Opinions vary over the future of the global oil industry, according to the papers presented at recent industry-related conferences. To be sure, major shifts have surfaced in the sector, and one may even call them revolutionary. These developments may create new conditions and significant fluctuations in the supply-and-demand balance, and subsequently, in prices and supply volumes. In this vein, the following factors are of particular importance: The growing number of discoveries made outside OPEC. The ratio of Middle Eastern oil reserves has subsequently declined from two-thirds of total global reserves throughout the second half of the 20th century, to about 46 percent of conventional oil reserves at present – and only 32 percent if we factor in non-conventional oil. This decline has impacted the investments of energy corporations in oil and gas fields in the region, and fueled the drive to find alternative sources. This is not to say that there is a trend of escape from the Middle East, as this is not possible and realistic for energy companies at present. Rather, there is a need to diversify investments and not rely on only one region. Indeed, the Middle East remains the focal point for many companies, because the cost of exploration and production there is less than any other region, for example in remote areas in Siberia or the Polar Regions, or deep sea areas and non-conventional sources. The fact that the idea of ‘peak oil' has lost steam and is set to disappear in the foreseeable future. This means that large quantities of oil are available to the markets, while an important part of these supplies comes from non-conventional, high-cost sources (with higher production of non-conventional oil from outside OPEC, one should expect high oil prices at no less than $100 per barrel). Christophe de Margerie, head of French oil company Total, believes that markets are also affected by geopolitical events and technological developments. Proceeding from this, he predicted that prices would remain constant at $110-115 per barrel. He also acknowledged the clear and growing challenges posed by shale oil to conventional oil. Nevertheless, Margerie reckons the scope of these challenges is not yet known, because the volume of shale oil reserves is yet to be determined. Furthermore, the technology involved is relatively new, making it hard to get an accurate estimate of future oil prices under these constantly changing realities. As an example of this constant change, shale oil reserves in 2010 were placed at around 10 billion barrels. Today, the estimate is close to 200 billion. The slow growth in global demand in recent years as a result of global financial crises. Were it not for economic growth in China and other emerging countries, there would have been a significant decline in demand. But what is the outlook for demand for oil in China in the coming period? In the same vein as above, Ibrahim al-Muhanna, advisor to the Saudi Minister of Petroleum and Mineral Resources, gave an overview of some of the most important shifts taking place in the oil sector, and the ways the producing countries can adapt to them. Muhanna was speaking at a seminar at OAPEC's headquarters in Kuwait. A case in point is the large fluctuation in oil prices, which fell from about $147 per barrel in mid-2008, to $36 late that year. Another is the proliferation of the notion of ‘peak oil' worldwide, where available supplies would not be enough to meet demand for energy, and predictions that Saudi output would begin to decline with the end of 2008 – when the kingdom's output actually went on to record historic levels in 2012, beyond anything seen in the past three decades. Now, Muhanna said, ‘peak oil' is no longer mentioned much. Concerning growth in the demand for oil in emerging countries in tandem with declining demand in industrialized countries and members of the OECD, consumption in the latter countries is expected to decrease in 2014 below the average rate for the rest of the world, for the first time in history. Nearly two decades ago, the industrialized countries accounted for 70 percent of global consumption. There is also the matter of increased production from various countries, both inside and outside OPEC, such as Iraq, Brazil and Canada. Iraq, for example, for the first time, has become the second largest producer and exporter in OPEC, and the world's third largest exporter. On the other hand, shale oil and gas production will turn the United States from an importer of gas to an exporter in the future. This led gas prices to fall in late 2005 from $9 per BTU to about $2 in April 2012, before gradually rising again to its present level of $4 per BTU. As for crude oil, US crude output rose by about 3 million barrels per day, after a period of decline that had persisted since 1985. But despite the challenges, the oil industry was able to deal with them, and provide the markets with the oil supplies they need. The major changes mentioned above are the expanding exploration of oil and gas, both in the OPEC zone and beyond, which is supposed to theoretically lead to lower prices. However, the high cost of new oil types may keep prices level at $110-115 per barrel. Yet all these predictions may carry surprises in their folds, including the uncertain results of using untested new technologies, and whether they will help in finding and extracting oil and gas in remote regions, or produce non-conventional oil in large quantities from newly discovered and challenging regions at a competitive cost. Finally, there is the issue of geopolitical threats, particularly in the Middle East, and how this reflects on planned output. For instance, will Iraq be able to produce 6-9 million barrels per day before the end of this decade as planned, when the country is on the verge of civil war? And will the Kurdistan region be able to produce 3 million barrels per day and export them through Turkey without hurdles? * Mr.Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
