Exploration

Congratulations to Ben van Beurden, the new chief executive of Shell. We are moving into a period when gas is the dominant fuel and Mr van Beurden has great experience in that area, particularly in liquefied natural gas. He is also Dutch which is a good reminder that despite everything Shell has not lost its nationality, after all. The candidates who lost will all soon find alternative jobs. Shell is now the great training ground and there is a shortage of talent at the top level in the international energy business. Mr van Beurden meantime will have to focus on Shell’s big problems, of which I will focus on three. 

The Brent oil price has fallen by more than $10 – which means 10 per cent – in less than two weeks and now stands below $ 100. The precise number matters less than the trend. Now the question is how much further prices will fall.

Saudi Arabia is the only country in the world with the ability to cut production and to keep prices up. Some feel the Saudis are using the fall to discourage investment in high-cost projects including tight oil and some deep water ventures. I am not convinced. The Saudi oil minister, Dr Al Naimi looks tired and unsuited to such a high-stakes game. I expect the Saudis to pursue the tactic of making small incremental cuts in output in the hope that the market will stabilise. I doubt if this will work. Only a cut of 1.5m to 2m b/d will suffice to maintain prices and that would squeeze Saudi revenues too much. With growing domestic demand Saudi Arabia has little room for manoeuvre. As noted last week, the Saudis seem to be in process of losing control of the oil price. 

Tamar, a natural gas platform off IsraelThe Eastern Mediterranean is never dull. The whole area – land and sea – has been contested for centuries. And now, it turns out to have natural resources. Over the last decade, the area known as the Levant Basin has been identified as one of the world’s more interesting areas for exploration.

The first gas finds off the Israeli coast have led to a reappraisal not just of other areas along the coast from Egypt in the South to Turkey in the North, but also of the coastlines around the whole of the Mediterranean – from Albania to Spain. And the entry of Exxon and Rosneft into Lebanon opens up the prospect of another new exploration area and may provide a key to the development of the Eastern Mediterranean as a whole. 

A week after the EU and the IMF announced their bail out plan for Cyprus, it is now clear how little consideration was given to the knock on implications of the proposals. Even if they are never implemented, the ideas put forward might change the behaviour of those with funds in banks across southern Europe. But the proposals will have still wider implications – not least for Europe’s energy security.

The Russian reaction to the proposed bank deposit levy had been predictably furious. Surely someone in Brussels or Berlin could have foreseen what would happen? Did no-one realise that a good proportion of the Russian money in Cyprus belonged to people rather close to the Kremlin? 

When I first wrote about shale gas in the FT, back in 2011, one very senior oil industry executive told me that I was badly wrong and that shale would never have an impact beyond perhaps a couple of small areas in the US. A year later he did have the good grace to apologise.

Now shale gas is everywhere – from Ukraine, to China to South Africa (those are just the places where major investments were announced last week). There are still those who deny the importance of shale development, but like those who deny climate change they are beginning to look increasingly out of touch.