CERAWeek: Oil Day takeaway – demand will return

Two messages came through loud and clear by the end of Tuesday, Day One/Oil Day of CERAWeek:
1. Energy demand will eventually return (along with high oil prices)
2. So companies shouldn’t cut back on their investing.

van_der Jeroen Van Der Veer, chief executive of Royal Dutch Shell, says the company won’t do “stop-start” investing.(AP Photo/Pat Sullivan)

“And the long term trend is this: the world economy will recover. The future is not cancelled. And the balance of energy supply versus demand will continue to change in a fundamental way,” BP’s CEO Tony Haywood said in his keynote address.
“I don’t believe anything about the medium and long term has changed,” BP’s Tony Hayward said “Only a year ago we were talking about struggling to maintain supply. Once the downturn ends that problem will return, which is why the industry must continue to invest through the slump.”

Andrew Gould, Chairman and Chief Executive Officer of oil field services giant Schlumberger said this downturn isn’t like the one in the mid-1980s.

“There is no 12 million barrel per day of over production,” he said. When the economy returns, so too will demand.

And Jiping Zhou, Vice President of China National Petroleum Corporation remembered that it wasn’t too long ago that American companies were urging the Chinese to stop driving cars and return to bicycles to cut the surge in demand.

“So far mankind has been unable to find a reasonable substitute for oil” from a financial perspective, Zhou said. So once the world economy recovers it will be a return of the major supply issues that were familiar last year.

Saudi oil minister Ali Ibrahim al-Naimi later chimed in that the low prices wouldn’t last because, just as speculators drove up the prices last summer they’re keeping them down now.

“From a fundamental viewpoint, prices will be just as unsustainable at these low levels as they were at the stratospherically high levels experienced last year,” he said in prepared text released as the speech began.

Shell CEO Jeroen Van der Veer said in his prepared remarks that Shell is “… determined not to repeat the start-stop approach to investment of the past.”

“Instead, we aim to reap the benefits of sustained investment when the global economy recovers.
Start-stop policies also damage your entire critical mass of know-how, expertise and employee motivation. And even for a capital-intensive company like Shell, people matter most. So we want to keep as many good people as possible.”

Nobuo Tanaka, executive director of the International Energy Agency, was particularly concerned about the energy industry cutting back on investments during the downturn. He noted that at the Davos economic forum in Switzerland recently there was a clear contrast between those from the energy industry and those from the financial sectors: the “financial sector is “almost totally pessimistic.”
But aren’t those the guys who are supposed to dig us out of this mess?
One other observation Everyone seems to be offering an opinion on electric vehicles (or at least plug-in hybrids) and if climate change legislation should be a carbon tax or cap-and-trade. Of course conference Chairman Daniel Yergin asks about it if it’s not brought up first.