IP week in London is one of the few times in a year when the global oil and gas industry gets together in one location. It is a time for executive meetings and social functions in posh hotels, but also a chance to catch the pulse of current activity, trends and larger movements upon which billions of dollars are invested. Here, in no particular order, are some of the important trends that bubbled to the surface at every function.
The WTI-Brent spread is a necessary driver to the infrastructure buildup that needs to occur in North America. Whether it is getting more capacity to the gulf, or refitting capacity to supply eastern refineries, there is money to be made in building pipeline capacity right now. There is also money in shipping crude by rail, and the rail companies are in position to benefit from a flexible and cost effective way of moving crude to anywhere in North America. This is particularly true of liquids coming out of the Bakken and Canada two locations at the wrong end of a very large spread with Brent.
Speaking of Brent, there was much discussion concerning the continuing production problems facing the four North Sea crude streams that underpin Brent futures prices. Part of the discussion was around the weightings of the different streams the make up the Brent blend and how to ensure the transparency of price assessments in the face of declining cargos.
It’s a mixed bag for Europe which could ostensibly benefit from the rapid buildup of crude production in the US. If the US imported less, much of that oil originally destined for the US could end up on European shores, particularly from Nigeria. On the downside for Europe, Russia appears poised to double its crude exports to China probably by diverting some away from Europe. This may a moot point though, because the feeling at the event was that Europe would be mired in economic troubles for the foreseeable future with energy demand on the wane, not increasing.
The presence of Russia and Central Asia was heavily felt during this week with large delegations from Kazakhstan, Azerbaijan, Uzbekistan and Turkmenistan among others. Straddling both Europe and China one has the sense that their gaze is firmly fixed eastward these days. Russia is keen to diversify its portfolio beyond Europe and there is an expectation that a big gas deal with China will soon be signed. China has also invested heavily in oil and gas infrastructure in Central Asia with shipments of oils and gas expected to more than triple from this region to China by 2030.
There was a sense of renewed optimism regarding Sub-Saharan Africa, but not for Nigeria, its largest oil producer. Faced with reduced exports to the US, corruption, an armed insurgency and yes, piracy, Nigeria is facing a long term reduction in oil revenues. Considering oil revenues account for 80% of government revenue and 95 % of export income, Nigeria looks to have challenging times ahead of it.
Finally, considering its importance to the industry, there was surprisingly little talk about activity in the Middle East. This is probably not a bad thing considering this region’s turbulent history.