Neftianka sat down with Jarand Rystad, Managing Partner of Norwegian consultancy Rystad Energy, to discuss everything from new offshore developments in the Arctic to when he thinks we will see $100 per barrel oil again. Maria Kutuzova conducted the interview on April 13, 2016.
Maria Kutuzova: Jarand, tell us about your Oil Macro Outlook. Could low oil prices help to get a bigger market share for main producers in the Middle East, North America, or in Russia. Who are the winners or losers in this situation?
Jarand Rystad: Currently, I think all are losers in the sense that the oil price is so low that there isn’t really any profit left for investors or for the government. But of course, the whole situation started because US shale was gaining a lot of market share since they found this big new resource of new oil and invested very heavily in that from the years of 2011 to 2014, and then they have been able to grow their market share very significantly.
When this happened, at the same time, demand was weaker in 2014, and we had a situation of a huge oversupply. Instead of protecting the oil price, this time Saudi Arabia decided to protect their market share and start a volume war- which was a key cause of the oil price collapse.
After that, Iran was invited back to the international community and sanctions were lifted, and Iran, also supported by Russia, they didn’t want to lose their market share, so that’s why they also joined the volume war. So Russia, Iran, and Saudi Arabia are defending their market share.
As I said, currently everyone is a loser, but maybe in the long-term, these nations that sustain the low oil price the low oil price the longest with high production levels, will of course gain market share, and hopefully they make a profit. If the cycle turns, which it is very likely it will do, because it is a cycle, it means that it’s not a structural shift in the oil business- that demand has gone away, it’s just that we have overinvested and too much oil in the market these days.
What are your prospects for oil at low prices? When will we see $100 per barrel again? Do we see the light at the end of the tunnel?
Yes, I think so. As I just said, this is a commodity industry and this is a commodity cycle, so eventually the oil price will return because we are currently investing far too little into future oil. So after a few years, we will have too little oil in the market, and the consequence will be that the oil price will really increase. So my title for what I will talk about here for this information sessions is, “When will we see a 3-digit oil price again?” And I think Michael Glusseon thinks that we will be back at this level by 2020.
What does it mean: areas of exploration and production spending in 2016 and beyond?
First of all, all of our companies this year are doing whatever they can to cut costs – that is priority number one. And they don’t launch many new projects, they just try to limit spending as much as possible. Because investors expect them to limit the losses due to the very low oil price – so this is the main focus. Exploration is cut again – 30% like last year – so versus the prices in 2014, many companies have more than halved their exploration budgets.
And in terms of new field development, only the best, biggest, most robust fields are really developed these days. But one example, a field that is really having high-speed these days is the big new discovery in Norway called Johan Sverdrup, which is more than 2 billion barrels oil field with four big platforms and this is being and this is being developed now at full-speed by Statoil.
I just mentioned Johan Sverdrup, which is the biggest offshore development at the moment, but we also have 3 big discoveries in the Barents Sea over the last 5 years, called the Johan Castberg, Alta, and the Wisting field. And all of these fields I believe will be developed, they will be finally approved for development in the next 3 years, maybe even one of them already next year. And I think this is very interesting for Russia because it shows that even in the Arctic waters, it’s a big interest to develop big new fields. There are some challenges related to ice and distance, but I think the companies have good plans to overcome these challenges. So these are the most exciting new things that are happening.
Also on the exploration side – and the Barents Sea is very exciting – because it’s the 23rd concession round, where you have a lot of blocks in the eastern part of the Barents Sea that will be awarded in a few months. And that will be very exciting to see. 26 companies are participating in this round, including some Russian companies, so I think there are high expectations for that. Also for the Norwegian Sea and the North Sea in the southern part of Norway, there is steady activity, several new fields are going to come on stream soon (development starting in 2012). So they will come into the market now – Edvard Grieg, Martin Linge, Aasta Hansteen – some of them are a bit delayed, but this will also increase the production capacity of Norway. Exploration-wise, 2010-2014 were very good years, but 2015-2016, unfortunately, has not been that successful.
What is your forecast for renewables?
I think it’s very important to have a focus on renewables and to build both solar, and in some places wind power. There has been a boost in investments for some years due to subsidies, in many countries that is reduced when you take away the subsidies. But of course from a climate perspective it’s very important to see a strong roll-out, and solar is currently competing well in countries with a long of sun, high-power prices, and not too much dust or desert conditions in the area, because it actually pollutes the solar panels. A market like Africa is very competitive in solar. I think solar panel prices have to go further down to see this as a general global rollout. But I think we will see double digit growth for many decades going forward, which is also very important to sufficiently fast enough replace coal as a source of power production. I think and hope it will grow, but it still won’t replace gas or oil over the next many decades.