Every three years since 1933, barring a brief hiatus during hostilities of World War II, the great and good of the oil and gas business have been holding their triennial jamboree – the World Petroleum Congress (WPC) – often dubbed the ‘Olympics of the Oil and Gas business’ by analysts.
In recent decades, it has on average drawn 6,000 delegates, 500 chief executive officers, 50 ministers and heads of state, under one roof, along with the World Petroleum Exhibition; one of the largest strategic oil and gas expos in the world.
The bidding process for hosting it is hotly contested among cities. The city of Istanbul, host of the recently concluded 22nd WPC, put on quite a show having taken over the mantle from Moscow, Russia and passing it on to Houston, USA for the 2020 round.
Since 1991, the WPC has also been awarding Dewhurst Award, named after Thomas Dewhurst, president of the Institute of Petroleum in the UK, who organised, back in 1933, an event that was to eventually become the first WPC.
In Istanbul, US Secretary of State Rex Tillerson, formerly the boss of ExxonMobil, became only the tenth recipient of the Dewhurst Award in the history of the WPC.
However, behind the razzmatazz, pomp and ceremony, the industry itself is staring at some profound questions and stubbornly low oil prices. Something about the 2017 WPC felt different to your correspondent compared to Doha (2011) and Moscow (2014) rounds, which one also had the privilege of reporting from.
Back in 2011, the oil price per barrel was rapidly escalating to the $100-plus mark with the global economy in recovery mode from the financial crisis. In 2014, the effects of oil oversupply were being felt, but a slump – while on the horizon – had not quite set in.
Fast forward to 2017, and everyone in the industry is talking about a ‘lower for longer’ oil price, with a slump well and truly entrenched. In January, the oil price fell below $30, that’s despite coordinated production cuts of 1.8 million barrels per day (bpd) by Opec and 11 non-Opec producers the previous year.
Spooked by sub-$30 prices, the cut was subsequently extended by both parties beyond June to March 2018, but both Brent – considered the global proxy benchmark – and the West Texas Intermediate (WTI) continue to languish in $40-50 range, despite Opec members’ compliance with the output reductions running as high as 106%.
Reason – the rising rate of US oil production, which has made America the world’s buffer producer, even though Saudi Arabia still remains the only global swing producer in a classic sense. However, what rising American production has done done is neuter the geopolitical premium associated with the oil price for decades, and even shift global geopolitics.
You know change is in the air when India, a major consumer, announced at the WPC that it was importing its first consignment of crude oil from the US, which, until the 2015 lifting of an embargo on oil exports that had been in place since 1975, was pretty much unthinkable. However, with US production on course to exceed 10 million bpd in 2018, they have a bit to spare and more and the market can expect more of this.
More so at a time when Saudi Arabia, and its allies Bahrain, United Arab Emirates, Yemen and Egypt have slapped economic sanctions on Qatar for “supporting terrorism.” For its part, Doha is pursuing hardship costs and economic compensation against the aforementioned complicating regional geopolitics further.
So beyond the music and celebratory dinners were some pragmatic soundbites in Istanbul. For instance, top financiers said people hoping for a medium-term oil price of $70-80 were living in a ‘fantasy land’.
In an exclusive interview with IBTimes UK, Bob Dudley, group chief executive of oil and gas giant BP, the world’s tenth-largest company by revenue, said his company was gearing up for a $30 per barrel break-even.
“I think we’ll all look back in history and think the period of three years [prior to 2014] at $100 per barrel or above was an aberration. It does feel that the market is getting back to a more normal range.”
Delegates were also urged to switch their focus from supply to demand, with announcements aplenty about the rise of electric vehicles (EVs). For instance, Volvo’s announcement about only producing hybrid or EVs from 2019, or the French government’s decision to stop sales of all petrol cars by 2040.
The International Energy Agency’s executive director Dr Fatih Birol had some choice words. On the demand side, Birol cautioned that he sees a greater role in the future for electric cars than today.
“However, that has to be taken in a much wider context and we need to temper our excitement. In 2016, we had 2 million electric cars in the world, that’s less than 1% of total global car sales.”
Birol said even if one in every two cars is electrical, global oil demand growth – currently averaging 1.2–1.3 million bpd per annum, will continue to grow.
“That’s because the primary demand drivers of oil consumption, contrary to popular perception, are not cars. Bulk of the demand comes from trucks, aviation and petrochemical manufacturers, so it is too simplistic to assume ‘peak demand’ for oil in a matter of years and tie it in to the growth of EVs.”
Birol also said arrival of more US shale oil barrels on the global marketplace was inevitable.
Royal Dutch Shell’s chief executive officer Ben van Beurden said “too often” energy transition is considered from the perspective of the European or North American end-users, and that not everybody would discover their low-carbon Alamo at the same pace.
But it wasn’t just ‘crude’ affairs that dominated the agenda. Searching questions were asked about how to attract young recruits and top female talent to the industry, something it has struggled with historically.
Paradoxically, the low oil price environment was also seen as putting off top talent. One delegate bluntly asked: “Would you join an industry perceived to be in decline and not exactly in hiring mode?”
Research conducted by the likes of Accenture and EY found the answer to be ‘no’, with a number of graduates polled by them opting to work for technology companies instead of going down the energy sector corridor.
As for the lack of top female talent in the oil and gas sector, one delegate urged your correspondent to take a long hard look around the WPC floor. “A number of women have made it to the top in the industry, are here and serve as role models. But look around you, almost everyone else around, including majority of the discussion panels is made up of middle-aged men.”
Also add politics of incumbent US President Donald Trump, complications caused by Brexit and perceived lower take-up of barrels by China to the long list of worries.
With such pressing concerns, complicated geopolitical tussles and a medium-term supply-demand paradigm shift, it seems the hangover from the latest WPC will last a while with the industry’s complacent binge from the boom years fading away. Yet, there is an unassailable truth here – the hangover cure must also come from within, and its imperative that it does.