Global Oil & Gas: A Libyan Perspective

Jan. 17, 2011 - PRLog -- With the eyes of the world on the dramatic events in Tunisia,

we start this week with an analysis of the global oil and gas scene from its eastern neighbor, Libya,

specifically Dr. Shokri Ghanem, chairman of Libya’s National Oil Corporation (NOC).

Director of OPEC’s research division from 1993 to 2001,

Ghanem also led the organization’s secretariat for three years.

He then returned to Libya, where he was prime minister before returning to the energy sector,

where he has been, in one role or another, since joining the Ministry of Petroleum in 1968.

In this interview, he discusses, among other topics,
•   the future of energy pricing,
•   the relation between oil and natural gas,
•   the operation of national oil companies, and
•   their changing relationship with the international oil majors.

Q: How do you view the fundamentals of the oil market, given the recent volatility in prices?
Ghanem: As you say, the price has been very volatile over the last couple of years—it hit a high of $147 in July 2008 and it has been as low as $30 during the [recent] global economic crisis.
Today, the short-term price level is less about fundamentals—though supply and demand obviously play a part—
and more about issues like politics, the threat of terrorism, speculation, the price of other commodities, and the dollar–euro exchange rate.
For these reasons, it is hard to predict the immediate future, but I think the price is likely to stay in the $60 to $80 range, probably near the top or just above, after which I can see it back over $100.
True, there is excess capacity at the moment, thanks to the economic crisis—demand has been falling in many countries, particularly for gas—but there are offsetting factors.
China has many needs, notably in the transportation sector, and India and other emerging markets are also increasing their demand.
The role of renewables, biofuels, hydroelectric, and other alternatives is limited.
And though wind and solar may be the future, there is as yet no breakthrough to make them cost effective.
Q: The gas market has been through even bigger peaks and troughs. How do you see the outlook for gas?
Ghanem: With the fall in the spot price from $16.00 per BTU to $2.50 to $3.00—currently around $4.00—
I think we have entered a new era.
It is not just that demand for gas has fallen, and by as much as 12 percent in some countries.
In the United States, discoveries of shale gas have had a knock-on effect on the rest of the world.
Qatar has opened a number of regasifying plants in Europe and is increasing its LNG capacity by buying new ships.
All this has served to depress prices, and it will be some time before we see $16 again.
Gas, of course, is a potential substitute in power plants and has certain limited uses in transportation, on top of the familiar household demand.
The spot price, moreover, only represents 15 percent of the market, and long-term contracts are still, to some extent, pegged to oil.
However, I think we can expect more decoupling from oil prices in future.
Q: What other big discontinuities do you see ahead—either on the political or corporate front—that will affect oil exploration?
Ghanem: Well, I’m not expecting big discoveries, new fields with reserves of 10 billion to 20 billion barrels.
I think the big fish have already been caught.
There will be other, smaller finds that could enable the world to produce more than 100 million barrels a day in the future.
The threat of political embargoes is creating a lot of uncertainty:
we don’t know what’s going to happen with the Middle East conflict, in the Gulf, or in Iran.
It will be a catastrophe if Iran is attacked.
Q: Do you see the role of OPEC or the composition of its membership changing?
Ghanem: OPEC has been misunderstood since its inception:
it used to be called a cartel, but in fact it is a group of competing nations
that have to abdicate a little bit of their sovereignty.
The organization has stuck together during some very bad times—
when, for example, Iraq invaded Kuwait, when Iraq was at war with Iran, and when the Gulf countries were supporting Iraq against Iran.
OPEC is very important, economically, to its member countries,
but in the last 10 to 15 years the West has started to see the organization as an instrument of stabilization.
Q: There has been a lot of speculation about a similar group emerging for gas producers. Do you see that happening?
Ghanem: Well, it’s already established, in Qatar.
Libya is a member, and I attend its meetings. So are Russia and Algeria and Trinidad.
But it’s a different matter as to whether it will ever have the same power and clout as OPEC.
Given the importance of long-term contracts, the quantity of gas that goes to the market is limited—
controlling supply and demand is therefore not easy.
This new organization, though, will be a good forum to exchange information and coordinate long-term policies.
Q: What role do you see for the international oil companies [ IOCs] and national oil companies [NOCs] in the future?
Ghanem: The IOCs played an important part in the history of the oil industry, going back to Rockefeller, Standard Oil, and the Seven Sisters.
The emergence of national oil companies has subsequently altered the picture, with perhaps close to 85 percent of oil production now in their hands.
IOCs, as a result, are now more concentrated downstream, in distribution and marketing.
But their role in exploration and production remains very important because of the technology they bring.
As for national oil companies, I don’t think they can continue to act like government bureaucracies waiting for a budget to be handed down.
Finance ministers have other priorities.
In, say, 10 to 15 to 20 years, I see some sort of merger between NOCs and IOCs.
NOCs will become stock companies, and IOCs will own part of them, and vice versa,
with governments merely playing the role of tax collectors.
The confrontation between IOCs and NOCs will diminish little by little, and the two will end up more integrated or merged.
Q: How important are the major international oil companies to Libya?
Ghanem: We depend on the international companies for exploration.
When it comes to development, we go on our own.
These are our basic policies.
Q: Tell us more about your aspiration as a country with oil and gas production.
Ghanem: The first small oil shipment only left Libya in 1961, and at one point we produced 3 million barrels a day.
We even surpassed Saudi Arabia at that time.
If that had continued, I don’t know where we would be now.
Then came the revolution, the embargo, sanctions, loss of investment, and nationalization.
Today, we produce only about half of what we used to.
Some people say we should bump up our oil production quickly,
others that we should move more gradually and leave something for the next generation.
But we are determined to realize our potential.
With this in mind, we have opened our doors wide, and we have signed exploration contracts with around 40 to 50 companies.
About 15 have already discovered oil or gas, leading us to think we could lift our production from 1.3 million to 1.5 million barrels to perhaps 2 million.
By 2015, our plan is to reach 3 million, but we will be limited by budget constraints,
given that we are a government entity and depend on a government allocation, and therefore will not reach that target.
The potential is particularly exciting in offshore areas, where we have discovered a lot of gas already.
Q: Given Libya's fast growth, how do you think its energy and power system should evolve to satisfy the growing needs of the nation?

# # #

EconomyWatch.com is the world's largest global, independent, economics community. Every month we serve over 750k users, who read and discuss economics, investing and finance topics.