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Friday, 05 September 2014 18:00

Europe has a strong potential in shale gas production – Secretary General of IMF Aldo Flores-Quiroga Featured

Caspian Energy (CE): Dr. Aldo Flores-Quiroga, what are your forecasts on the condition of the oil market? Will the current growing trends continue in 2015?

Aldo Flores-Quiroga, Secretary General, IEF: Let me underscore first of all that the IEF does not make forecasts about energy markets. The IEF facilitates the analysis and understanding of energy outlooks and, through its collaboration with the IEA, OPEC and other institutions, promotes an open discussion on their determinants. From this work we have seen that, barring any unforeseen geopolitical and technological developments, the expectation of most analysts is that demand for oil will continue to increase every year at close to one million barrels per day, and that enough supply will come on stream to meet this demand. Security of supply and security of demand will continue to go hand-in-hand.

 

 

CE: How convincing are the arguments in favour of a free gas market similar to the oil one? Do you think that gas is capable of finally forcing its environmentally unfriendly rival out of the energy balance?

Aldo Flores-Quiroga: If by “free” you mean a market that relies more on spot prices than on long-term contracts, expectations about this possibility are mixed. Many buyers in Asia would like to see more gas-to-gas competition of the kind that takes place in the spot markets of the United States and Western Europe, since it can in principle provide greater price-discipline, but not all buyers are convinced of this argument and most producers disagree with the proposal. Long-term contracts indexed to oil, in the view of producers outside North America, provide the long-term certainty required for the capital-intensive investments they must make to bring gas to market.

For spot gas market to prosper in more regions of the world (there is no global gas market equivalent to oil), we will have to see a larger number of buyers and sellers, sufficient downloading, storage, transportation, and distribution infrastructure, and power, industrial and transportation sectors that can absorb the additional supply. Progress on all these fronts is unlikely to take place at the same time, so the displacement of oil in favour of gas, if it ever takes place, may take longer than some commentators would expect. Of course, regulatory, technological or price changes can accelerate or retard this process.

 

 

CE: Despite the skepticism of some people, the renewable energy market is prospering, but only in a few countries. Which problems hamper its deployment worldwide?

Aldo Flores-Quiroga: Despite their appeal, the main barrier to the widespread adoption of renewable sources of energy is their relative cost when compared with fossil fuels. The unit costs of renewable energies, which go beyond those associated with power generation or fuel for transportation, and involve the challenge of intermittency, are falling, but remain high.

Countries that have made significant progress in the use of renewable energy have done so with considerable fiscal support and a strict regulatory framework, and usually rely strongly on the back-up capacity of more traditional fuels, inside or outside their borders.

Energy pricing that reflects market fundamentals, appropriate regulations, and technological progress are three factors that will strongly influence the extent to which renewable energies are more broadly adopted.

 

 

CE: How do you see the cooperation between national and international oil companies (NOCs and IOCs)?

Aldo Flores-Quiroga: Cooperation between NOCs and IOCs takes place every day in virtually every region of the world. Sometimes it is financial or commercial, sometimes it is technical. Its importance has increased with the growing complexity of projects, as the era of easy oil seems to be over. And as projects have also become more expensive, companies have had to pool resources in order to fund new ventures, diversify risks, and combine their expertise to explore and produce oil and gas in hard-to-reach places, such as the deep waters.

NOC and IOC cooperation is a welcome development for an industry that must find new reserves and produce more oil and gas every year in order to meet the growing energy needs of the world.

 

 

CE: What role do you think China will play in the global energy market? What role do you think India will play with its growing market?

Aldo Flores-Quiroga: China and India have transformed the global oil and gas market. The sheer size of their population and impressive economic growth, as well as the rise of their middle-classes, has shifted the centre of global energy demand toward Asia. Today the pace at which these two countries increase their energy consumption is the main driver of world demand and of new investment projects. Whatever happens with the economic growth and policies of these two countries will have a considerable effect on the evolution of the global energy market.

 

 

CE: Europe started seriously considering the possibility of shale gas production in order to ensure its energy security? How do you find its prospects?

Aldo Flores-Quiroga: Europe has a strong potential in shale gas production, but it is up to each of the European countries to decide if the benefits of that potential outweigh the costs. In many countries there are legitimate concerns about the environmental footprint of this activity. Social acceptance, as much as economic factors, must go hand-in-hand with policy to make production from shale plays a viable concern in Europe.

 

 

CE: The IEF promotes an energy resources producer-consumer dialogue? What are its essence and prospects?     

Aldo Flores-Quiroga: The IEF was created to promote global energy security through dialogue. When it was launched over two decades ago, the aim of the world leaders that promoted its creation was to remedy an insufficiency in the governance of global energy, which at that point was hardly conducive to a productive conversation between producers and consumers.

Over the years the IEF has facilitated an on-going exchange of perspectives among the key energy players in the world. Important outcomes that resulted from these exchanges include the Joint Organisations Data Initiative (JODI), which today provides transparency to the oil and gas markets to a degree that was difficult to imagine 20 years ago, and the IEA-IEF-OPEC  joint programme of work, which has helped to elucidate better how energy outlooks are built and how physical and financial markets interact. Together with other activities, these contribute to the sustainability, transparency and stability of global energy markets –all factors that are required for long-term planning, investment decisions, and the promotion of energy security.

 

CE: What is the main purpose of creating the Joint Organisations Data Initiative (JODI) within the IEF, and what role is it playing now?

Aldo Flores-Quiroga: JODI is an outcome of the producer-consumer dialogue and a shared initiative of eight organisations:  APEC, Eurostat, GECF, IEA, IEF, OPEC, OLADE, and UN Statistics. Through a cooperative process coordinated by the IEF, the technical experts of these organisations work to provide every month data on production, consumption, exports, imports and stocks of oil and gas. The data come from all regions of the world, cover about 80% of the oil and gas markets, and are broadly recognized for their contribution to the analysis of market fundamentals.

JODI is one of the two key pillars of the IEF –the other is the dialogue itself—and it is a significant contribution to transparency and the process of multilateral cooperation. The data JODI provides is helpful to gauge the state of the market and to temper price volatility. I hope more people use it and support this free which is available online at www.jodidata.org.

 

Thank you for the interview

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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