IHS CERAWeek 2013 – A summary of day two

Unconventional resources were a hot topic at IHS CERAWeek on Tuesday, the conference day traditionally focused on oil. Khalid Al-Falih, President and CEO of Saudi Aramco, gave the opening keynote speech. He described four new realities that have brought about a paradigm shift in the energy industry-moderating global energy demand, the emergence of unconventional oil and gas supplies, more focused government policy in monitoring access to and the availability of key resources, and a revaluation of renewable and environmental policies. In one form or another, these themes reappeared throughout the day's events.

Li Fanrong, CEO and President of CNOOC remarked on CNOOC's recent $15 billion acquisition of Nexen, describing it as a pivotal milestone in its quest to become a global energy leader. President Li also spoke about the need for collaboration-both in terms of technology development and financial risk sharing-as the industry explores new frontiers in unconventional resources and deepwater to meet global incremental oil & gas demand.

Several speakers focused on the sweeping changes that unconventional oil and gas development are bringing to the energy industry.

• ConocoPhillips Chairman and CEO Ryan Lance described the "brave new world" brought about by unconventional resource development. Just a decade ago, security of supply was a big concern, world surplus production capacity was falling, and rapidly expanding Asian economies were competing for what were perceived as finite supplies. Today, concerns about resource scarcity are largely behind us and global supply opportunities increasingly are found in the OECD, including the United States, Canada, and Australia, areas with flat to declining demand.
• Tim Dodson, EVP, Global Exploration at Statoil, echoed the theme of revival. High oil prices and the rapid evolution of technology brought about the revival, but continuous development and upgrading of exploration capability are needed to sustain this rejuvenation.
• Stephen Pryor, President of ExxonMobil Chemical Company, described the profound impacts of shale gas on the American chemical business, stating that "Unconventional oil and natural gas is upending supply economics and transforming the declining fortunes of the chemical business and other downstream industries".
• Jacek Krawiec, President and CEO of PKN ORLEN S.A., presented his long-term vision of the energy industry in Europe. In the long run, demand for crude oil and hydrocarbons will decline, and emphasized that the key to the industry's survival lies in using these new technologies as a catalyst for change.
• Philip Rinaldi, CEO of Philadelphia Energy Solutions, noted that a key driver of his company's success was its transport of new sources of crude oil by rail, which reduces capital costs and can offer more flexibility than pipelines.

A number of speakers focused on the opportunities and early successes in unconventional oil and gas development outside North America.

• Orlando Cabrales Segovia, President of the Agencia Nacional de Hicrocarburos de Colombia (ANH), described the rapid growth of oil and gas production in Colombia. In 2005 production was 639,000 barrels of oil equivalent per day, rising to 1 million barrels per day (mbd) in 2012 and a projected 1.2 mbd in 2013. Mr. Cabrales Segovia expects continuing strong production growth in the coming decades, with most of the oil coming from unconventional, offshore, and heavy oil resources and a significant portion of the gas from unconventional plays.
• H.E. Youcef Yousfi, Minister of Energy and Mines of Algeria, provided an overview of opportunities in the Algerian upstream sector, noting that the evaluation process for unconventional resources for shale and tight oil and gas is currently in process. He said Algeria is "determined to create the necessary conditions" for the exploitation of these resources and is looking to start production of unconventional resources in five years.
• James Baulderstone, Vice President Eastern Australia at Santos Ltd, analyzed the Australian experience to date in developing unconventional resources. Proximity to energy growth markets in Asia, the opportunity to serve a booming LNG market and the large resource base stimulated a strong influx of foreign investment.
• Adil Toubia, CEO of the Oil & Gas Division of Siemens Energy, believes that most unconventional growth outside of North America in the next few years will come in the gas sector, led by China, Argentina, and perhaps Saudi Arabia, the latter having the resources and know-how to be betting on unconventional energy. The biggest factors, according to Mr. Toubia, will be progress in water treatment and wastewater management and invention of technologies which can compensate for the lack of water in arid areas.

Other speakers were more guarded in their expectations for the expansion of unconventional oil and gas.

• Tomas Garcia Blanco, Executive Director at Repsol, believes that the need for more energy will boost unconventional production outside North America, although most of the initial followers are struggling with political decision-making; opening acreage for exploration; providing attractive terms and investment opportunities to oil and gas players; and having difficulty securing the proper combination of trained personnel, technology and equipment on the ground.
• Pål Haremo, Senior Vice President Exploration at Statoil ASA, believes that opportunities in the rest of the world do not look nearly as good as those in the United States. Statoil employed a five-year screening process to evaluate several potential basins. He is optimistic about the long-term potential of unconventional oil and gas and believes that the key factors dictating which basins will be developed first are access to land and competitive commercial terms.

A number of executives spoke of environmental stewardship and of fostering relationships with communities in their remarks.

• J. Michael Yeager, Chief Executive of BHP Billiton Petroleum, analyzed the factors that enabled the rapid growth of unconventional energy production in North America and the determinants that contribute to the success of individual companies. He pointed out the significance of social consciousness and responsible development to company success, allowing companies to build their operations in the context of strong community participation and scrutiny.
• Clarence P. Cazalot, Jr., Chairman, President and CEO of Marathon Oil Corporation, reflected on his company's successful transition into a midsized independent exploration and production company. He emphasized the impact of fast organizational learning-from both successes and failures-in driving efficient decision making and work flows. He agreed with Mr. Yeager that being a 'good neighbor' of local communities and stakeholders is an influential factor for the companies' sustainable growth.
• Steve Williams, President and CEO of Suncor Energy, a Canadian-based company, described how 14 companies in Canada formed the Canadian Oil Sands Innovation Alliance (COSIA) to focus on reducing the environmental impacts of oil sands operations. COSIA will enable companies to share technologies and best practices with the goal of making step-change improvements in reducing water use and greenhouse gas emissions.
• Stephen Pryor, President of ExxonMobil Chemical Company, described the profound impacts of shale gas on the American chemical business, stating that "Unconventional oil and natural gas is upending supply economics and transforming the declining fortunes of the chemical business and other downstream industries".
• Jacek Krawiec, President and CEO of PKN ORLEN S.A., presented his long-term vision of the energy industry in Europe. In the long run, demand for crude oil and hydrocarbons will decline, and emphasized that the key to the industry's survival lies in using these new technologies as a catalyst for change.

Posted 6 March 2013

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.