Saudi Aramco chief executive Amin Nasser and BP group chief executive Bob Dudley shared the stage during the International Petroleum Week conference in London in February.
The two agreed on about almost everything. The world still needs hydrocarbons, and gas in particular. But climate change must be addressed and energy firms should invest in renewables.
Peak oil demand
There was a time when national oil companies (NOCs) and international oil companies (IOCs) were rivals. But not now. They are increasingly aligned as pressure to cut carbon dioxide emissions intensifies in the knowledge that the moment will come when oil demand will start to decline.
Dudley noted that oil demand this year will be about 100 million barrels a day (b/d). The US, Russia and Saudi Arabia will account for almost one-third of that. They also control most of the world’s spare production capacity.
Logic suggests the big three should collaborate to create the environment necessary to attract the investment the oil and gas sector needs. Instead, sanctions on Iran and Venezuela have introduced a fresh element of instability into a market that has been on a rollercoaster for a decade.
Prompted by US President Donald Trump, Saudi Arabia lifted output in the autumn and helped push prices down by 30 per cent by the end of the year. Since then, the output of oil producers’ group Opec has been cut and fell in February to just over 30 million b/d, its lowest level for five years.
The result is that prices are more than one third higher than they were at the start of 2019. Volatility and the uncertainty it creates are deterring private investment. Meanwhile, market sentiment is turning structurally against hydrocarbons.
At the start of March, Norway announced its trillion-dollar sovereign wealth fund would no longer buy shares in oil and gas explorers. Other long-term investors sensitive to climate change concerns and anticipating lower oil consumption are likely to follow its lead.
Opec is the sole major body working to stabilise oil, but it too is under attack. Legislation that would make it illegal under US law for foreign nations to limit oil supplies and set prices is gathering support in the US Congress.
It has been criticised by Opec and, less predictably, by leaders of IOCs including BP’s Dudley. But it is possible that the US administration might be tempted to let it become law.
There has never been a time when so many have agreed what the oil industry’s priorities should be. As Dudley and Amin concurred, there is an agenda that both IOCs and NOCs can support. But it cannot work as long as governments – particularly that of the US – put politics above economics and common sense.
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