regime change in Iraq?
Iraq has the world's second largest oil reserves after Saudi Arabia, so there's enough oil there. But it all sounds too easy. Whether the Iraqi people would all live harmoniously under a US regime while oil was taken out by Western companies seems unlikely to me. If they were able to pull it off it could fix the problem. Of course if it destabilised other parts of the region, they might find th emselves back to square one and having to do it all over again in a different country.
What other options does the US have for diversifying Middle East energy supplies?
In some ways you could argue that Iran is the most stable of Middle East countries because the pressure cooker has already blown and the country is starting again. It's already very important in the energy world. And Iran is very open to Western companies going there. It wants help. It suffers a bit from the US State Department embargo, but it strikes me that it could become one of the more stable Western allies in the region. It could become a counter-strategy to get more friendly with Iran and build it up as a bastion of stability.
How far is the OPEC strategy of keeping prices between $22-28 a barrel sustainable?
The real difficulty is the bottom end of the target band. Specifically, there are concerns for the second quarter of next year when fuel oil will be in less demand. There's the possibility of an oil glut coming in parallel with a second dip of a recession. Also, Russian companies are aggressively expanding and will take a lot of market share. So for OPEC to hold the bottom end, Saudi Arabia will have to drop production an awful lot and economically it can't do that.
How long will Middle East countries have to sacrifice market share before their long-term dominance kicks in?
A lot of non-OPEC capacity will be brought on stream over the next three-four years, and that will make things difficult for OPEC. Its strategic vice over 20 years is subject to tactical fluctuations and the next three-four years is one of those.
How can oil companies best address these issues?
The most important core competency will be the ability to do deals with the people that control the oil, whether that's in the Middle East, South America, West Africa or the former Soviet Union. For me, that's got to be the priority. And it doesn't just include money, it includes a proposition for technology and being able to mobilise the right people at the right time. Also, they'll have to do projects with significant levels of localisation because that'll be a mitigating factor in who gets the deals.
How easy will it be for companies to participate in nationalised oil markets?
In large parts of the Middle East, the oil is easily accessible, so the supermajors lose their technological edge. Historically, all countries have shown a desire to build their own oil industry after taking expertise from international oil companies. It's exacerbated in the Middle East by the need to find a large amount of local jobs. So there's a trade-off and a balance which is tough to find.
Could it be done through partnerships between international and national oil companies?
I don't think Saudi Aramco, for example, needs help to produce more oil. It's just as likely it would want a partnership with a company like Schlumberger or Halliburton, which have technological skills but aren't direct competitors. Having said that, some companies are making big efforts to develop engineering firms that can help nationals.
How important is local knowledge for companies seeking to gain upstream access?
A company with a culture that is embracing of diversity should be well positioned. When I meet chief executives of big oil companies, the point I'm most impressed by is the knowledge they have of, for example, the Saudi royal family. For a major chief executive, that's a core competency.
Are supermajors or independents better placed to achieve this?
Supermajors can do bigger, more difficult projects. But independents can be very successful too by focusing. The classic example is Anadarko's work in Algeria. It picks a place and gets to know it really well. It's an intelligent play because it can focus its resources and have the same skills, but with accessibility and without the arrogance that is perceived in the supermajors.
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