Coping with the drop in oil supplies

It is not surprising that tensions in North Africa and the Middle East have dominated the discussion at this year’s CERAweek annual oil and gas conference. The general view is that, as of now, the world can easily cope with the drop in supply. Dan Yergin, chairman of CERA, the consultancy hosting the conference, told FT Energy Source: “This is a manageable disruption.’’

But many fear the situation will get worse before it gets better. And there is widespread uncertainty about how the situation will evolve.

“We are still in the eye of the storm,” said Vera de Ladoucette, a senior associate at IHSCera, CERA’s parent company.

Bob Dudley, BP’s chief executive, was among the most outspoken about the risks presented by the situation:

“Energy security is at stake given the way events are moving. Production is down by more than half in Libya – a country which represents nearly 2 per cent of global supply. The Middle East and North Africa as a whole produce nearly 30m barrels of oil daily – over a third of global production. Maintaining production is vital.”

Most sought to calm fears. “There is enough oil,” said Farouk Al-Zanki, deputy chairman of the board of Kuwait Petroleum, the state owned oil and gas company. “Any shortage of supply could be mitigated.”

Christophe de Margerie, chief executive of Total, a major oil company, said talk of tapping the US Strategic Petroleum Reserve was premature and such measures should be left for when there is an oil shortage – which is now not the case.

And while executive after executive predicted the road ahead would be long, bumpy and was likely to be violent, a number concluded the demands for change would ultimately be good for the region and force the governments to reform to spur economic growth.

“The governments need to find ways to accelerate growth,” said Brad Bourland, chief economist at Jadwa Investment of Saudi Arabia. He noted the rise in the Saudi stock market in recent days as underlying a positive outlook. But he noted that to grow beyond the 4 per cent average rate now, the region must find a way to generate jobs and encourage entrepreneurship. This will be a slow process, given the education required:

“It will take some years, but it would be great to see growth rates of 6-8 per cent.”

Given the riches held by the region, that seems a reasonable goal.

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