Market fundamentals only support oil at $75-80/bbl – PETRONAS CEO

06 June 2011 07:16  [Source: ICIS news]

Market fundamentals only support oil at $75-80/bbl – PETRONAS CEOKUALA LUMPUR (ICIS)--Crude oil prices should just hover at $75-80/bbl (€51-54/bbl) given current market fundamentals and cost environment, said the top executive of Malaysia’s state-owned oil and gas firm PETRONAS on Monday.

At midday, light sweet crude for July delivery was trading at $100.11/bbl, while Brent crude was quoted at $115.46/bbl.

Although high crude prices generally benefit oil companies, they also mean hefty production costs, PETRONAS president and CEO Shamsul Azhar Abbas told delegates at the opening ceremony of the 16th Asia Oil and Gas Conference (AOGC) in Kuala Lumpur.

“Prices play a pivotal role in resource allocation decisions of both consumers and producers. It is thus rather disconcerting to think that today, these decisions are just as readily influenced by the actions of central bankers and financial speculators, as they are by the realities of supply and demand on the ground,” Shamsul said.

While higher oil prices amid a recovery in demand have boosted capital expenditure in the industry, oil companies' production costs may hit new highs this year, he said.

“It is sobering to think that while the $2,400bn worth of investments our industry spent during the period 1995 to 2005 yielded an increase of 12.3m barrels of oil output, the next $2,400bn spent in half [that] time, between 2005 and 2010, had gone simply into sustaining output at current levels,” Shamsul said.

Rising costs will test the industry’s abilities to make its capital expenditure budgets “go to their intended length”, the PETRONAS chief said.

Meanwhile, Shamsul said that Asia must not be overlooked in upstream investments, citing that geology-based assessments have suggested that the region’s mean undiscovered oil resources are in the order of about 50bn barrels.

While the majority of these resources are likely to be in small and medium-sized fields, collectively, they are still significant, he said.

At a recovery factor of 30%, these undiscovered resources would translate into a resource base 1.5 times the combined proven reserves of Indonesia, Vietnam and Malaysia, today, he said.

“Our challenge is thus to make them commercially attractive and to make that potential go even further,” Shamsul added.

Asia is a major oil guzzler, with overall consumption by 2030 expected to hit more than 250bn barrels – more than six times the region’s current proven reserves of about 40bn barrels, he said.

“There is truly no mistaking that Asia’s dependence into other resource-rich regions will grow,” he added.

AOGC runs from 5-7 June.

($1 = €0.68)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Nurluqman Suratman

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