DAVOS // With global energy demand undented by the financial crisis, the top priority for consumers and exporters should be creating conditions that allow oil producers to keep up, a group of petroleum executives said yesterday. "There is too much rhetoric about moving away from oil, about independence in energy by many nations that is unachievable and misleading," said Khalid al Falih, the president and chief executive of Saudi Aramco, the world's largest producer and exporter of crude.
"Energy security should be addressed in the framework of interdependence. That needs to be acknowledged, as well as the fact that we will be relying on fossil fuels and petroleum for the long term," he said here at the annual meeting of the World Economic Forum. While executives agreed on the need to promote investment in new supplies of oil and alternative sources of energy, they were divided on whether the world was close to reaching "peak oil", a point when existing supplies begin declining faster than new supplies can be developed to replace them.
The rapid rise of China and other developing economies is offsetting the slowing growth in oil demand from developed economies, ensuring that oil and gas will remain a vital part of the world's energy mix, they said. "Demand projections today are no different than what they were 18 months ago," said Tony Hayward, the group chief executive of BP, the US$361 billion (Dh1.32 trillion) British oil company. Mr Hayward said BP was projecting a 40 per cent increase in energy demand over the next 20 years.
Oil is also likely to remain the key source of power for global transport despite strides in developing alternative fuels for cars and buses, Mr al Falih said. As demand rises, producers and consumers need to find better ways to reduce the kind of price volatility seen in 2008, an instability that discourages investment in exploration among big consumers, said Peter Voser, the chief executive of Royal Dutch Shell, which produces 2 per cent of the world's oil and 3 per cent of its natural gas. "We saw what volatility could do to an economy in 2008," said Mr Voser. As a result, he said, "there is a greater willingness to engage in that process to reduce volatility".
While some analysts believe peak oil might already have been reached, Mr al Falih said there was little danger that producers would not be able to keep pace with the depletion of current supplies. Saudi Aramco, he said, had maintained 1.5 million barrels per day as a buffer against supply disruptions, a reserve that he said had grown to 4 million barrels as the global downturn had reduced oil consumption. Moreover, one third of Saudi Aramco's production capacity is idle and could be reactivated on short notice, Mr al Falih said. "We have a long list of projects in our portfolio that will offset that projected decline," he said.
Executives also pointed to the re-emergence of Iraq in global oil markets as a significant new source of supply. Mr Hayward said BP was redeveloping an Iraqi field, first discovered in 1953, that is projected to deliver 3 million barrels per day (bpd) of oil, helping to push Iraq's production to what he predicted would be 10 million bpd by 2020. Saudi Aramco and Shell both continued to invest in new production despite the global recession, and the resurgence in oil prices had made it more economical to do so, said Ilham Aliyev, the president of Azerbaijan.
Some executives, however, believe peak oil has merely been pushed back by the crisis and that the continued depletion of more accessible reserves will eventually surpass the ability of the industry to exploit newer reserves that are more difficult and expensive to reach. Thierry Desmarest, the chairman of Total, the French oil and gas company, predicted that it would be difficult for the industry to produce more than 95 million bpd, a roughly 13 per cent increase from what it produces today.
Mr Hayward projected that to keep up with the depletion of existing fields, oil producers would need to develop new sources equivalent to four times what Saudi Arabia produces today. Faced with such a challenge, executives said, the industry would need to invest heavily in new technologies to improve efficiency and enable it to economically exploit new reserves. Natural gas will also assume a much larger role in energy supply, they said. "The potential impact of gas on the world is underestimated," Mr Voser said. Not only is gas cleaner than burning oil or coal, but it is still in relative abundance. "That's where we should push," he said.