The oil and gas world meets in Australia this week.
Today and for the next two days I’m at the 50th annual get-together for APPEA – that’s the ‘Australian Petroleum Producer and Explorer Association’.
I packed my bags and kissed the family goodbye last night to fly up here for this year’s conference. It’s a busy day ahead and I’ll tell you more about it tomorrow.
But this morning I just wanted to give you a heads up on the key issues driving the global energy market…what they mean for Australia…and most importantly what they mean for you…
With over 3000 delegates meeting at Adelaide’s Convention Centre it’s by far Australia’s biggest oil and gas conference.
No wonder it was so hard to find a hotel room!
The important thing to note is that this is not the kind of resources conference that’s full of big and small companies spruiking their story. APPEA is a real industry event where the biggest players in the game get together to talk technical.
In fact, the keynote speaker is none other than Saudi Arabia’s oil minister, ‘His excellency’ Ali Al-Naimi.
As guardian of the world’s largest oil and gas exports, he may be the most powerful person in the world of energy. They call him ‘The Central Banker of Oil’.
As I write, he hasn’t spoken yet. But his talk this morning will be on ‘The future of oil and gas – a Saudi Arabian perspective’.
But the real question everyone wanted to ask is just how Saudi Arabia hopes to increase its oil output to the levels it keeps telling the world it can.
Every time the oil price creeps up, the Saudi’s talk the price down. They say they’ll increase production to suppress the price. Why do they want a lower oil price? Excessively high prices make people look for alternatives, which is no good for a country that makes all its money from oil.
It’s a clever trick, because Saudi Arabian oil exports have never even come close to the levels they claim possible.
Oil fields have a natural lifespan, and Saudi’s fields are no spring chickens.
This chart shows Saudi Arabian oil exports since 1970. It’s never been above 10 million barrels a day, let alone the 12.5 million barrels a day – the red line – Saudi Arabia claim they can produce.
Saudi Arabian oil exports – never come close to claimed potential
I’d like to ask ‘His Excellency’ about the mismatch between actual production levels and claimed production potential, but unfortunately there isn’t a Q&A after Ali Al-Naimi’s speech. So I’ll have to bail him up later instead, and maybe soften our friendly teetotaler up over a few hot chocolates.
I could also ask him if he reckons his country can keep the US as an ally. Especially when the shale gas revolution will see the US become far less dependent on Saudi oil in the coming decades.
Saudi Arabia is in an interesting position right now, so I’m keen to hear what he has to say.
In a resources market that has taken some serious body blows in the last 6 months, oil and gas stocks are still doing well. One reason is this doubt that Saudi Arabia has any spare supply. The bigger reason energy stocks are doing well is simple: the world’s energy needs are increasing.
The International energy Agency (IEA) estimates global energy demand will increase by ONE THIRD in the next 25 years. That’s a huge jump.
Most importantly, the IEA reckon China and India will account for HALF of this growth.
China is already Australia’s biggest customer, taking a quarter of our exports. But don’t overlook India. In recent years it has gone from 1%, to now taking 7% of our commodity exports. And India is a story to keep watching in coming years. Both these numbers are rising fast. This gives Australia’s fast expanding energy sector a great opportunity.
This is why Aussie firms are making a colossal bet on things panning out like this.
The total investment in Australia’s oil and gas sector in the period to 2020 is estimated to be $330 billion.
To put that in context, it would be like spending a THIRD of Australia’s super-fund pool on oil and gas projects in the next 8 years.
The $330 billion to be spent on oil and gas projects is also an incredible 60% of the $550 billion planned investment for all resource industry investments in that time.
Like I said, we’re betting big on oil.
The CEO of Total S.A. [NYSE: TOT], one the world’s biggest oil companies, is also talking about turning Australia into a ‘global energy hub on par with the Middle East, Canada and Russia’.
I’ve tipped oil and gas stocks for Diggers and Drillers readers this year, and plan on tipping more. This is maybe the most important theme in the resources market today.
And after this weekend’s terrible economic numbers from China – showing imports have all but stopped growing – oil and gas will be one of the few areas of the resource sector that stand to keep performing for the foreseeable future.
Dr. Alex Cowie
Editor, Diggers and Drillers
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