National Bank of Kuwait, organized an international symposium titled “The outlook for the Global Oil Industry and Implications for GCC economies,” late Saturday evening at the Arab Union Organization.
The event which organized under the auspices of the Minister of Energy Sheikh Ahmad Al-Fahad Al-Sabah saw key international speakers participate at the event. Presenting the opening remarks, Ibrahim Dabdoub CEO of NBK said, “We have seen oil prices climb steadily over the last few years, breaking consecutive records and rising to more than three fold their levels, only four years ago. Many experts have come to agree that prices are likely to stay high in the medium term, supported by solid underlying market fundamentals and concerns over supply disruptions while spare capacity has dipped to extremely low levels. These experts also believe that, unlike previous increases in prices, this time it is different and any easing, when it happens, wont take prices back to their old levels.”
Dabdoub further pointed that oil producers are already reaping bonanza from higher oil prices which is “being reflected on mounting fiscal and external surpluses.” “A part of these surpluses are being spent on energy and infrastructure projects, fuelling an economic boom and transforming the future outlook of the economies,” said Dabdoub.
Vice Chairperson and CEO of Kuwait Petroleum Company Hani Hussein read the opening speech on behalf of the Sheikh Fahad. Highlighting the economic development due to high oil revenues, the speech by the Minister stated that “fast scale development plans should be ambitious and realistic, expansion plans need to take place both inside and outside Kuwait. The private sector should be allowed to play a bigger role in the oil sector through capital expansion era, so that Kuwait can play a leading role throughout the GCC.”
Meanwhile the keynote speaker for the event was Hani Hussein who gave an in depth presentation on KPC’s future and strategic expansion plans. According to KPC, call on Kuwaiti crude will represent nine-10 percent of total call on OPEC crude during the coming years. Speaking on the current situation of KPC’s activities and its strategic directions Hussein said, “In the domestic upstream currently crude oil production capacity is about 2.6 million barrels per day (bpd). KPC aims to reach four million barrels per day by 2020. In the domestic downstream, the average crude refining throughout is about 940 million barrels per day. Our strategic directions call for expanding our refining capacity in Kuwait by 1.5 million bpd with deep conversion within the next four years.”
Speaking on the petrochemical side, Hussein said, “KPC owns a number of subsidiaries and has 42.5 percent shares in Equate petrochemical company for polyethylene and ethylene glycol productions. 33 percent shares in gulf petrochemicals industries company (Bahrain) for ammonia, urea and methanol production and 50 percent shares in Equipolymers for polyester production in Italy and Germany.”
Highlighting the international upstream and downstream role of KPC Hussein said, “The current production rate of oil and gas is about 64 million boe/day (international upstream), our aim is to achieve a minimum production rate of 100 million boe/day by 2010 and pursue increasing the production capacity to 200 million boe/day for the same period. For the downstream marketing and refining capability in Europe it reaches about 328 and 180 million barrels per day. Our strategic direction is to pursue performance improvement in Europe in order to achieve acceptable returns in line with the peer group.”
Hussein pointed out that the capital expenditure to achieve KPC’s strategic directions is estimated to be around 19 million Kuwaiti dinars. Of which eight million dinars is to be invested in domestic upstream, five million dinars in domestic downstream and remaining in other areas such as international upstream, petrochemicals and transportation.
Addressing the issue of privatization of certain activities of KPC Hussein said, “We are offering the third batch of gas fueling stations for IPO, and will be selling KPC’s share in Kuwait drilling company. Further there will be partial privatization of Kuwait Foreign Petroleum Exploration Company and full privatization of marine agency which is owned by KOTC. We will be completely privatizing polyproplylene plant and fertilizer business. We aim to involve the private sector in the building of the new Az-Zour refinery as well.”
In his concluding remarks Hussein said, “We have big and ambitious plans and a lot of effort needs to be exerted. The role of the private sector is extremely vital and important to carry out our plans.”
Katherine Spector, Vice president, Global Head of Energy Strategy, JP Morgan Chase Bank, spoke on “ Understanding Today’s Market Drivers”. Spector stated that witnessing the current oil market scenario the prices will remain bullish for the remaining part of the year. Highlighting some of the key fundamentals that have supported oil prices in recent years, Spector said, “ For the past several years we have seen a refined product led market. In other words, as much as crude oil prices have increased, prices for refined products such as gasoline and diesel have gone up else where. The oil industry cycles through periods of over and under investment. Refining and distribution are particularly pronounced examples of how years of under investment due to poor margins can lead to capacity constraints down the road. While under-investment in refining and distribution is not permanent market feature, it is also not a driver that can be reversed overnight. We see tight downstream capacity influencing prices until 2007-08, unless demand growth falters significantly.”
Meanwhile, Goldman Sach and Company’s Managing Director Arjun Murthi spoke on the “Spike theory of oil markets, and how high is too high.” According to Murthi, oil markets are in the early stages of what we are calling a multi year hike period. The core of our view is that oil prices need to go high enough for a long enough period of time to reduce energy consumption on a multi-year basis., which will with steady supply growth should allow for a sufficient spare cushion to be recreated, only after which, would we again see lower energy prices.”
He further said that, “if we look at the 50 US dollar to 70 dollar price band, we feel that oil prices are still low.” When pointed out that oil prices have already touched 76 dollars Murthi said, “ Prices touched 75 dollars and we are still seeing very high economic growth, and so if we continue to have high economic growth then we think prices of oil has to go up even further.”
In conclusion Murthi said, “Every time prices escalate by 10 dollars you need to take a fresh look at things. One cannot demand that which is not available, 2006-07 is likely to be a period of reckoning for key oil exporting countries in terms of needing to grow production to new heights.”
Some of the other speakers at the event were Edward Morse Executive Advisor, Hess Energy Trading Company who spoke on “The Asian Energy Challenge and US Energy Policy” and Vahan Zanoyan President and CEO of PFC Energy. Zanoyan spoke on “Energy Security and the New role of NOC’s”.
