No. 3, 2012


Oil of Russia magazine talks to Aldo Flores-Quiroga, Secretary General of the International Energy Forum

Since 1991 the IEF has been one of the leading facilitator of the global energy dialogue. Covering all six continents and accounting for around 90% of global supply and demand for oil and gas, IEF comprises not only consuming and producing countries of the IEA and OPEC, but also Transit States and major players outside of their memberships, including Argentina, Brazil, China, India, Mexico, Oman, Russia and South Africa. The Forum's biennial Ministerial Meetings are the world's largest gathering of Energy Ministers. Through the Forum and its associated events, Ministers, their officials, energy industry executives, and other experts engaged in the energy dialogue to the benefit of global energy security.

Q: Dr. Flores-Quiroga, the IEF was one of the initiators of the Joint Organizations Data Initiative (JODI-Oil) launched over 10 years ago. How far has this database of energy statistics developed since then?

A: At the IEF, we believe that JODI represents more than a database - it represents a commitment. This commitment to transparency and dialogue is present on many levels: from the technical level, with participating countries continuing to promote capacity building in data collection; to the political level, with invaluable support from Heads of State, Energy Ministers, government statistical offices, and of course from the industry itself. 

From JODI's start back in April 2001, we have indeed made great strides. Today over 90 nations participate in the JODI-Oil initiative, representing approximately 90% of global oil production and consumption. For many countries, especially the top 30 producers and consumers, timeliness, coverage and reliability of the data are already at commendable levels.

Moreover, JODI-Oil has raised awareness about the importance of better data for our common energy security, and as a means toward strengthening links among countries, organisations and industry. JODI-Oil has also improved the reporting mechanisms of many participating countries, and has fortified the producer-consumer dialogue by demonstrating that dialogue is not only a concept, but that it can also lead to concrete actions.

The JODI partners' successful establishment of the oil framework inspired IEF Ministers to call for an extension of the initiative, and the JODI-Gas collection exercise was first launched in October 2009. 52 countries representing around 2/3 of global gas supply and demand are currently participating, supplying data on production, exports, imports, storage and demand. The IEF and its JODI partners plan to launch a beta test of JODI-Gas soon, and will subsequently make the database publicly available as soon as feasible.

Despite our progress, challenges to enhanced data transparency remain. These include on-going work harmonising definitions, improving national capabilities, addressing confidentiality issues, and transcending obstacles to the provision of information as a public good. From our side, the IEF and our JODI partner organisations remain dedicated to sustaining JODI's momentum through IEF Ministerial Meetings, JODI conferences, regional training sessions, and transparency-related events.

We remain fully committed to JODI, and we rely on continued commitment from all key stakeholders.

Q: How would you assess the current risks for the global oil industry?

A: On the demand side, the primary short-term issues to watch will be the performance of the global economy and the direction of government economic and energy policies. With the uncertainty over the Eurozone and growing concerns about other key emerging economies, nearly every observer is expecting weak oil demand this year and next year. As has been common in the past, geopolitical factors may add uncertainty to the market.

On the supply side, non-OPEC production is expected to show strong growth. OPEC will likely continue producing at its current level - supported by increases from countries such as Saudi Arabia and Iraq. In the near term, producers are less likely to be concerned about not meeting demand; they will focus instead on risks related to managing a possible supply overhang.

Under these conditions, we can expect volatility to remain, and since oil price volatility is a risk to consumers and producers alike, we have been working to increase transparency and deepen understanding on the topic. At the request of IEF Ministers and recognising the dual role that crude oil plays as both a physical commodity and a financial asset, we are working with the International Energy Agency (IEA) and the Organisation of the Petroleum Exporting Countries (OPEC) to improve our collective understanding of the inter-linkages between physical and financial energy markets. The first joint workshop related to this issue was held in London in 2010, and the second in Vienna last year.

Roughly one hundred experts from industry, academia, government, price reporting agencies, and the financial and regulatory sectors contributed toward rich exchanges at each event. In Vienna, topics discussed included recent studies on commodity price formation, commodity exchange regulations, the role of price reporting agencies, traders' views on speculation, and regulatory reform. Participants called for supplementary data to create a more comprehensive picture of activities in both financial and physical markets, and noted the importance of supporting international efforts - such as JODI - to continue enhancing data transparency.

Q: What are the main drivers for the gas industry today? Where do you see the potential for further growth in this area?

A: Natural gas consumption and trade have been growing steadily over the past two decades, and gas has strengthened its position in the world energy mix. The recent focus on natural gas is a result of its availability, its attractive economic and environmental characteristics, and its expanding infrastructure.

It is no secret: the shale gas revolution is redefining the global gas scenario. The development of shale gas resources in the USA has altered the gas outlook in North America and beyond. In its latest "Annual Energy Outlook", the U.S. Energy Information Agency is now projecting that the USA could become a net gas exporter by 2020, possibly exporting volumes between 40 and 70 billion m3 a year by 2035. This would have a tremendous effect on global gas industry dynamics. 

We do, however, see some near-term challenges on gas growth. While many countries in Europe, Asia and Latin America are currently analysing their potential to develop unconventional gas, we expect progress outside of North America to be slower in light of various economic, environmental and regulatory issues. Also, despite increased LNG trade, regional markets remain disconnected and the prospect for a global gas market remains years away.

There is still much work to be done and many questions that need answering. We recognize the need to deepen the dialogue around various gas-related issues, and we are currently hard at work organizing two upcoming events: an IEA-IEF-OPEC Gas and Coal Outlook Symposium, to be held in Paris in October; and the Third IEF-IGU (International Gas Union) Ministerial Gas Forum, which will be held in Paris in November.

Q: In your view, how real are the ecological concerns about shale gas production? Can these uncertainties slow down the progress of shale gas industry?

A: The recent rise of shale gas has raised public concerns regarding possible environmental and social hazards linked to hydraulic fracturing (fracking) ‒ notably the risks of water contamination, methane leaks, and earth tremors. In the USA, the emergence of shale gas production has prompted debate and led to changes in the regulatory framework and industry practices.

The gas industry must develop shale gas resources in an environmentally-responsible manner. One of its primary challenges will be to gain the public's approval. To do that, industry and governments must effectively demonstrate that the technology and practices used are safe: governments must implement adequate regulatory frameworks and industry must commit to utilize best practices and adhere to the highest environmental standards. If not properly addressed, social and environmental concerns may delay or halt the development of unconventional gas resources.

In the recent publication "Golden Rules for a Golden Age of Gas," the IEA published principles intended to help policymakers, regulators and industry navigate a symbiotic path forward. The application of these guidelines would reduce the impact of unconventional gas developments on air emissions, land and water use. These "Golden Rules" underscore the need for the industry to measure and monitor environmental impacts, to be transparent and to ensure smooth and open communication with local communities.

Q: What does the IEF think about the development of unconventional hydrocarbon resources like shale oil, coal bed gas and others?

A: Setting aside near-term doubts related to economic cycles, it is likely that global energy demand is set to continue rising - as economies expand, the worldwide population grows and living standards improve. As a result, we will collectively need as many sustainable varieties of energy as we can get if we are to meet future demand ‒ including unconventional hydrocarbon resources.

Oil is expected to remain the primary fuel supplying the world's ever-expanding transportation sector, yet conventional crude oil production is expected to hold relatively flat. How will we bridge the gap? As we have seen time and again, advancements in technology are expected to continue extending the industry's reach. New technologies will mean that demand growth will increasingly be met by new energy sources, such as oil sands, shale/tight oil formations, and biofuels. As just one example, let me touch on recent developments in the United States.

In the USA, new applications of techniques in horizontal drilling and rock fracturing have created game-changing opportunities in unconventional gas from shale formations. Those same techniques have been applied in the Bakken formation in North Dakota and at Eagle Ford in south Texas - with dramatic results. North Dakota's crude production neared 535,000 b/d in December 2011, and the state overtook Alaska to become the second-largest oil producer in the USA (after Texas). By the end of this decade, the volumes anticipated from Bakken alone could amount to almost 15% of U.S. crude oil production.

Promising tight oil plays are now being pursued at more than twenty sites throughout North America - in the Rocky Mountain regions of the USA and Canada, Texas, California, the Gulf Coast, Appalachia, and even in Michigan and Quebec.

Advancements have made unconventional resources technically and economically viable, and are dramatically altering the outlook for the world's hydrocarbon supply. As long as these technologies involve sustainable and responsible practices, we view these developments as positive toward ensuring global energy security. 

Q: Recently, some European countries announced their refusal from nuclear energy, and Japan suspended its nuclear stations' work. What is IEF's position on the future of the nuclear energy use?

A: Given the questions raised by the Fukushima accident, it is reasonable that many governments in Europe and elsewhere are reviewing their plans on nuclear energy use. There are technological, economic, social, political, and environmental issues to address before deciding to embark, or continue with, a nuclear energy program.

At the IEF we provide a platform for ministers and experts to share their experiences regarding the use of all energy sources. We have seen much interest in the future of nuclear energy, what it means for the use of other energy sources, how it must be regulated and so forth. We have witnessed inside the IEF and at other fora, most notably the International Atomic Energy Agency and the Nuclear Energy Agency, a responsible conversation among stakeholders. Everyone is carefully reviewing the lessons and implications to be drawn and the collected experience of all member countries with the development, regulation and use of nuclear energy.

Q: How does the IEF assess the modern market share of renewable energy? Can we expect some major changes in this sphere in the foreseeable future?

A: The future of energy sources, whether renewable or non-renewable, depends on how economically and safely they can be used, on technological developments, and on how they contribute to diversify the energy mix to promote energy security. Prices, technology, environmental concerns, regulations, subsidies, and the relevance of diversification will continue to determine the extent to which renewable energy will play a role in the future. Higher oil prices, we have seen, encourage the development of substitutes, as do lower costs of production for, say, wind and solar energy. The share of renewable energy sources has been increasing in the last decade, with notable advances on wind energy in many countries, but we are seeing also an increasing use of other sources. Whether this trend will continue in the foreseeable future depends on how all these factors evolve.

Q: Is the Carbon Capture and Storage technology proving its worth in a big way? In your view, what other technologies or combination of measures should be applied to attain a sustainable future?

 A: Carbon Capture and Storage (CCS) is acknowledged as one of the key technologies to reduce greenhouse gas emissions and improve the environmental sustainability of fossil fuel production and consumption. Thus far, CCS progress has been encouraging, but significant obstacles such as cost, regulatory frameworks and public acceptance remain. The development of CCS technology requires significant capital investment and will need significant government support if it is to be deployed on a commercial scale.

The decision taken by the United Nations Framework Convention on Climate Change in Cancun (December 2010) to include CCS in the Clean Development Mechanism (CDM) is a positive step, although it might take some time before it is fully implemented. The IEF ‒ along with other organisations - has advocated extensively for the inclusion of CCS into the CDM.

Along with CCS technology and renewables, focusing on energy efficiency will help move us closer toward a sustainable energy future. Energy efficiency improvements could be achieved in many sectors, including industry, power generation, transportation, residential and commercial sectors, appliances and equipment. We have seen some notable progress worldwide, yet the potential for energy efficiency improvements remains largely untapped. In developing countries, given their typically rapid increases in energy demand, the potential for energy efficiency improvements is even higher.

With that in mind, in June 2011, the IEF held a Symposium on Energy Efficiency in Developing Countries in Indonesia. In June 2010, we held our second Symposium on Carbon Capture and Storage together with the Global CCS Institute in Algeria. The IEF is a collaborating participant in the Global CCS Institute along with the European Commission, IEA, OPEC and the World Bank.

We will continue to deepen the dialogue and build consensus around sustainable technologies, and as always, we remain open to conversations with interested strategic partners and concerned stakeholders.            - Vladimir Akramovsky

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