HE the former Deputy Prime Minister Abdullah bin Hamad al-Attiyah has said he gathers from the financial markets that there is some forward purchasing of oil contracts at around the $40 for barrel level and “so perhaps we can start to see a bottom.”
Participating in an advisory meeting of the Energy Intelligence Group in Washington, DC recently he said the “question in the minds of everyone” was whether the oil price would remain lower for longer or a rebalancing was in sight.
“The market will balance when stocks are back to average levels and production equals demand. I cannot see this happening for some time yet,” al-Attiyah said.
Citing the International Energy Agency (IEA) data, al-Attiyah said the “oil demand growth is sharp but that supply has only eased a little in non Opec supply. OECD stocks continue to grow so we are not balanced yet.”
On decoupling natural gas prices from oil, the former Minister of Energy and Industry said, “In many markets they already have. The spot market is growing and buyers are either unwilling to enter into long-term or oil-indexed contracts. The common practice of having price reopeners (i.e. renegotiate prices at fixed intervals but not tonnages) and floors and ceilings to oil indexed contracts further serves to decouple gas from oil prices. As more LNG plants come on stream with uncontracted capacity, (Gorgon in Australia is reported to have 20% uncontracted capacity) then the spot market must grow.”
Touching on the subject of consequences of the oil market without a regulator, al-Attiyah, a former Organisation of the Petroleum Exporting Countries president said, “Opec is not the force it was! Previously markets balanced at a high price level because of Opec production restraint. If that goes, then market forces will dictate market clearing prices. Some high-cost producers will then, of course, be forced to leave the market.”
In relation to financing tight oil and high-cost offshore oil under low and volatile price scenarios, al-Attiyah said, “Of course it will be difficult until the view of long-term prices increases. Banks, shareholders and bond holders of fracking companies have all been hit. Low prices favour international oil companies (IOCs) and national oil companies (NOCs) with deep pockets and we are already seeing some portfolio readjustments in IOCs. But the lack of investment is a part of the cycle by which supply will be curtailed (as oil fields naturally decline) and prices will eventually rise.”
In another roundtable session at the Center for Strategic International Studies, al-Attiyah spoke on the future of the LNG market, LNG price, supply and demand and the emergence of shale gas.
He also discussed with Dr John J Hamre, president and CEO of the Center for Strategic and International Studies, ways to strengthen cooperation with the Abdullah Bin Hamad Al-Attiyah International Foundation for Energy & Sustainable Development.