Global oil demand is rising, U.S. oil production is surging, and oil prices are higher than last year, but it was the oil industries' lack of investments that dominated CERAWeek 2018 by IHS Market this year.
The 37th annual CERAWeek energy conference took place last week in Houston, Texas -- the world capital for energy -- with the participation of some 6,000 government officials, company executives, business people, investors and experts from more than 30 countries.
With oil prices hovering around $60-$65 a barrel and rising oil, natural gas production in the U.S., a lot of smug smiles were seen among the participants.
A second shale revolution is taking place in the U.S. and American shale oil producers are focusing on short-term investments that reap quick yields.
The U.S.' crude oil production last month climbed above 10 million barrels per day (mbpd) to surpass Saudi Arabia, and now ranks second after Russia.
However, the low price environment between 2015-2016 caused many financial constraints for oil and gas companies and negatively impacted their long-term investments.
Although the second shale revolution has paved the way for American producers to take a slice from Saudi and Russian shares in the market, the oil industry still needs long-term investments and deepwater projects to meet the rising global oil demand.
The global oil sector needs around $20 trillion over the next 25 years, Saudi Arabian energy giant Aramco President and CEO Amin Nasser said last Tuesday at the conference.
Due to low oil prices during 2015-2016, the industry lost around $1 trillion, and now needs new production capacity of 20 mbpd in the next five years, according to Nasser.
International Energy Agency (IEA) Executive Director Fatih Birol emphasized last Monday that the level of investment in the global oil market remains low and said it needs to increase.
He noted that more than 10,000 oil fields across the world saw production declines between 2000 and 2017.
'We lose 3 mbpd each year because of decline in fields. The oil industry needs to replace one North Sea every year. Production growth is not only needed to meet the oil demand, but it needs to replace one North Sea each year,' he said.
'Are we seeing enough investments? Absolutely not,' he underlined.
Birol noted that due to low oil prices there was a huge decline in upstream investments during 2015 and 2016. The level of investment remained flat in 2017 and is expected to rise only 6 percent in 2018 year-over-year.
He explained that one of the main reasons for the level of investments remaining low is due to the fact that investments are more focused on short-term projects.
In last year's conference, Birol warned that crude oil prices could rise sharply by 2020 due to falling investment in new oil projects.
'In 2016, there were $450 billion of oil investments. This is 25 percent below the previous year. Investment must increase at least 20 percent every year to compensate for demand growth,' Birol said.
'In 2017, if we don't see a substantial increase, the market tightens after 2020. Spare production capacity shrinks to historically low levels ... World crude stocks are in decline. With OPEC’s plan, stocks will continue to withdraw,' he said last year.
- OPEC calls for further cooperation
Meanwhile, the cartel is sticking to its production cut agreement until the end of 2018. It called for further cooperation between oil producing countries to maintain sustained levels of production and stability in prices.
OPEC Secretary General Mohammad Sanusi Barkindo noted last Tuesday that 24 oil producing countries have participated in the Declaration of Cooperation, which was signed at the end of 2016 to curb the output of oil producing countries in order to raise oil prices.
'All countries and sectors have to come together. We cannot continue to walk in isolation. We have to work together to maintain sustainability,' he said.
In November 2014, OPEC's biggest producer and most influential member Saudi Arabia refused to cut its own output and the cartel's, letting oil prices drop to their lowest levels in 13 years at the beginning of 2016. Most actors saw this as an attempt to push high-cost shale producers out of the global oil market.
However, during last year's CERAWeek, Barkindo said 'We, in OPEC, never had a war with U.S. shale,' adding that the cartel met with shale oil producers in the U.S. to share experiences and managerial expertise in a low price environment.
This year, Barkindo stated that the dialogue between OPEC and American shale producers is continuing. 'We were happy to break the ice last year. It is in our interest to continue dialogue, to learn experiences from them, to survive this cycle ... We are selling to the same market, and every producer is needed to meet future demand,' he said.
- Against antitrust laws
Although OPEC's so-called dialogue was an attempt to send a conciliatory message to the market, any cooperation with American shale companies is actually considered against U.S. antitrust laws.
No U.S.-incorporated oil firm is able to form an agreement with OPEC under any setting, nor with any foreign government and their representatives, in accordance with U.S.' laws and regulations.
Such activities, or any hint of those activities, would draw the attention of the U.S. Department of Justice and Federal Trade Commission, which can then start investigations or impose large fines.
In November 2016, OPEC agreed to cut its production for the first time in eight years. Moreover, it cooperated with Russia, who supported such a decision for the first time since 2001.
Nevertheless, it is still unclear whether Saudi Arabia and Russia will extend the output cut deal beyond the end of this year, or gradually return to their previous output levels before the agreement.
- Saudi oil minister was in London
Neither the Saudi Minister of Energy, Industry and Mineral Resources Khalid Al-Falih, nor Russian Energy Minister Alexander Novak was present at this year's CERAWeek conference.
Novak was mistakenly reported in February to have met with his Saudi counterpart on the sidelines of CERAWeek, but Al-Falih had accompanied Saudi Crown Prince Mohammad bin Salman during his visit to London.
Al-Falih did not provide any clear signals over the extension of the production cut deal. However, he is believed to have discussed Saudi Aramco's initial public offering (IPO) that was expected to occur this year but has now been delayed until next year.
The Financial Times reported Sunday that British officials consider that any foreign floatation of Aramco, apart from the Saudi exchange Tadawul, is likely to occur in 2019 at the earliest.
By Ovunc Kutlu in Houston
Anadolu Agency
ovunc.kutlu@aa.com.tr