Speaking two days before OPEC’s next meeting and the election in Iraq, Nigeria’s Minister of Finance Ngozi Okonjo-Iweala declared: “There can be no doubt that because of the impacts of globalization, 9/11, Iraq and other factors, the risks have become higher. But I question whether this is more perception than real, and am surprised when one dollar or three dollars is added to the price because of a minor incident somewhere, for example a kidnapping or a pipeline broken into in the Niger Delta.”
A large part of the heightened sense of risk is due to globalization making the world much more closely interrelated, the speed of information transfer encouraging knee-jerk reactions, and the sheer pace of geopolitical and economic change – all contributing to greater uncertainties, according to Armen Sarkissian, President of Eurasia House International. That is already built into the oil price, on top of which around 10% reflects speculative trading that benefits from volatile markets.
Continuing tightness of spare production capacity is the main reason why oil markets remain nervous, suggested Thierry Demarest, Chairman and CEO of Total. Over the longer term, upward pressure on oil prices will be maintained by growing demand from China, India and other fast-growing economies. Natural gas will play a more important part in the energy mix, with LNG (liquefied natural gas) boosting supply flexibility. Desmarest said he expects “an improvement in gas supply security over the next few years”. On the demand side, he called for “the international community to take action to moderate demand, through energy savings programmes and encouraging substitutes for fossil fuels” in order to ease pressures over the longer term.
“I really am not convinced we are in a new paradigm of higher prices yet,” Robert W. Dudley, President and CEO of TNK-BP, told the plenary session. He expects to see “high energy prices over the next two years and genuine shortages in some places”, though these will be solved as new capacity comes on stream.
The President and CEO of Saudi Aramco, Abdallah S. Jum’ah, gave assurances that his country has more than adequate spare capacity to replace any interruptions to oil supply. “There’s no real shortage of oil,” he said. “If there is a real problem it exists outside the oil industry, and results from the globalization of misinformation.”
The real risks of a serious shortfall in oil and gas supplies are currently exaggerated, the panel of energy experts concluded, and do not justify oil prices surging towards US$ 50 per barrel.
