Some observations from about one half-day at the Offshore Technology Conference in Houston:
When a news reporter is deciding whether to cover a speech by Matt Simmons, it often gets down to the old definition of news: when a dog bites a man, that's not news. When a man bites a dog, that's news. You know pretty much what Matt is going to say, so by that reasoning, it's dog bites man. But regardless, he is controversial, he lays his arguments out with a great deal of clarity, and though some of his critics might disagree, he's not a crackpot. There is no doubt that he thinks some of the more optimistic projections of the world supply/demand balance are pure hokum; he famously engaged a key analyst of the International Energy Agency in a several-hour dinner debate several years ago regarding their opposing views.
So The Barrel went to his speech at OTC, and he did not disappoint. He didn't speak that long, but the pessimism in his arguments were unambigous: we're going to have to drive less because of the growing supply/demand imbalance, people are going to care more about this than global warming very, very soon, and only the ocean holds the key to a solution.
Given his critics, it's notable that in a sold-out luncheon, not a single person during the Q&A session stood up and said: you're wrong. But given the audience, and how controversial Simmons' views always have been, it's hard to imagine that nobody thought it.
The sheer size of this meeting boggles the mind. The Reliant Center convention hall isn't enough to hold it anymore. Now it's been expanded to include the floor of Reliant Stadium, where the Houston Texans play American football, usually without success in the final score. Maybe the Texans should look to the oil industry for inspiration. In 1998 and 1999, this industry was laying people off, and it's come all the way back. Now, Saudi Aramco took a two-page spread in the middle of the first day's magazine, urging people to think about working for them. The search for talent is a tough one. Layoffs aren't on the agenda.
The lines for sign-ups were long well until lunchtime. Total exhibit space is 515,000 square feet, up 46,000 square feet from last year. Or maybe this brief conversation can sum up how big the meeting is: "I haven't picked up the mood of this place yet." Response: "It's too big for a mood."
One optimistic conversation: The Barrel met a delegate from Nigeria who expressed great optimism that the the apppointment of Goodluck Jonathan as vice president in the just-ended Nigerian elections could result in tempering the militant activity in the region that has cut production by anywhere actufrom 500,000 b/d to 900,000 b/d. Jonathan is from the region. The delegate also conceded that even in Nigeria, nobody is totally sure just how much oil is off the market. His view is that it might be overstated, but he sort of shrugged, who knows?
The averted difference on WTI and Brent is going on. One can conclude from the data published by EIA web that Brent is about $3/B higher than WTI since March, 2007, and the trend is sitill widening.
The response for oil companies, hedging firms and governments is tring to make a profit out of this phenomenon. Interestingly, Venezuela Government, announced its royalty reference prices on Jan. 11th, 2007, in which it completely gives up WTI as its basket prices.
Considering the fact that Venezuela government used WTI as one of the most important reference price for the past decade, its really amazing how it came up with this idea, in January? Are Venezuelas crystal ball gazers?