Foreign Firms Expect 'Considerable Rewards'
John M. Roberts, a senior fellow at Atlantic Council's Dinu Patriciu Eurasia Center and Global Energy Center, visited Tehran in October to attend Iran Petroleum and Energy Congress (IPEC).
On the sidelines of the conference, Mr Roberts, who specializes in energy issues in the Caucasus and Central Asia, talked to Iran Petroleum about a host of issues including Iran's petroleum industry.
Here are excerpts from the interview he gave to Iran Petroleum.
Q: What do you think about the status quoi prevailing in oil market? Will the price recover? Could the recent agreement reached in Algeria help shore up the prices?
R: I don’t think price is most important thing. The most important thing is that the market is oversupplied. Price reflects that, it doesn’t cause it, at this stage at least. The oversupply is quite remarkable given the disasters that have hit producers like Libya and lesser producers like Syria. And still the long-term consequences of the Venezuelan oil strike in 2002, 2003, which is still not fully recovered. And indeed the long time that has taken for Iran to recover its production, which is not fully back from what it was once. So despite all negative elements which include limits to production levels in Algeria, the end of Indonesia as a major exporter. It is remarkable for the world's supplies. That is been precisely because the prices were so high, it served to encourage non-OPEC production in difficult areas like deep waters, the oil sands of Canada and shale oil. And now with prices coming down, you have a very very peculiar situation. Is a price of shall we say around $50 a barrel enough sufficiently low that it will drive some of the new oil production off the market? Or are producers in difficult areas like the Gulf of Mexico, Canadian oil sands, shale oil in the Balkan, sufficiently flexible that they can adapt to $50 oil? And my guess is they will be far more flexible than the OPEC producers assume and therefore I do not think the Algeria meeting will have much impact and if it does have an impact all it does is put price up a little which provides further encouragement for non-OPEC producers. So I tend to think we are living in a world which the most important lesson that OPEC producers must have to learn is that it is highly unlikely that a significant amount of non-OPEC production will be reduced. And it will continue to rise.
Q: So how long will the current conditions continue in your eyes?
R: I would simply say in general ‘several years’ without putting a timeframe on it. Precisely because the global economic growth is clearly not as good as it used to be. Also energy efficiency is getting much better. Non-oil forms of energy are cutting into the oil's share of the market, which means that it's going to be difficult to work out when oil might actually be …when demand will be clearly outstripping supplies. I don’t see that happening but I should say I'm not a price analyst. So there are general comments.
Q: Two conflicting policies dominate over OPEC; one is the idea of oil output freeze at the current level, promoted by Saudi Arabia and its allies, and the other one is a production curb by the entire body as Iran's petroleum minister has suggested. How do you compare these two views?
R: First of all if you freeze at current levels you have to think what other countries are going to join you. Russia has indicated it will join. But Russia is producing at record levels. The last time that OPEC had drastic impacts on the market was when Venezuela and Saudi Arabia joined forces and really did cut production massively and that prompted a change. But I don’t see that happening now because I don’t think Saudi Arabia trusts the rest of OPEC. If it cuts its production significantly, the rest of OPEC will do so as well, let alone non-OPEC nations. So although in theory we can argue that a major cut in production would impact massively… Saudi Arabia thinks that even it cuts production massively the rest of OPEC would not… not all of them, some of them.
Q: Can Iran regain its standing in the global oil market and in OPEC as well?
R: I would be very surprised if Iran did not continue to do everything it can to increase its share of the global oil market. I think we are seeing increasing competition over market share in oil and also gas. Most OPEC nations do not trust each other on such a big issue.
Q: Where does Iran stand now within OPEC? Is Iran as vigorous as it must be? How powerful is Iran within OPEC?
R: I don’t think it's a right question. I think the right one would be how much power OPEC have. That’s the issue. Let's assume Iran has massive power in OPEC but OPEC has no power at all. In that case what's the extent of Iran's power? Power is the wrong word. OPEC has no power at all. It's not a cartel that controls the oil market... has influence on it. But really its influence on oil market depends largely acting as a cohesive body and much of time it does not. From the point of view of all its members it's much better to have to it ... but at the same time the government of Saudi Arabia or Iran or Iraq or Venezuela or Angola increasingly put your own interest first. If you don’t it very well you stress OPEC and if you do it very well you won’t. So in the sense the pain has to be inflicted on all OPEC member countries before they act in a uniform manner. And I don’t think that’s happening. These are not particularly good time for Iran or Saudi Arabia or other producers. But they are manageable. Why they are manageable? I think oil and gas now accounts for around 45 percent of the Iranian economy. In other words, you have an economy which is important for a big part of that economy to have very low energy prices and focus on energy efficiency than it is for the industry as such to have higher prices. I believe that is Saudis are now seeking to do. They are no longer so dependent on high prices aboard.
I give you the classic example. When oil prices collapsed in summer last year I was in Texas. The Texas oil industry was saying this is terrible. The Texas secretary of state said our economy is booming because the state of Texas economy was earning more from non-oil economy which was boosting by cheap energy than the oil industry was losing from cheap energy. I think this increasingly became the case of country like Iran and I think that is the lesson that Saudis have learned. Therefore the whole attitude to pricing and to market share has changed because there is much greater focus on internal market and on the development of internal non-oil and gas industries even though they may be dependent on oil or gas feedstock or cheap energy to rival that.