CERAWeek 2014 - Policy Dialogue: The Future of Global Oil - Session Report

Daniel Yergin, Vice Chairman, IHS, moderated the Tuesday afternoon policy dialogue, "The Future of Global Oil." Speakers agreed that emerging producers on the brink of unlocking their resource potential face the challenges of securing financing from the private sector while also ensuring that their resources are used to meet the economic needs of their populations. Foreign governments and multilateral organizations play a crucial role in helping these countries establish a transparent and navigable framework for resource development that balances financing needs and development goals. Orlando Cabrales, Vice Minister of Energy with the Ministry of Mines and Energy of Colombia, noted that while his country's oil and gas reserves have grown substantially and oil production has doubled in the past seven years, his government has been forced to tackle institutional challenges to ensure effective development. Colombia's Ecopetrol has been granted significant autonomy in growing into a regional competitor and "as a result has become a much stronger company." This has in part been achieved by introducing foreign companies to Colombia to help Ecopetrol grow in a competitive environment. He outlined the country's strategic goals: boost recovery at existing fields, continue to develop heavy oil resources, structure fiscal terms for unconventional resources with the help of environmental regulators and international institutions, and consolidate investor interest in the Colombian offshore through the creation of a free trade zone. The country has made significant progress in stabilizing its security situation and increasing transparency for exploration and production licensing; and Mr. Cabrales said he is "sure that the companies that took part in the last round of licensing can testify to this."

Jin-Yong Cai, Executive Vice President and CEO of the International Finance Corporation, highlighted the changes to the global competitive environment, noting demand growth in Asia and the rising upstream and downstream development costs that make it difficult for emerging markets to compete for capital. The World Bank is helping these countries balance the goals of providing cheap domestic energy and attracting investment at the same time. From his perspective, the first step for these countries is to create a more transparent framework. He discussed changes in international finance regulation that have made it more difficult to secure long-term financing, particularly for emerging markets.

Irene Muloni, Minister of Energy and Minerals Development of Uganda, discussed her country's potential in terms of its five billion barrels of oil reserves, its ability to attract foreign oil companies, and its high success in exploration drilling. She noted that "the cost of finding crude in Uganda is one of the cheapest in the world." She discussed her government's efforts to establish a regulatory framework for the energy sector and create a Ugandan national oil company. The country plans to develop all levels of the energy value chain and "quickly transform black gold into green gold" by using its oil resources to help develop its agricultural sector. Uganda is cooperating with Kenya and South Sudan to develop crude export infrastructure to accommodate its targeted 200,000 barrels per day of production.

Carlos Pascual, Special Envoy for International Energy Affairs for the US Department of State, discussed the shift in demand and production centers toward non-OECD countries and the need to incorporate these countries into the international framework. He underscored the role of Saudi Arabia and Iraq in supporting global energy security by providing incremental supply. He also noted the changing price environment in terms of oil-linked versus gas-linked pricing in natural gas contracts. The international energy community needs to cooperate in establishing price transparency "that gives assurance to producers that they are able to produce and consumers that they are getting a fair price." He stressed the need to integrate the way we think about energy and national security, including issues of pollution, market competitiveness, and diversification of energy sources. Regarding Ukraine, he highlighted European developments in the gas industry through the Third Energy Package, which allows more liquidity in the European energy market, and Ukraine's potential role as a trading hub in a more flexible and competitive European gas market.

Answering questions from the audience, the panelists all agreed that emerging markets must reform subsidy structures. Reforms should both support a competitive price environment to attract investment and protect low-income segments of the population. They also discussed the growing role of hydroelectricity in ensuring affordable power. Mr. Pascual noted that affordable electricity will support job growth and develop other segments of the economy. However, this requires a global partnership for financing and continental cooperation in Africa to develop power, as "no company or government on its own can undertake this."

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.