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ASIA FOCUS
Oil giant sees Asia as the centre of attention for next two decades. By Umesh Pandey and Yuthana Praiwan
Asia, where demand has been a big factor in soaring oil prices, will continue to be the centre for oil and gas consumption going forward, although demand for energy may not exceed 4% per year over the next 20 years, says a senior industry executive.
''Our current projection is that the total oil and gas demand is unlikely to exceed 4% over the next 20 years, although prices would depend upon the cost of exploration and production,'' said Jeroen van der Veer, the chief executive of the world's second largest oil and gas exploration company, Royal Dutch Shell.
In an interview during his first visit to Thailand, Mr van der Veer said the company was actively looking at this region for opportunities, although many factors played a role in decision-making on where and when to invest.
He said that countries in the region, including China and India, were the key drivers for oil and gas demand. As well, Asia is one of the regions where good exploration and production opportunities still exist, especially in Indonesia.
''We have an investment budget of about $3 billion per month and we would only invest in countries that offer us the best incentives,'' he said.
''In the end this is a budget that is usually directed to the best opportunities available and to the governments that offers us the best package.''
He acknowledged, however, that rising fuel prices had pushed some countries in the region and across the world to seek higher royalties for any new petroleum concessions they grant.
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| ‘‘We have an investment budget of about $3 billion per month and we would only invest in countries that offer us the best incentives,’’ says Mr van der Veer. |
Shell, which only has a retail oil presence in Thailand after having sold its exploration and production business a few years ago, said that demand in China and India would be the key driver for energy consumption in the future.
He said that in China, consumption was rising at a pace equal to gross domestic product (GDP) growth, compared with a rate of half of GDP growth in the mature markets of the European Union.
The key driver behind high oil prices, in Mr van der Veer's view, has been the fear that the world may not be able to meet the expected huge demand from emerging countries such as China.
China and others, he continued, may look more closely at developing the coal industry if oil prices continue at current levels or go higher.
He believes current oil prices are being driven much more by psychology than underlying fundamentals, indicating that even $100 a barrel may be well above the actual pricing.
Although Mr van der Veer did not openly say that the prices are well beyond expectations, he indicated there were telltale signs that there is a limit to what the consumers can accept. This was evident in July when oil hit a record of $147, leading to a dramatic drop in consumption and pushed prices back down..
He said speculators were now learning that there is a limit to the level of acceptability that buyers can take. ''If oil gets too expensive, then they would go for a Tata Nano rather than an SUV.
The July price spike, he said, was partly a play of the financial markets and would adjust itself going forward.
Mr van der Veer said that oil production normally costs around $20-30 per barrel, even at current high prices for construction materials and machinery. He cited his company's Sakhalin project in Russia where Shell has invested $20 billion and expects the area to generate 4-5 billion barrels of oil and gas equivalent (boe), thus putting the production cost of each barrel at a mere $5.
He said the cost was low because Shell uses a 20-year average and not current prices to calculate returns.
Asked to comment on the alternative fuels that are now gaining favour rapidly, Mr van der Veer said he saw the segment growing at a rapid pace, but the notion that alternative fuels such as gasohol would supplant basic fuel sources was unlikely to happen in the near future.
''Imagine a country like Thailand planting the entire nation with agricultural products that could be used as biofuel, I do not see it happening.''
He said the problem with biofuel was that it did not meet all of the requirements that most people are looking for _ clean, cheap and affordable.
Oil at least meets the affordability criteria for now and no substitutes have emerged so far to challenge it.
''Take for example wind. It is very clean but not secure and not affordable to the common man. Solar is also very clean but it is very expensive. The alternatives that have so far been found are usually meeting at the most two to three percent of requirements.''
Other choices such as fuel cells and others are coming along and Mr van der Veer says that as a company Shell would be willing to develop other forms of energy if and when the time arises.
''We are ready for change as it is inevitable one day,'' he said. ''When the time comes we would be there selling the products that the market needs.''
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