View from the Summit – A More Cooperative World?

Just back from the Oil Summit in Paris, an annual event organised by the Institut Francais de Petrole (IFP). Conference speakers comprised a refreshing mix of of leading professionals from IOCs (Shell and Total), governments (with ministers from Iraq, UAE, Nigeria among others) and International organisations like the IEA and IEF, along with some leading independents and service companies. Missing, but not forgotten, were representatives of Chinese companies.

Total’s Christophe de Margeurie shared his view that “NOCs are not so different from IOCs” and that when you really break it down, they behave in similar ways. What’s more, he continued, the current stresses and strains in the Middle East are, if anything, bringing these two types of companies together. Total itself sees NOCs as partners not “enemies” and while they may compete, it’s not a fight. Total, along with many other IOCs are participating in projects with a wide variety of NOCs and this is a trend that, Monsieur de Margeurie suggests, is likely to continue. 

We wonder though whether you can really see a Chinese NOC in the same light as a Petrobras, a Statoil, or even an ONGC.  While Total, and other IOCs’ aim is to maximise value for their shareholders, the ultimate goal of a Chinese state company is surely more about maximising value for the country, is it not? Which inevitably results in a different mode of behaviour in the market. It’s still a profit motive of sorts but on a national not corporate scale. Hence the ability of  Chinese companies to pay more for reserves than most IOCS can justify.

This is not to say that partnerships between Chinese NOCs and IOCs are not valuable. On the contrary, everyone benefits from such relationships and there is nothing incompatible from China’s point of view in partnering with IOCs and meeting the country’s supply objectives. So such partnerships and joint ventures are likely to continue to flourish and there are several good examples already, including ExxonMobil/Sinopec/Aramco’s 240,000 b/d facility at Fujian, Petrochina/Sinopec/Total’s 215,000 b/d plant at Dalian, and a 400,000 b/d planned unit at Taizhou as a joint venture between Shell QGPC and PetroChina. 

But its interesting to ask whether this partnering with IOCs is just a phase in the evolution of the industry. China has been turning to downstream deals recently to meet its crude. Two key examples of major downstream deals are Aramco and Sinopec’s MOU for a 62.5%/37.5% strategic partnership to build a 400,000 b/d full conversion refinery on the Red Sea coast at Yanbu for startup in 2014. The second is PetroChina/CNPCs recent MOU to construct a 200,000 b/d refinery in Yunnan province, supplied via pipeline across Myanmar and fed with Saudi crude under long term contract.

Not an IOC in sight.

Total’s upbeat view of NOC/IOC relationships was echoed by Shell’s Downstream Director, Mark Williams, who highlighted the importance of creating integrated energy projects to optimise value. Shell’s nearly-completed Pearl GTL project in Qatar is a classic example, where new technology, huge energy resources and established marketing expertise have combined to create a winning IOC/NOC joint venture. 

Former Minister of Petroleum of Nigeria, Dr Lukman, confirmed that there was now better international cooperation on three fronts: a healthy dialogue between producers and consumers (with the IEA and IEF (International Energy Forum) having regular consultations with OPEC), between OPEC and non-OPEC producers, and between IOCs and NOCs. Trust is building. 

Iraq is Back

Iraq’s Deputy Prime Minister, Hussain Al-Shahrestani, modestly underscored the huge scale and importance of Iraq in the world’s oil future, saying that development plans had been agreed and work started on 5 oil projects (each of which is as big or bigger than Kashagan) that will take Iraq towards its target of 11 million b/d of crude output.  He mentioned that Iraq will shortly announce a 4^th Bid round for exploration in 12 areas all of which have a high probability of finding commercial oil and gas reserves.  The country is also planning an LNG project to supply gas to East Asia.

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