Why Big Oil’s back
ISTANBUL — The future of energy may be all about smart and renewable technology, but the countries that built their wealth on oil and gas aren’t buckling yet.
The theme of this year’s World Energy Congress was “Embracing New Frontiers,” but the line-up that took place this week in Istanbul was more like a blast from the past.
Big oil autocracies including Russia, Saudi Arabia, Venezuela, Azerbaijan and OPEC dominated the center’s 3,500-seat auditorium while green energy advocates and investors were mostly relegated to the margins of the conference. Notably absent were representatives from the coal industry — or the consumer.
A couple of things became clear at the four-day gathering: Falling oil prices haven’t done much to shake the confidence of these regimes. Their message? Low oil prices are the result of a cyclical dip that won’t change much in the long term. They’ve been through price slumps before and know how to prepare by storing foreign currency reserves.
While they’ve certainly been shaken by the latest price collapse since mid-2014, one that has shrunk GDPs and weakened economies, they remain stalwart.
Putin pushes prices to a one-year high
Russian President Vladimir Putin flexed his influence over the oil market with a simple statement Monday, promising to cooperate with rival producers in OPEC: “Russia stands ready to join common efforts to limit oil production and urges other exporters to do so as well.”
That was enough to quickly push oil prices to a one-year high, never mind the skepticism about whether OPEC’s 14 members will actually carry out their first agreement in eight years to freeze crude output, or whether Russia will ever agree to do so, too. At least producers get to enjoy a few weeks with oil prices above $50 per barrel.
“Putin knows a lot about oil,” said Brenda Shaffer, a professor at Georgetown University’s Center for Eurasian, Russian and Eastern European Studies, noting that Gulf states, too, are experienced in dealing with oil market dips. “They know that they just have to say they’re going to freeze. They don’t have to do anything.”
All oil producers want the same thing, OPEC Secretary General Mohammad Sanusi Barkindo said: “To ensure that oil continues to become the fuel of choice for the foreseeable future because the resources are abundant, they are underground.”
Countries need to keep supporting oil, rather than discriminating against it, he said.
The unspoken message: The world may have signed onto the Paris climate agreement, but it still needs oil — and producers will keep pumping it.
Even the location of the World Energy Congress was symbolic: Turkey wants to be a gateway for new gas flows between Russia, the Caspian, the Middle East, the East Mediterranean and Europe, and it’s positioning itself geopolitically to be just that.
‘Fuel of choice for the foreseeable future’
The problem for OPEC’s members, as well as Russia and other oil majors, is that this down cycle is different from the ones they endured in the 1980s and 1990s. This time around it’s not just about striking the right balance between a huge oversupply of crude and lagging demand. Lurking behind the market dysfunction there’s a bigger threat to oil and gas — the fight against climate change.
The Bank of England’s Governor Mark Carney pushed the issue into the spotlight a year ago, predicting that fossil fuel fields risk becoming stranded assets in the coming decades. The International Energy Agency’s Executive Director Fatih Birol warned repeatedly at the World Energy Congress that the world is becoming much more efficient in the way it uses energy (especially the European Union) and that this will inevitably cut into demand.
Producers, including Putin and Venezuelan President Nicolás Maduro, acknowledged this shift, but almost simultaneously dismissed it as a far-off problem they’ll be able to address by diversifying their economies — without giving up on their crude. The oil market’s revival is essential to maintaining national and international peace and stability, they argued.
“The protection of oil reserves is a great responsibility,” Maduro said.
Likening the threat to Venezuela’s century-old petroleum industry to the military coup against Turkish President Recep Tayyip Erdoğan in July, Maduro cited his predecessor, Hugo Chávez: “As Mr. Chávez once said, there are insatiable imperialist vampires and we need to fight against them in energy, the economy and politics.”
But while oil and gas regimes conveyed defiance, some are making economic changes at home.
Saudi Arabia is the most prominent, with its ambitious Vision 2030 program to draw investment into a suite of new areas such as solar power, mining and entertainment. Maduro also stressed that Venezuela has already started diversifying its economy “smartly.”
The shifts went unmentioned as oil producers kept busy flexing their collective muscle in public instead.