Hydrocarbons - the end or a new beginning?
The future of hydrocarbons and oil prices are discussed at the St. Petersburg International Economic Forum

At the beginning of June, the leaders of the world’s major energy producers met at the St. Petersburg International Economic Forum to discuss the outlook for the energy industry. Despite the "decarbonization" of the economy, environmental concerns and the development of renewables, there is still some scope for traditional energy sectors such as oil and gas. But the question arises: Have these sectors already stretched beyond their peak consumption levels, and are they doomed to slowly die out? The subject was discussed by Saudi Aramco, BP, Shell, Total, OPEC and the energy ministers of various countries alongside many energy experts. Their answer, for the time being at least, was all but unanimous: while hydrocarbons will slowly give way to renewables, absolute figures will continue to rise and won’t peak until 2040, perhaps not even until 2050, with gas peaking still further into the future.

Oil still plays a major role

"We believe that oil and gas will be with us for a very long time to come," stressed Khalid A. Al-Falih, Saudi Arabia’s Minister of Energy, Industry and Mineral Resources and Chief Executive Officer and President of the country’s state-owned oil company Saudi Aramco.  But the resources, albeit slowly, will eventually run out, which is why all the companies in the industry are looking at new solutions.  "Saudi Arabia might be seen as a resource-rich developing economy, but we are also striving to move ahead on innovation. Some investments have been made by our public investment funds, and in Saudi Arabia we are investing a lot in innovation, research and development in order to build a future that is based not just on the energy sector but also on new technologies that can speed up diversification. For instance, we will be able to exploit a number of opportunities, such as gas, throughout the world and in Russia. And we will also invest in renewable energy sources and electricity generation," continued Khalid A. Al-Falih.  "We have a tendency to forget that petroleum is increasingly being employed in the petrochemical sector for the production of consumer goods. Nine out of ten goods are currently manufactured with petrochemical products. And while at the moment the petrochemical industry uses 11 million barrels of oil, according to the most modest forecasts, in 15 years’ time that figure will go up to 17 million barrels," noted Russia's Minister of Energy Alexander Novak. "Ours is an industry of the future because society needs it, so we will continue to invest in it," said Ben van Beurden, CEO of Royal Dutch Shell. And he is not wrong, but as Igor Sechin, CEO of Rosneft, pointed out, investments in exploration and production dropped in 2016 and only began to recover slightly in 2017.

Prices and the OPEC-non OPEC agreement

In the fall of 2016, thanks to oil production agreements between OPEC and non-OPEC countries, the price of oil stabilized at above $50 a barrel. This greatly benefits major oil producing countries, including Russia. But in the Russian budget for 2017 the price parameter for Brent crude was set at $40 a barrel, a conservative estimate according to some analysts. Igor Sechin, however, believes that we should not expect “the truce” (i.e. the agreement between OPEC and non-OPEC countries) to last very long and that, in the long term, price stability will not be achieved. Some countries outside the agreement, for instance, are taking advantage of this, seeing it as an opportunity to boost their production quotas. Shale oil producers in the United States, for example, have become exporters at the rate of 1.3 million barrels a day. In May, U.S. production hit a record level over the previous 21 months, with some 9.3 million barrels a day. But some OPEC countries, too, have done just the same: Nigeria, for example, raised its production by 100 thousand barrels a day, and Libya by 210 thousand barrels a day.  As some experts have pointed out (according to an assessment delivered by Sechin during the energy session of the Forum), in May, OPEC production exceeded the production quotas of 450 thousand barrels a day set in November 2016. Hence, Sechin concluded, oil prices will remain low for a long time to come - with some analysts estimating a price of $40-$50, and others as low as $30 a barrel. "But if the price of oil at $40 a barrel lasts for any length of time," Rosneft’s CEO pointed out, "half the world’s production, in countries such as Brazil and Canada, will be sold at a loss, while only Russia, Saudi Arabia, Iran, and a number of efficient U.S. projects will be able to sustain the pressure. However," he concluded, "this will not bring any significant benefits to consumers."

Ever-growing energy demand

There have been noticeable signs of an almost global economic recovery this year, with greater demand for energy at lower prices. Experts are thus asking themselves whether the prices of renewables will be competitive. They certainly were at one time, that is, when oil prices were above $100 a barrel, and indeed these high oil prices were instrumental in ‘kick-starting’ the renewables industry. But what about now? In recent years the role of state-owned companies has been growing worldwide. Companies such as Saudi Aramco, Gazprom, NIOC, CNPC, Rosneft and Qatar Petroleum have developed the necessary exploration experience, including in difficult projects, and are boosting their market shares not only in their respective countries but also beyond their borders. Meanwhile, the oil majors are slowly losing their leading positions. "As a commercial company we have to make commercial investments, and no doubt the same is true for Total and Shell. We have flexible strategies," said Robert Dudley, CEO of BP.  And through their flexibility these companies are striving to be increasingly competitive. As Igor Sechin noted, however: "Today, the key players are poised to increase production, making competition for markets even fiercer. We must realize," he said, "that if the aim is to achieve long term stability in the industry, all the major producers must participate in the regulation of production."