the energy industry

8/3/2019 The Energy Industry

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The Energy Industry

Week 9

The Oil and Gas Industry


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Globalisation in the Energy Industry

The worlds energy market is becoming more

integrated through consolidations, mergers,acquisitions and strategic alliances.

Oil and gas companies are becoming electricitycompanies; domestic regional utilities are

becoming multinational electricity companies;

electricity distribution companies are becominggenerators; generation companies have become

distribution companies.


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The Oil and Gas Industry

Oil is the world's most actively traded commodity.

An important characteristic of the oil and gas

industry is the fast international supply chain

harmonisation.

The industry is leading the globalisation processes,

catalysed by a number of large and growing

international oil companies.

It is important to note that there is only a few, largecompanies which are the major active players in

the oil industry.


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Role of Oil

World Energy Council argues that oil will continue to be the

dominant marginal fuel in energy markets for many decades tocome.

Othersynthetic fuels, such as liquids from coal, will

increasingly play an important role but is far from replacing oil.

Without the stimulus ofhigher real energy prices, efficiency

improvements in energy production cannot be sustained.

New developments in energy sources may mean higher cost,

prices and less competition in the short-run.


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Globalisation An important characteristic of the oil and gas

industry is the fast international supply chainharmonisation

Similar globalisation processes have been adoptedamong the oil and gas service industry where a few

very large management and service companies areoffering truly global capabilities, delivered locallythough offices wherever there is an active oil

industry. This globalisation trend is extending to anincreasing number ofsubcontractors and nicheservice companies.


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Key Factors in Sustained Energy Development

The prospects for global economic growth and

investment

Improved energy accessibility for the poor

Security of supply

Emissions resulting from energy production and use

These issues are interlinked, and actions to address

them will drive the energy sector for many years to

come


7/18

Organization of the Petroleum Exporting: OPEC The OPEC is a permanent, intergovernmental organisation,

created at the Baghdad Conference in 1960, by Iran, Iraq,Kuwait, Saudi Arabia and Venezuela. (Now: Office is locatedin Geneva)

The OPEC Conference of Ministers meets in ordinary sessiontwice a year, and is responsible for the formulation of the

general policy of the organisation.

Organization of Petroleum Exporting Countries (OPEC)members include Algeria, Indonesia, Iran, Iraq, Kuwait, Libya,

Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, andVenezuela.

OPEC's eleven members collectively supply about 41 per centof the world's oil output, and possess more than three-quarters

of the world's total proven crude oil reserves.
http://www.eia.doe.gov/emeu/cabs/algeria.htmlhttp://www.eia.doe.gov/emeu/cabs/indonesa.htmlhttp://www.eia.doe.gov/emeu/cabs/iran.htmlhttp://www.eia.doe.gov/emeu/cabs/iraq.htmlhttp://www.eia.doe.gov/emeu/cabs/kuwait.htmlhttp://www.eia.doe.gov/emeu/cabs/libya.htmlhttp://www.eia.doe.gov/emeu/cabs/nigeria.htmlhttp://www.eia.doe.gov/emeu/cabs/qatar.htmlhttp://www.eia.doe.gov/emeu/cabs/saudi.htmlhttp://www.eia.doe.gov/emeu/cabs/uae.htmlhttp://www.eia.doe.gov/emeu/cabs/venez.htmlhttp://www.eia.doe.gov/emeu/cabs/venez.htmlhttp://www.eia.doe.gov/emeu/cabs/uae.htmlhttp://www.eia.doe.gov/emeu/cabs/saudi.htmlhttp://www.eia.doe.gov/emeu/cabs/qatar.htmlhttp://www.eia.doe.gov/emeu/cabs/nigeria.htmlhttp://www.eia.doe.gov/emeu/cabs/libya.htmlhttp://www.eia.doe.gov/emeu/cabs/kuwait.htmlhttp://www.eia.doe.gov/emeu/cabs/iraq.htmlhttp://www.eia.doe.gov/emeu/cabs/iran.htmlhttp://www.eia.doe.gov/emeu/cabs/indonesa.htmlhttp://www.eia.doe.gov/emeu/cabs/algeria.html


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Oil Reserves According to the OPEC Annual Statistical Bulletin 2001,

the world proven crude oil reserves stood at 1,074,850million barrels, of which 78.7 per cent, was in OPEC

Member Countries.

Saudi Arabia (262,697 million barrels) Iraq (112,500)

Iran (99,080) United Arab Emirates (97,800) Kuwait (96,500)

According to OPEC's Annual Statistical Bulletin 2002,

the countries that produced the most oil included Saudi Arabia (7.889 million barrels per day) Russia (6.730) United States (5.801) Iran (3.572)

China (3.297)


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Seven Sisters "We have formed a very exclusive club ... And we are now

united. We are making history."

Seven Sisters : Exxon (Esso), Shell, BP (privatized since1979), Mobil, Chevron, Gulf, Texaco

Changes: Mega Mergers

Gulf Oil no longer exists (acquired by Chevron in 1984),Amoco (Standard of Indiana) was added to the list of six.

But in 1998, Amoco was acquired by BP to form BP Amoco. Exxon acquired Mobil; and Chevron and Texaco merged in

2001-2002.

The Seven Sisters are now the Four Sisters. This represents an expansion of power and influence that is

concentrated in less hands, as oil companies have sought toconsolidate their interests because of economic concerns.


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11/18

Oil Suppliers: Recent Development

OPECs daily supply exceeds that 27 million

quota by 1.7 million barrel per day (b/d) (BBCNews 10th Dec 2004).

This excess supply led to a fall in oil pricesfrom an all time high of $55 to $43.1 in NY.

Yet, price is high due to increased demand inUS and China.


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15/18

Harmonising Demand and Supply

There is a need to solve any imbalance between

demand and supply to ensure that distributionwill be more efficient.

On the other extreme, there may be moreregulations and confrontations.

Anxious government will have to decide how toapportion energy supply.

Decisions on how much access to the resource

rich areas may lead to geopolitical competitionand conflicts.

DEGLOBALISATION!!!!


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Role of Saudi Arabia

Saudi Arabia plays a crucial role in the

determination of OPEC oil prices.

Supply 10% of the global oil market.

Regulates supply to maintain price within theband of$22-28 a barrel.

Will not remain a passive observer if Russiaincreases output and drives down prices toacquire a higher marker share.


17/18

Dynamics in the Oil Market

1985: oils prices collapsed (An explosion in Colombian pipeline and a strike in Nigeria

caused an over-reaction by OPEC over-production whencompensating)

1990: Iraq invasion of Kuwait OPEC had spare capacity of 5.5 million b/d (8% of world demand)

Increased output to stabilise prices

2000: OPEC spare capacity fell to 2% of global demand

Currently: oil prices reflect shortages (Instabilities)

Oil companies have to be ready for sudden changes in the market. Major international producers need to corporate with OPEC to

bring price stability.

Concerns about Russian supply (Oil Giant Yukos: one fifth ofcountrys output): tax dispute with government.

Threats


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Threats Increasing world trade strengthens the interdependence

between consumer countries and the main producers in theMiddle East and Russia.

This will increase the world's vulnerability to supplydisruptions. E.g. large consuming countries, including China and India, are

growing increasingly dependent on imports from an ever-smallergroup of distant producer countries, some of them politicallyunstable.

Worse case scenario: Wells or pipelines could be closed ortankers blocked by piracy, terrorist attacks or accidents.

Nigerian economy: The over dependence of the countryon crude oil has more frequently exposed the economy toshocks and stress leading to policy inconsistency due to

the volatility of the prices of crude oil in the internationalmarket

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