International oil companies have little choice but to make long term investments to meet an expected 40 per cent rise in global energy demand by 2040, regardless of global trade frictions and supply challenges brought by US economic sanctions against Russia and Iran, according to BP chief executive Bob Dudley.
Continuing oilfield investment was the best way to avoid future energy shortages, with energy demand growth likely to continue unabated even as the Trump administration continues with its anti-globalisation push, he said.
“With or without these [geopolitical events], whether you say it will be 30 or 40 per cent more energy required by the world by 2040, which is equivalent to that of another China or Europe Union, the world is going to need all forms of energy and we will need to invest,” he said.
“We are in uncharted territory, but when you put sanctions and tariffs in the world people will respond and figure out ways to get around them,” Dudley said. “Oil demand will remain … I don’t think this will cause a recession.”
Jefferies’ analysts Laban Yu and Patrick Yuan said the recent exchange of trade tariffs between the US and China is unlikely to trigger a slowdown in economic activity.
“Many [of our] clients were operating on the assumption that an eleventh-hour deal will be struck, given President Trump's style,” they wrote in a note on Tuesday. “This is a game of chicken where the worst case scenario is a modest flesh wound rather than a nuclear immolation.”
Dudley was speaking on Wednesday at the Organisation of Petroleum Exporting Countries (OPEC) seminar in Vienna, ahead of Friday’s ministerial meetings among the 24 major oil producing nations on whether to ease a joint supply cut clinched in late 2016.
Meanwhile, the head of French energy producer Total said geopolitical upheavals are having a direct impact upon their investment plans, including their commitment to to develop what would be one of the world’s largest natural gas fields in Iran.
“The US could decide that I could not have access to any US financing,” Total chief executive Patrick Pouyanne told CNBC. “It’s impossible, let me be clear, to run an international company like Total without having access to US financing or to US shareholding.”
Iran’s petroleum minister Bijan Zanganeh told the seminar in Vienna that the Trump administration’s May 8 withdrawal from the international Iran deal, and the reimposition of sanctions, was a major contributor to higher oil prices that Trump has blamed on OPEC in a recent Tweet.
“The real responsibility for the current high oil price lies with the US President himself, you can’t have your cake and eat it too,” he said. Iran is the world’s sixth largest oil exporter.
Besides Iran, The US in April also imposed sanctions on seven Russian oligarchs and 12 companies they own or control. Russia is the world’s second-largest oil exporter.
Despite geopolitical challenges, Prince Abdulaziz bin Salman Al Saud, Saudi Arabia’s minister of state for energy affairs, said the kingdom will stick to a concept of “elastic sensibility” to find the right balance to support the economies of oil-reliant producer nations and allow emerging economies to keep growing.
Meanwhile, India’s minister of petroleum and natural gas Shri Pradhan said current high oil prices “will lead to energy poverty in many parts of the world” and called on the largest producer nations to “move to responsible pricing”.
The plea was rejected by Oman’s minister of oil and gas Mohammed Al-Rumhy, who said the 24 large oil producers should not roll back the output cuts they agreed on in 2016. Oman, the largest non-OPEC Middle East producer, wants oil prices to stay high, as the nation faces rising borrowing costs after rating agency Moody’s cut its debt rating, forecasting that its fiscal debt will rise above 60 per cent of gross domestic product by 2021 from 40.5 per cent last year.”
“We [also] have economies to look after … there was no noise coming from India when the price was US$40 a barrel, no Tweet from Washington or [comment] from China either,” he said.
China’s Li Ye, executive director general of the National Energy Administration, a government body that helps set policy on energy development, declined to comment on Beijing’s stance on oil prices and the possibility of teaming up with India to buy US oil to counter OPEC’s dominance as reported by India media.
Bank of America Merrill Lynch said in a report last week that OPEC is likely to announce an output increase after Friday’s meeting. The move, BofAML said, will target a “modest deficit” in global supply, which would support their forecast of a rise in the average price of the Brent oil benchmark from US$54 a barrel last year to US$70 this year and US$75 in 2019.
They expect production increases to be led by Russia, Saudi Arabia, United Arab Emirates and Kuwait through the end of next year to add up to 1.2 million barrels of supply per day, helping offset any drop in output by sanctioned-hit Iran and the crisis-hit Venezuela.
The US, the biggest supplier of additional barrels to the world, could see output jump to 15 million barrels a day in six to seven years from 10.7 million barrels currently thanks to advancements in drilling technology, said Scott Sheffield, chairman of Texas-based oil producer Pioneer Natural Resources.
The US is poised to overtake Russia as the world’s largest oil producer by next year, according to the International Energy Agency that represents 30 consumer nations.
The Brent oil price, trading at around US$74.5 per barrel, has risen by close to 66 per cent in the past 12 months, and by 150 per cent from its low of just under US$30 a barrel in early 2016, after 24 major OPEC and non-OPEC producers committed to cut supply by around 1.8 million barrels a day in a market forecast by IEA to average 99.2 million barrels a day this year.
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