July 1, 2010
Petroleum Industry Review: In your opinion, how will the international energy market change, given the high energy demand (in the EU and the U.S. energy consumption increased by more than 40% since 1970, in Japan it doubled and in China it is more than four times higher) but also the decrease of the world hydrocarbons resources? What is your opinion concerning alternative energy sources? Is renewable energy a solution for the world economy during this time of crisis? Is it a solution for the future?
Dr. Robert M. Cutler: Any increase in energy prices will only provide incentive to increase oil exploration and development (including nontraditional such as shale oil). Natural gas will slowly increase market share. Nuclear and hydro will continue. Coal will continue to be used where it is inexpensive, notwithstanding ecological dangers. Alternative energy sources should be explored and developed even though their verall market share will be limited for the foreseeable future (with niche exceptions).
PIR: Lately, there have been many discussions about a common European energy policy. What are the first measures to be taken in order to insure energy security in the region, but also a fruitful collaboration between EU member states? In the current international circumstances, “the gas crisis” brought about by the divergences of opinion between Russia and Ukraine at the end of 2009 showed the dependence of the European countries, especially of those in Central and Eastern Europe on energy imports. In what concerns natural gas, the European Union’s dependence on imports from Russia currently accounts for 40% of the needed quantity, and it is estimated that it will reach 60% by 2030. What is the solution to this situation?
RMC: The solution is to strive to circumvent not only Russia as a transit country, but insofar as possible also Turkey, which has demonstrated lately a convergence of interest with Russia especially on energy issues related to Europe. Just as Turkmenistan wisely seeks to avoid being squeezed between Russia and China and seeks third markets (including Europe), so Europe should seek to avoid being squeezed between Russia and Turkey and should seek third suppliers. White Stream, which is officially integrated as a part of the EU’s Southern Corridor strategy, is one example: also AGRI and other trans-Black Sea projects. More generally, EU member states should avoid seeking to achieve one-sided advantage that comes from favouring non-members over other members: this is a tendency that reflects 19th-century Machtpolitik mentality and is not appropriate to the present day.
PIR: At the April 2010 meeting in Oran, the Gas Exporting Countries Forum decided to fight for the stabilization of prices, after the drop of the demand for this product by 40% over the past years following the increase of the U.S. production of alternative gas. Do you consider the rating of the gas prices according to the model of oil prices appropriate?
RMC: It is becoming less appropriate as time goes on, but in some parts of the world there is no adequate market mechanism to determine gas prices.
PIR: Due to the anticipation of an enhancement of the economic recovery, at the beginning of April, the oil contracts reached the highest level in the past year and a half, and this supports the financial markets and the price of raw materials, but also the oil demand, the International Energy Agency (IEA) estimates. In your opinion, how will the oil market change in the next period (five-ten years)?
RMC: Overall not much really, since the economic recovery may not be so strong as expected, unless China succeeds in managing its various bubbles, but even that may not much affect the oil market.
PIR: Recently, one of the world leaders in electric power plants equipments in China concluded an agreement with the EFT group for the construction of a steam power plant in Bosnia and Herzegovina. It is the first such agreement signed by Chinese producers in Europe, signalling an important change in the European energy sector. How do you comment this event?
RMC: This contract represents Chinese intent to increase economic penetration into Europe going beyond production of consumer goods for export. The recent announcement of Chinese financial assistance to Greece likewise shows such a direction of Chinese foreign economic policy, suggesting that the contract with EFT group is no accident.
PIR: As an energy analyst, how do you think the oil and gas sector in Romania and in the region will change in the next ten years?
RMC: Gas reserves will continue to be depleted. If new gas or oil pipelines will cross Romanian territory, then this presents the possibility to offload partial quantities. At the same time, however, new and existing non-hydrocarbon sources should be further developed, including alternative sources.
First published in Petroleum Industry Review (Bucharest), 2010 (July): 76-78. Further analysis at the interviewee's home blog.Author : Robert Cutler