Baku, Azerbaijan, Jan. 29
By Elena Kosolapova - Trend:
Riyadh is interested in low oil price, as the low price will prevent the emergence of new oil projects, which could compete with Saudi Arabia's raw materials, says Nikolai Ivanov, head of the Energy Markets Sector at the Russia-based Institute for Energy and Finance.
"Saudi Arabia has realized that if it cuts oil production now, the increase in prices will lead to the emergence of new major long-term oil producing projects," Ivanov told Trend Jan. 29.
"If such new sources of oil had appeared in the world, Saudi Arabia and other producers of conventional oil would have been forced to reduce their market shares during the next 10-20 years," added Ivanov. "The Saudis didn't want to share their stake in the market and directly stated this."
In particular, the expert said, the Saudi Minister for Petroleum and Mineral Resources Ali Al-Naimi said in an interview with the Financial Times in December 2014 that low oil price will in the first place affect projects on the Arctic shelf and in Brazil's deepwater fields, which have vast oil reserves.
"Saudi Arabia's goal was to sharply increase commercial risks for these new projects," he said. "The traditional production requires big investments and then little operating costs. If big investments had been put in these new projects, they couldn't be stopped, and the extraction would be carried out there for the next 20 years regardless of the prices on the market."
The expert also said that nobody today is starting any new major project.
"When the big investments, previously made in traditional projects, are exhausted in the medium term, the production will reduce," he said.
Ivanov added that as a result the market will be balanced and afterwards, oil prices can increase.
"No one knows how much the price will rise," he said. "It [the price] can greatly increase because the current significant downward fluctuations can cause significant upward fluctuations."
"But in my opinion, there can't be any high prices in the long term," he said. "And as far as I know, this opinion is shared by most analysts."
Acceleration of the world economic development is needed for the prices to go up, Ivanov explained.
"The recovery of the world economy is needed, for which there is no reason yet," he said. "On the contrary, the US, Europe, and the Southeast Asia have suspended their development."
In particular, the expert noted that no significant growth should be expected in China's economy, as the stage of rapid industrialization, which has been observed there in recent years, is coming to an end, and a different stage of development is commencing.
He added that in this new stage the emphasis will be put on renewable clean energy.
"Nothing will happen, as long as the oil demand doesn't grow and the production doesn't reduce," said Ivanov.
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