Cambridge Energy Research Associates: CERAWeek 2016 Daily Summary: Tuesday, 23 February

27 Apr 2016 IHS Markit Energy Expert

In the Welcome and Ministerial Address on Tuesday morning at CERAWeek, His Excellency Ali Al-Naimi, Minister of Petroleum & Mineral Resources, Kingdom of Saudi Arabia, said that Saudi Arabia is "responding to challenging market conditions and seeking the best possible outcome in a highly competitive environment." He said that efficient markets will determine where on the cost curve the marginal barrel resides. Minister Naimi said that the country remains "committed to meeting the demand of our customers." In a conversation with IHS Vice Chairman and CERAWeek Conference Chair Daniel Yergin, Minister Naimi said the oil production "freeze" that Saudi Arabia, Russia, and other countries have recently discussed is the beginning of a process. At the same time, he said that production cuts will not happen. When asked if he has a picture of how the current oil oversupply will end, Minister Naimi said he was not certain when, but he did know that it will end at some point.

The morning's Ministerial Address was preceded by a set of concurrent Strategic Dialogue Breakfasts, including one led by Stephen Jones, Vice President of Oil Markets and Downstream, IHS, that focused on "Asia and Global Oil Demand: A Pause or Lasting Downshift to Lower Growth?" Speakers were Mayank Ashar, Managing Director and CEO at Cairn, who discussed India, and Denie S. Tampubolon, Senior Vice President of Upstream Business Development at Pertamina, who provided insights on the Indonesian market. Joining them were Qian Xingkun, Vice President of China National Petroleum Corporation's Economics and Technology Research Institute, who gave his perspectives on the Chinese market, and Ravi Narayanaswamy, Vice President at IHS, who presented the IHS long-term Asian oil demand outlook. The group agreed that despite short-term headwinds, factors such as GDP growth, urbanization, and population growth will likely facilitate long-term Asian oil demand growth in the long run.

Other Strategic Dialogue Breakfasts looked at the midstream, oil services, brownfield efficiency, the Latin American and African upstream sectors, the Canadian and Russian oil industries, and North American refining.

Yilin Wang, Chairman, China National Petroleum Corporation (CNPC), gave the Tuesday Oil Keynote address. He outlined the challenges facing CNPC and detailed measures the company is taking to optimize its performance amid China's moderating economic growth and lower oil prices. He also stressed the importance of global cooperation in addressing environmental challenges and reducing the oil industry's high costs through technological innovation.

Daniel Yergin, IHS Vice Chairman, led the Tuesday morning CEO Dialogue plenary. Joining him were Joe Kaeser, President and CEO, Siemens; and Ryan Lance, Chairman and CEO, ConocoPhillips. In discussing the current cycle downturn and how long it would take for the market to rebalance, the panelists agreed that focusing on sound balance sheet practices and staying competitive are vital to long-term success. They focused in particular on the importance of innovation, the new age of digitalization, building strong partnerships, and developing a strong workforce. Mr. Kaeser and Mr. Lance concurred that in the post-Paris Agreement world and given the impact of climate change, the industry's aim should be to maintain a balance between protecting the environment and delivering energy to all corners of the world.

Aaron Brady, IHS Senior Director, Global Oil Markets, chaired a Strategic Dialogue session on a "Global Oil Market Outlook." Joining him were Christof Rühl, Global Head of Research, Abu Dhabi Investment Authority; Keisuke Sadamori, Director, International Energy Agency; Adam Sieminski, Administrator, US Energy Information Administration; Dave Pursell, Managing Director & Head of Macro Research, Tudor, Pickering, Holt & Co.; and Jamie Webster, IHS Senior Director, Global Oil Markets. The panelists discussed their perspectives on the cyclical nature of the global oil market and agreed that the market will bounce back but will take some time to do so. The discussion ranged from the volatility and uncertainty of the market to the resilience of US shale producers, the rebalancing of supply and demand to stabilize the oil market, estimates of future demand, OPEC strategy, access to capital markets, and what to expect from Iran.

Tiffany Groode, Senior Director, IHS Automotive Scenarios, moderated the Strategic Dialogue "The Disruptors: The Future of Mobility and What It Means." Joining Dr. Groode were Alexander Edwards, President, Strategic Vision; Jim Misener, Director of Technical Standards, Qualcomm; Jason Miller, Deputy Director, US National Economic Council; Anders Tylman-Mikiewicz, General Manager and Vice President, Volvo Monitoring & Concept Center; and Tom De Vleesschauwer, Director of Long-Term Planning and Sustainability, IHS. The panel discussed how transportation will change in the face of disruptive technologies and the impact of those changes on how energy for transportation is delivered. With the rise of ridesharing, autonomous driving, and electric vehicles, the panel agreed that the three key factors shaping the future of these disruptive technologies will be policy, technology, and the consumer.

Other late morning Strategic Dialogues covered international, operational, and national oil company strategy; the North American and Mexican upstream; global refining centers; upstream investment financing; transition in the Middle East; and technology and costs in the upstream.

Daniel Yergin, Vice Chairman, IHS, chaired a Luncheon and Keynote session that asked, "What's Different This Time?" Joining him were Lord John Browne, Chairman of L1 Energy, and Mark Papa, partner at Riverstone Holdings. The conversation looked at where the industry currently is in the down cycle, how companies will be affected by the low oil prices, where the industry is headed in the next few years, how the majors will respond and the status of mega projects, other shale opportunities, and new frontiers in technology.

Carlos Pascual, Senior Vice President, IHS Energy, led the Ministerial Plenary with His Excellency Mohammed Hamed Saif Al-Rumhy, Minister of Oil and Gas for Oman. They discussed the challenges Oman faces amid current low commodity prices, as well as the prospects for development in oil, gas, and solar. Oman's solar enhanced oil recovery technology and the pipeline to Iran were of particular focus. Ambassador Pascual and Minister Al-Rumhy also discussed Oman's development of natural gas resources and LNG from both a supply and a demand perspective. The conversation shifted to geopolitical challenges, Yemen and Iran's impacts on Oman's development, and ambitions for Oman's future both within and outside of oil and gas.

Daniel Yergin and IHS Senior Vice President of Global Energy Carlos Pascual cochaired the Tuesday CEO dialogue and interview with Jose Antonio Gonzalez Anaya, the Chief Executive Officer of PEMEX. Focusing on the role of PEMEX following the Mexican energy reform, they discussed partnership prospects for PEMEX in upstream and downstream projects while considering the company's new strategy to attract such participants. Mr. Gonzalez stressed that the company will "have to bring partners into all the assignments," though he was specifically keen on establishing operational and technological partnerships in order to benefit from efficiency gains within the company's portfolio. "Predictability will be the key" to attracting the best investors for the company and the country at large.

Jim Burkhard, IHS Chief Researcher, Global Oil Markets and Energy Scenarios, moderated the Tuesday afternoon plenary session "IHS Oil Watch: How Resilient Is Supply?" Joining him were Bhushan Bahree, IHS Senior Director and Advisor, Global Oil Markets; Roger Diwan, IHS Vice President, Global Energy and Finance; Raoul LeBlanc, IHS Vice President, North America Upstream and Finance; and Kurt Barrow, IHS Vice President, Downstream Consulting and Research. The panel noted that market dynamics are shifting significantly owing to growing US oil production, the evolving role of OPEC, the changing world economy, and issues surrounding climate change. For example, OPEC currently is setting no production targets or quotas and is not taking the actions it did in the past to address oversupply and low prices.

Atul Arya, Senior Vice President of IHS Energy, chaired CERAWeek's Tuesday afternoon Upstream Plenary with Mohammed Al-Qahtani, Senior Vice President, Upstream, Saudi Aramco; Lamar McKay, Deputy Group Chief Executive, BP; and Steve Williams, President and CEO, Suncor Energy. The panelists represented three companies operating in significantly different geographical and technical environments-a global supermajor, a national oil company, and a Canadian company focused on oil sands. They considered the challenges facing the oil industry during the low oil price environment, how each company was responding to these challenges, and what they expect the impacts to be for the long term. All of the panelists were optimistic about the industry despite this low oil price environment. They agreed that cost management and technological innovation are key to operations under these conditions and that sharing innovations, developing industry standards, and cooperating will benefit the industry in the long term.

Jim Burkhard chaired the Downstream Plenary featuring Greg Garland, Chairman & CEO, Phillips 66; B. Ashok, Chairman, Indian Oil Corporation Ltd.; Philippe Sauquet, President, TOTAL Refining & Chemicals; and Tufan Erginbilgic, Chief Executive, Downstream, BP plc. Mr. Burkhard characterized the 2015 downstream sector as fascinating and rewarding. While the plenary delegates had different priorities and concerns, they all agreed that 2015 was a remarkable year for the refining industry and said they are confident that margins over the next decade will be strong, although susceptible to price volatility.

Tuesday's agenda wrapped up with "Future of the Global Economy," in which Daniel Yergin interviewed Stanley Fischer, Vice Chairman of the Federal Reserve Board of the United States ("the Fed"). Dr. Fischer's opening remarks focused on the current state of the US and global macroeconomy. According to Dr. Fischer, since the 2008-09 global financial crisis the Fed has attained one of its two core objectives-nearly full employment-but has not achieved its second, which is a target inflation rate of about 2%. He suggested that the steep oil price decline is a major contributor to low inflation and is having far-ranging macroeconomic impacts.

Asked by Dr. Yergin whether the slow rate of growth in global economic output indicates "secular stagnation," Dr. Fischer called himself an optimist about the potential for further growth. He also cautioned the audience not to rely on the stock market as a leading indicator of growth or recessions, assuring them that he and his colleagues are considering many options to spark additional growth, and noted that interference in the Fed's activity by elected officials could weaken its ability to achieve its goals.


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