On Sept. 27, 2017, Belgian radio broadcaster RTBF hosted a lively debate between Damien Ernst, Professor of Electromechanics at University of Liège, and Samuel Furfari, Professor of Geopolitics of Energy at ULB (Free University of Bruxelles) – moderated by Bertrand Henne. Thanks to EM for the English overview.
The gist of the debate was: Penury or Plethora of oil vs renewable energies.
The full French podcast on RTBF is available at this LINK:
Screenshots of the posting in French – see below.
What follows is a general English translation of the gist of the debate, which opens with some excerpts of video clips of leading CEOs of oil companies and energy experts. The speakers in the debate are identified by their initials:
Bertrand Henne (BH)
Damien Ernst (DE)
Samuel Furfari (SF)
Topic of the RTBF exchange: Are we heading toward an Oil Shock after 2020?
YES, respond IEA and several oil sector bosses, including Total’s.
VIDEO CLIP: Patrick Pouyanné CEO of Total (PP)
There is a lack of investment in petroleum due to low oil prices in the last few years, yet demand keeps increasing; thus without investment demand-supply would be out of equilibrium, leading to oil prices taking off!
Quoting Pouyanné speaking on Boursorama.com:
“There are no real new petroleum projects in the last three years on the go anywhere in the world.
All oil fields undergo natural decline of about 3% per year, that is 3 mmbopd (millions barrels per day), thus factoring in a +1% increased demand, that’s 4% more oil needed every year, or 4 mmbopd; over 5 years that’s 20 mmbopd, which is an amount that is twice Saudi Arabia’s current production.
So you need to invest in twice the Saudi Aramco (SA) production capacity over the next 5 years in order to meet demand, but with a non-investment effect showing with a 4-year delay; are we thus preparing for penury of oil as investment don’t keep up? “
Damien Erntz (DE): Professor of Electromechanics at University of Liège
DE agrees with Pouyanné (consult DE commentaries on Facebook)
In 2020 DE claims that oil price would be back to >$100/bbl.
Problem is the decrease in economic growth of 0.2% for each $10 increase in oil prices.
Several serious economists believe that the 2008 economic crisis was partly due to oil prices reaching $150/bbl.
Thus, oil price increase is a threat to economic growth and unemployment, and economic situation today is more fragile than in 2008, thus DE claims a catastrophic scenario in 2020.
Lack of investment in oil exploration will thus lead to oil price increase as demand is forecasted to increase.
When oil was at below $30/bbl in 2015, there was no more investment in shale oil, oil sands, deep offshore. There is the illusion that shale oil is going save us, yet there is the problem that shale oil production just can’t seem to go above 6-7 mmbopd, and shale oil extraction cost is not decreasing, it has been increasing in 2017. It is thus really difficult to believe that shale oil production will be enough to save us.
Samuele Furfari (SF):
Professor of Geopolitics of Energy at ULB (Free University of Bruxelles)
SF disagrees with Pouyanné (he says that PP needs to convince his shareholders to have new investments, e.g. Total’s North Sea purchase of Maersk for $6.5B last August)
Total, BP, Exxon, Chevron have invested $200-300B to buy reserves in Mexico.
Total is investing in exploration in Ghana.
Investments aren’t stopping! So, if Total doesn’t want to invest, who cares, others will!
Other countries like China and Japan are also investing, e.g. Japan has funded public exploration and production companies.
BP cancelled its production contract with Socar, the largest Azerbaijan enterprise, as BP and US, Chinese, Indian, Japanese and Turkish companies are investing heavily in Azerbaijan, with a new contracts to reach much higher production for the next 38 years.
SF debates DE’s point that if new oil projects are not going ahead, oil prices will go up; he points out new projects are indeed going ahead! There are plenty of new projects on the go now, contrary to what IEA or Pouyanné might believe!
SF insists on what’s happening in Mexico. In 1938, Mexico nationalized its enterprises, shouting “Yankees Fuera!” (“Yankees- get out!”) We’re going to do it all by ourselves! Look here, President Nieto got elected promising to change the 1938 Constitution with the goal of getting international companies come back to Mexico. Indeed, they have been coming back, and creating an oil boom!
Moreover, Texas oilfields extend into Mexico, and oil platforms never have had to worry about hurricanes in the Mexican portion of Gulf of Mexico; and, all you have to do is dig and get oil out! No sweat, man!
In any event, $50/bbl is the normal price for oil; $143 was an abnormal price!
So today, there is a plethora of oil! And Saudi Arabia is investing to bring its production up to 12.5 mmbopd, on account that SA wants to keep its market share, as the ‘others’ will all fight to produce more oil.
And let’s not be lured into believing that demand will go up; firstly, there will be a cap on demand caused by a saturated car market; secondly, there is a race toward higher car efficiency emitting less CO2 (today’s limit of 95gCO2/km of new car manufacturers), and thirdly, alternative solutions such as electric, natural gas cars, etc. are coming up! Demand would definitely not be linear!
DE (says that SF doesn’t address his points!)
The 2005-2008 time frame saw lots of “crazy” investments (deep offshore, etc) that didn’t prevent large price increases, e.g. oil reached $143/bbl in June 2008.
And demand for oil hasn’t calmed down since Kyoto in 1997 (70 mmbopd then); we’ve seen a +1% increase in demand every year since (now at near 100 mmbopd).
Problem is not the European car fleet that generates increased demand, it’s Africa, Asia, emerging countries that generate demand; European aviation also creates higher demand (9%/yr); the problem is dependence on oil, which is not decreasing on account of “decarbonization”, demand is not decreasing as we’re too dependent on oil and that isn’t stopping.
Thus, by 2020 investing in oil would be too weak, resulting in higher prices, with catastrophic consequences for our economy (quoting PP who claims cyclic pricing of oil, as amounts of investment vary).
SF Repeats that there is a plethora of oil on the market (example of SA)!
Iran’s production is now a third of what it was during Shah’s time, and Iran wants to beat SA in oil production; and Iraq, now at 4.5 mmbopd, won’t stop producing more (from 2 mmbopd during Saddam Hussein’s time).
The Kurds want their independence in order to produce their large reserves.
DE There is no question that there are lots of oil reserves, yet reserves are now getting more difficult to access!
In the “good ole easy” days in Texas, the energy return was that for 1 bbl of energy you’d get 100 bbls of oil.
Now we’re down to 6-15 bbls return. So, it’s much more difficult to extract oil today than it was before, even with progress in technology.
SF (All three are talking above each other, the French way!)
Oil industry has refocused (“changed”) while passing from conventional to unconventional oil…
Yet conventional oil isn’t dead, Middle East, Russia, Brazil, Mexico too. Not everything is focused on shale oil. In the Middle East, conventional oil is super abundant and very cheap!
Between Western countries and China, service contracts in Iraq go for 1.9$/bbl, they’ve signed to produce up to 7.5 mmbopd, currently at 4.3 mmbopd.
DE Extraction prices are indeed very cheap in the Middle East, and it’s not because the extraction cost is low in the Middle East that oil price is cheap; world oil price is the extraction cost of the most expensive barrel, and it’s not the Middle East that’s going to produce 100 mmbopd at $10-15/bbl all included.
You (SF) claim that the Middle East is going to save us with conventional, yet OPEC is the greatest oil price manipulator, it’s a nonsense that we should depend on the Middle East!
SF (complains that DE hasn’t read his books and articles!)
OPEC has lost its role; there is no more monopoly of production as was the case with The Seven Sisters fifty years ago and OPEC 40 years ago; we’re in a new paradigm today, oil production is very competitive, market will be more and more efficient, as oil prices will steady up, perhaps a decrease, as alternative energies are coming up strongly, and competition is so strong that everyone will be fighting to keep market share.
DE Oil shock means economic shock; when facing large economic problems, people focus on dealing with their own financial issues instead of thinking about energetic transition.
It could be painful to deal with the transition of doing without oil; transition not necessarily good news, it’s like saying that we’d need a good war to reduce unemployment!
We want harmonious transition to gradually diminish our dependence on oil. When oil prices were very high, the oil invoice to Europe was €400B, a large portion of which was going to the Middle East and financing regimes from which “Europe got nothing out of their riches”…
BH Could we develop alternative energies while oil reserves are so abundant?
SF That story has been heard for 93 years now; it started in 1924 with President Calvin Coolidge as the car industry was booming, he got a report from the CIA and created in 1924 the Federal Oil Conservation Board “agence pour la maîtrise du pétrole” because there was no more petroleum in the USA. Since then that old tune keeps being played: let’s do without petroleum!
Let’s hope we can do without, it would show that science would have moved toward new solutions… let’s search, we’ll end up finding something, and one day we’ll abandon oil before it runs out; there will one day that there won’t be any more oil, yet in the meantime before we run out of oil, we would have found new solutions because man is ingenious and is going to find solutions…
However, those solutions until now are not economical, and this despite subsidies. If we look at biofuels for example; bonds issued failed because it is not economical and very bad for the environment (DE agrees, canola oil to replace petroleum was a total failure).
Let’s not throw around solutions that would be dropped that are not real solutions. We need to invest more into research.
BH OPEC countries are investing in both the traditional petroleum and in the renewables.
DE However, true technological solutions exist now and are successful. For example, electric cars are a solution in the decarbonization of the transport industry (70-80% of oil use). So, to say that it’s only in 10 years that we’d find and follow a not-so-voluntarist policy to get rid of petroleum, it’s not that original!
SF Didn’t I say that oil demand would be flatten out because alternative energies are developed? So, DE wasn’t listening to me earlier!
BH Do you believe that the decarbonization with the use of electric cars would actually occur, despite the fact that new oil finds will be made?
SF Those two are disconnected issues. Let’s stop being Manichaen about this, callers tell you to drop oil and let’s go to alternative energies. NO! We need all types of energy, we need nuclear, renewables, coal, gas, and oil in the world; each one has its own specifics; one would not replace the others. No single energy has ever replaced the others.
Wood continues being developed, it is the largest source of renewable energy in Europe and doesn’t stop growing!
DE Whether you like it or not, we’re entering a 100% renewable era. Transportation will become essentially electric.
BH Let’s get back together again in a few months to check on the “100% renewable”.
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Revised at 1:26PM Oct. 17, 2017 to include the English name of: Federal Oil Conservation Board “agence pour la maîtrise du pétrole”