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Arguments erupt over petroleum capacity

THE spike in oil prices in recent months is stoking heated arguments between market players, who blame each other for the lack of production capacity that has been exposed by strong global demand.

At a seminar in Vienna last week, organised by the Organisation of Petroleum Exporting Countries, the oil world's principal players – producer and consuming countries, oil companies and analysts – discussed the contentious issue at length.

"Investment matters!" Claude Mandil, executive director of the International Energy Agency, warned on Thursday.

"Production investment is needed not only to boost existing capacities to meet the growing needs of emerging countries, but also to maintain current capacities by improving crude recovery techniques," Mr Mandil said.

Refining capacities were also considered inadequate.

The IEA, which represents the Western consuming nations, repeatedly sounds the alarm over what it sees as booming demand that will span the next three decades.

For transportation and a number of other sectors, nothing can replace oil, the agency argues.

Norwegian Oil Minister Thorhild Widvey took the same tack. The "key challenge", she said, was to respond to growth in oil demand that "is the strongest in decades".

She noted that "companies were quick to cut investment budgets in the 1980s" but were "slow to react to higher price levels". "I think we will continue to see relatively high prices in the future," she said.

Meanwhile, oil company representatives defended their investment record.

"Of course, we are doing it, it's our lifeblood," the chairman and chief executive of US giant Chevron David O'Reilly said.

But the balancing act is often tricky, because besides the clear issue of financial profitability, the majors face the fact that two thirds of the world's oil reserves are found in a fistful of countries in the Middle East.

Some of them welcome foreign companies, while others stake their black gold as the exclusive preserve of their state companies.

"It is important to have the opportunity to invest more in the OPEC member countries, perhaps by means of joint ventures with local oil companies. If one wants to increase production capacity, it's fundamental," the chairman and CEO of French group Total, Thierry Desmarest, said earlier.

The IEA's Mr Mandil argued for wide-open market access.

OPEC has acknowledged for months that the cartel is straining at near-capacity production, rendering ineffective its traditional role of market regulator.

For Frederic Lasserre, an analyst at French bank Societe Generale, OPEC will have to open up access.

AFP

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