By Christopher Noble –
Officials at Davos look at supply picture on eve of OPEC
DAVOS, Switzerland (MarketWatch) – Oil industry leaders on Friday touted their ability to meet world oil demand in the coming years, saying that despite widespread fear of a supply disruption, no customer had missed a delivery because of instability in the Middle East, attacks in Iraq or other factors.
But a panel of experts speaking during the annual meeting of the World Economic Forum said even though there was plenty of capacity and good distribution right now, there was no guarantee for the future.
“There isn’t a barrel that was promised to a customer at a date certain anywhere in the world that was not delivered,” said Abdallah Jum’ah, chief executive of Saudi Aramco, the world’s biggest oil company. He said this reliability had been maintained for over two decades throughout two Gulf wars and the Iran-Iraq war.
Thierry Desmarest, chief executive of Total SA, another leading oil company, echoed Jum’ah’s comments.
“Everyone is concerned about oil and gas supplies, but none of our customers has suffered an interruption,” Desmarest said.
Others on the panel pointed out that the amount of oil available was not the only factor determining whether oil supplies were stable.
“The concern here is not about the amount of oil we have,” said Armen Sarkisssian, president of think tank Eurasia House International. “You can have all this capacity … but God forbid something happens in your country.”
The comments were made against a background of nervousness in the oil markets ahead of this weekend’s meeting of the Organization of Petroleum Exporting Countries (OPEC), and elections in Iraq.
Concerns about the reliability of the world oil supply, fueled by the war in Iraq and worries that instability could spread in the region, are part of the reason that oil prices have risen some 14 percent so far this year, after a 30 percent increase last year. The price of oil was hovering around $48 per barrel on Friday.
Other major reasons for the rise in oil prices include the cold winter in the northern hemisphere and the lack of extra refining capacity, which many believe leaves the world vulnerable to attacks or other disruptions that could suddenly cut supply.
Desmarest pointed out that while the world is estimated to have about 40 years of oil reserves, future growth of the oil supply would almost certainly slow.
“The number of areas which are not being worked yet and where you can make huge discoveries is clearly far more restricted than 30 years ago,” he told the panel.
Revenue sharing key to supply security
To cut the risks to the oil supply, governments, oil companies and civil society groups need to work together to ensure that oil producing regions benefit from the wealth created by oil flows, Desmarest said.
When the local population feels that it is sharing in the wealth, it is less likely to disrupt supplies, said Ngozi Okonjo-Iweala, finance minister of Nigeria.
She said one effort along these lines could be found in efforts by countries around the Gulf of Guinea in West Africa to form a group to figure out how to develop offshore supplies and ensure steady supplies and fair distribution of revenues.
Okonjo-Iweala said that problems, such as poverty, ethnic strife and supply disruptions that were common in the oil producing regions of Nigeria would less be severe if more attention had been paid by past Nigerian governments to ensuring a fair distribution of oil wealth.
The Nigerian minister said that for under developed countries, large oil reserves were a double-edged sword.
“All the focus on oil in my country has really been very damaging,” she said. “It has led to corruption.”
She noted that she would not be sorry if a major oil discovery were made in Nigeria, but added that managing the cyclical nature of oil revenue had posed major problems for her country. She said the country was working on ways to diversify its economy and lessen the economic impact of oil price fluctuations.
Christopher Noble is a reporter for MarketWatch in San Francisco.